LCOE Calculations - good reference material? What am I missing?

[Rocksteady2R]

As my understanding goes, in a simplified perspective, Levelized Cost of Energy calculations are essentially:

(Cost of the system)/(total kWH lifetime production) = LCOE

But Everytime I do that, I come up waaaay shorter than the info I find out there in the world that says LCOE's are ~$.01 - $.05 higher than utility rates (in some areas.)

But.. let's plot this out... a 5k, due south in Tejas, from PVWatts, gives me 7587kWH annually. Times 25 year life span is 189675. divide that into a contract cost of $3/watt, which isn't unreasonable, and I get a LCOE of ~$.08 cents. a modest bit less than the local utility.

But, again, my online resources keep telling me I should see something in the $.13 to $.14 cent range.

I'm sure the "official" formula is pretty complicated, but what am I missing there?

Is there a slightly more robust equation I should be looking at?

Is it easily quantifiable?

Anyone able to discuss that a bit?

Thanks in advance.

[inetdog]

I will leave the discussion part to others, but the most important thing that LCOE formulation leaves out is the lost earning potential of that initial investment if you had put it into something else (like stocks or interest bearing bank accounts, if there still are any.)
That extra "cost of money" increases the expense you have to replace for the system to ever become profitable.

The general principle is that a given amount of money now is worth a lot more to you than the promise of the same amount of money 20 years later.


PS: Some European banks are talking about setting a negative interest rate for bank savings accounts. In other words you pay them to hold onto your money because they cannot find a good place to invest it that will earn anything significant.

[J.P.M.]

Quick info:

- Google " Levelized Cost of Electricity"

- Choose: "Cost of electricity by source - Wikipedia...". There are other sites.

- Read - including the references at the end of the article.

Note that LOCE analysis is one way to compare the cost of different energy sources. It is not necessarily meant for comparison to find the best investment among alternatives. For example, PV vs., say income property or some financial instrument.

For LOCE, each situation can be and usually is different from the next. My situation and yours can both use LOCE type analysis and use different parameters and assumptions about the future. Similar to most any type of financial analysis, there are methods and guiding ideas, but no absolute "rules" as such. If you manipulate the #'s enough, you can get any particular per kWh cost you want. It's a process, and an aid in decision making, not a formula.

[sensij]

Yes, you are missing corrections for time value of money (discount rate and inflation).

NREL has an interactive web calculator, as well as an excel spreadsheet. Some time working with those should help reveal some of the nuance of LCOE.