Environmental Engineering Reference
In-Depth Information
The LCOE, by contrast, is intended to provide a measure of cost that can be
compared with the selling price of electricity for a given project, that is, its com-
petitiveness. This measure is highly dependent on several factors, including the
speci
c country and geographical site, and on the type of technology and sub-
technology within the relevant category: it is very different for rooftop FV and large
utility-scale ground-mounted installations, for example. The speci
c country may
have an impact on costs of deployment, labour costs, degree of market competition
and other factors that are directly linked to the pro
t margins of suppliers, and so
on. Sites affect mostly the capacity factor, i.e. the amount of time within a given
period, usually one calendar year, that a plant will be working and producing
electricity. For example, the number of effective sun hours for solar energy, and
hours of wind for windpower, suitably weighted for
'
intensity
'
in both cases (speed
in the case of wind and irradiance for solar).
The LCOE can be de
ned generally as the discounted lifetime cost divided by
the discounted lifetime generation. It is therefore expressed as a monetary value for
a certain speci
ed period (e.g. USD/
MWh). It is intended to represent the total life-cycle costs of producing one MWh
of power using a speci
ed amount of energy generated during a speci
ne the
LCOE is as the price of electricity required for a project to yield revenues equal to
its costs, including a return on the capital invested, i.e. to break even. A higher
electricity price would yield a greater return on capital, while a lower price would
yield a lower return on capital, or even a loss, i.e. the value at which one particular
investment breaks even or equals the current selling price of electricity. This point
is frequently referred to as
c technology. Another more meaningful way to de
'
grid-parity
'
, or the moment and cost at which the
speci
ed technology becomes competitive at a given site, i.e. needs no further
nancial support from the state or elsewhere. This way of looking at matters enables
certain concepts to be discussed, notably the discount rate that should be applied,
the possible in
ation rate and other forecasts for future trends in the monetary
magnitudes that appear in the de
nition.
The speci
c expression for calculating the LCOE of an energy investment is
given by
P
t¼n
t¼
1
I
t
þ
O
&
M
t
þ
F
t
1
þd
t
ð
Þ
¼
LCOE
P
t¼n
t¼
E
t
1
þd
1
t
ð
Þ
where
I
t
represents the capital cost expenditures in year
t
O&M
t
is 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
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