Environmental Engineering Reference
In-Depth Information
where,
I
t
, represents the capital cost expenditures in year
t
O
&
M
t
, are the operating and management costs in year
t
F
t
;
is the cost of fuel in year
t
E
t
;
is the amount of energy generated in year
t
d
, is the discount rate
n
, is the expected lifetime of the investment
The capital costs include the possible repayment of debt and interest, and equity
if any, including a return required by investors. A Weighted Average Cost of
Capital (WACC) is assumed in the calculations, which is usually 10 %. It therefore
includes the standard pro
t for the investment considered in the market, including a
risk premium. The cost of fuel in the case of renewables is zero except for biomass,
but the de
nition can be applied similarly to non renewables for the sake of
comparison. Operating and management costs are generally a small proportion of
the total cost of renewables, with the up-front costs being the major component.
This is in sharp contrast with non renewables, where the proportion of fuel costs is
generally far greater, given also their likely variability (except in the case of nuclear
energy). The energy generated depends crucially not just on the lifecycle but on the
capacity factor, i.e. the number of hours that the equipment is effectively producing
energy (close to 90 % in the nuclear case and between 20 and 35 % for solar,
depending on locations). The expected lifetime of energy investments ranges
generally between 30 and 50 years, with the exception of hydraulic and nuclear, for
which it can reach 80
90 years. This may greatly affect the LCOE depending on
what discount rate is chosen.
The measure may be questioned on several grounds, but has the virtue of being
relatively simple to calculate and understand, thus allowing communication
between different players. It is usually admitted in practice in the market by
supporters of vRES and detractors alike. All these points deserve at least some
discussion and clari
-
cation, but this is deferred to the appendix.
Before leaving this subject it may be worth commenting on a new measure that
focuses precisely on grid integration: the Total Net System Cost. Somewhat sur-
prisingly for a vRES technology, it focuses on the Concentrated Solar Power (CSP)
with Thermal Energy Storage (TES) [
6
]. The basic argument put forward by pro-
ponents of this solar technology relies on its storage capacities, whereby it can sell
electricity taking advantage of the ability to transfer power from times of low
demand and prices to high price and demand times, i.e. it is dispatchable within a
range of a few hours or even days. It can also very easily be ramped up and down
much more cheaply than the procedure currently used for that purpose, which relies
on GCCT. Proponents also argue that besides generating more pro
ts than are
recognised in a simple measure such as the LCOE, the technology can provide
stability to the grid in the form of spinning and ancillary services, providing back-
up capacity at low cost and other services such as maintaining voltage, frequency,
etc. The LCOE for this technology is quite high, and there are no clear perspectives
for reducing its costs quickly in the near future. But while all these advantages are
Search WWH ::
Custom Search