Estimating the Impact of Residual Value for Electricity Generation Plants on Capital Recovery, Levelized Cost of Energy, and Cost to Consumers

There is often a benefit to continue operating electricity generating assets after their initial contracts expire. This report discusses these benefits and associated risks, using data and illustrative calculations. The key findings are: the realized operational lives of generation technologies before retirement are typically much longer than typical measures of economic lives. The cost impact of a life extension can be comparable to the impact of other factors considered for generation investment decisions, and suggests that R&D and commercial efforts to extend generator life may be valuable. Refurbishment has a useful and economic role, but the option is often neglected during initial investment. Estimating follow-on value at the time of the original investment is complex and often neglected, but may be valuable.