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Review of solar levelized cost
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A Review of Solar Photovoltaic Levelized Cost of Electricity
As the solar photovoltaic (PV) matures, the economic feasibility of PV projects is increasingly being evaluated using the levelized cost of electricity (LCOE) generation in order to be compared to other electricity generation technologies. Unfortunately, there is lack of clarity of reporting assumptions, justifications and degree of completeness in LCOE calculations, which produces widely varying and contradictory results. This paper reviews the methodology of properly calculating the LCOE for solar PV, correcting the misconceptions made in the assumptions found throughout the literature. Then a template is provided for better reporting of LCOE results for PV needed to influence policy mandates or make investment decisions. A numerical example is provided with variable ranges to test sensitivity, allowing for conclusions to be drawn on the most important variables. Grid parity is considered when the LCOE of solar PV is comparable with grid electrical prices of conventional technologies and is the industry target for cost-effectiveness.
Given the state of the art in the technology and favourable financing terms it is clear that PV has already obtained grid parity in specific locations and as installed costs continue to decline, grid electricity prices continue to escalate, and industry experience increases, PV will become an increasingly economically advantageous source of electricity over expanding geographical regions.
Source: K. Branker, M.J.M. Pathak, J.M. Pearce, A Review of Solar Photovoltaic Levelized Cost of Electricity, Renewable and Sustainable Energy Reviews, 15, pp.4470-4482 (2011). DOI and Open access
Background and Major Findings
The levelized cost of electricity(LCOE)requires considering the cost of the energy generating system and the energy generated over its lifetime to provide a cost in $/kWh (or $/MWh or cents/kWh).
Recognizing that LCOE is a benchmarking tool, there is high sensitivity to the assumptions made, especially when extrapolated several years into the future. Thus, if used to consider policy initiatives, assumptions should be made as accurately as possible, with respective sensitivity analysis (e.g. Monte Carlo) and justifications. Especially in the case of renewable energy technologies, like solar PV, that are capital intensive with negligible maintenance (like fuel costs), it is important to make the appropriate assumptions when comparing systems for energy management plans. There are many varying estimates as demonstrated in the paper, with varying degrees of reporting detail.
A key recommendation for improving the reporting of the LCOE for Solar PV is the inclusion of assumptions and specifications which make each calculation unique. Thus, when a value is reported, it should also clearly include:
- The Solar PV technology and degradation rate (e.g. c-Si or a-Si:H, and 0.5%/year degradation rate etc.).
- Scale, size and cost of PV project [including cost breakdown] (residential, commercial, utility scale/# kW, # MW, $/Wp).
- Indication of solar resource: capacity factor, solar insolation, geographic location, and shading losses.
- Lifetime of the project and term of financing (these are not necessarily equal).
- Financial terms: financing (interest rate, term, equity/debt ratio, cost of capital), discount rate.
- Additional terms: inflation, incentives, credits, taxes, depreciation,carbon credits, etc. (these need not be in the analysis, but it should be stated whether or not these are included).
Thus, the author would suggest the degree of applicability of their analysis so that sweeping assumptions as to future policies are not incorrectly made.
LCOE Quick Calculator
Here, a free simple open source calculator is provided for finding the LCOE of a Solar PV system. The default scenario is for a system in Kingston, Ontario, Canada. The "assumptions and sources" section in the calculator gives guidelines on how to change inputs based on location.
Please note there was an error in the calculator. If you are using a version posted before Jan. 29, 2013 - you should discard it and download the new version below.
Download the calculator formatted for Microsoft Excel here:
Also housed at the http://www.green-its-research.ca/sustainability-calculators/solar-levelized-cost/. For doing detailed calculations we recommend other free tools: RETScreen and NREL Solar Advisor Model (SAM) - for a full list of PV modeling tools see solar photovoltaic software.
Please be aware the calculator is based on the assumption of a 40 year system lifetime. System lifetime can not be changed.
- K. Branker, M.J.M. Pathak, J.M. Pearce, A Review of Solar Photovoltaic Levelized Cost of Electricity, Renewable and Sustainable Energy Reviews, 15, pp.4470-4482 (2011). DOI and Open access
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