Define levelized avoided cost of electricity (LACE) and how it complements LCOE.

• A. LACE measures the cost savings when a new resource displaces existing generation; used with LCOE to assess system value.
• B. LACE measures the emissions reductions associated with a new resource.
• C. LACE is a capital cost factor.
• D. LACE is a fuel price forecast technique.

Answer: (A)

The main idea is that LACE captures the value to the power system of a new resource by the cost savings its output enables through displacing existing generation. It looks at what the grid would have spent on electricity and capacity if that resource weren’t there, including both avoided energy costs and the saved or added capacity value, and it can also reflect related grid services in some cases. LACE is about system value, not just the resource’s own production cost. LCOE, on the other hand, is the levelized cost to build and operate the resource per unit of energy it produces over its life. When you compare them, you can see whether a resource provides more value to the grid than it costs to produce the energy. If LACE exceeds LCOE, the resource adds net value to the system; if LACE is lower, its value relative to cost is weaker. Since the avoided costs depend on which generation is being displaced and on when the resource operates, LACE can vary by location and time, meaning a resource may show different system value in different places or hours. For example, a solar project that often displaces high-cost gas peakers during peak hours can have a higher LACE, making its system value larger than its modest LCOE.