Levelised costs reveal important insights into the main cost factors of alternative generation options. Sensitivity analysis provides a good first-hand impression of the relative impact of the various cost drivers. Levelised costs are an important tool for policy makers in understanding the main cost drivers of an electricity system and in assessing the importance of policies on issues such as climate change. Levelised costs may also provide some insight for investors in a first screening of generation options. However, for real investment projects, levelised costs are only a limited part of a full investment analysis, which must include a comprehensive risk analysis, in which multiple risks are taken into account. Levelised costs of nuclear, coal, gas and wind units are within a range that makes them all highly relevant to consider as a part of a generation portfolio. In fact, a well-balanced generation portfolio - taking all costs, benefits and risks into account - should probably include all these technologies and perhaps others as well, depending on local circumstances. Changes of fuel costs, discount rates, construction costs and CO_2 costs - even within ranges that are realistic and have been observed in the marketplace - fundamentally affect the relative competitiveness of these technologies. CCGTs stand out as a technology offering the most flexibility and lowest risk, even considering the volatility of gas prices. Nuclear power stands out as a technology that offers an impressive economic up-side if the circumstances are right and construction goes well. However, the overall economics are also very sensitive to changes in some critical cost factors. This sensitivity can easily increase the tendency of investments with large up-front investment requirements to be seen as too risky for commercial investors. Government action is urgently needed to reduce uncertainty and to provide a framework with strong and clear incentives to help lower and manage investment risks. Coal plants have the lowest costs under most circumstances except one -a price on CO_2. Advancements on carbon capture and storage technologies are necessary to maintain cost competitiveness of coal in an environment of serious carbon constraints. From a policy perspective, all available generation technologies have a role to play in cost-effective, reliable and environmentally responsible electricity systems. Generic generation costs highlight important decision parameters, but also omit many equally important parameters that change with every generation project. Governments need to establish a level playing field to nurture the development of an appropriate generation mix. An increasing role of technologies with lower CO_2 footprints will require government decisions on long-term emission constraints. Nuclear power can play a more important role, but will require government involvement to define a workable regulatory framework with clear incentives and, not insignificantly, to engage stakeholders in the necessary public debate.
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