PDF Levelized Cost of Energy (LCOE)

DOE OFFICE OF INDIAN ENERGY

Levelized Cost of Energy (LCOE)

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Upfront Capital Costs for Renewables

Upfront costs do not paint a complete picture

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Key Concept: Levelized Cost of Energy (LCOE)

? Measures lifetime costs divided by energy production

? Calculates present value of the total cost of building and

operating a power plant over an assumed lifetime.

? Allows the comparison of different technologies (e.g., wind,

solar, natural gas) of unequal life spans, project size,

different capital cost, risk, return, and capacities

Critical to making an informed decision to proceed with

development of a facility, community or commercial-scale project

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Simple LCOE Concept

Energy System

¡Á

$$$

Annual

Expenses

($25)

Initial Costs

Including Financing

($100)

$

Annual

Energy Production

(1000 kWh)

Annual Cost Per Year

($125)

$

Site

Characteristics/

Resources

LCOE

($/MWh)

$125/1000)

$0.125/kWh

Adapted from European Wind Energy Association, ¡°Economics of Wind Energy,¡±



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Simplified LCOE Calculation

¦²

¦²

It

Mt

Ft

Et

r

n

=

=

=

=

=

=

n

t=1

n

t=1

I t + M t + Ft

(1+r) t

Et

(1+r) t

Investment expenditures in year t (including financing)

Operations and maintenance expenditures in year t

Fuel expenditures in year t

Electricity generation in year t

Discount rate

Life of the system

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