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==A Review of Solar Photovoltaic Levelized Cost of Electricity ==
==A Review of Solar Photovoltaic Levelized Cost of Electricity ==
'''Abstract:'''
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 invest 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). [http://dx.doi.org/10.1016/j.rser.2011.07.104 DOI] and [http://hdl.handle.net/1974/6879 Open access]
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.
<br><br><br>
<big>'''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.'''</big>
<br><br>
'''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). [http://dx.doi.org/10.1016/j.rser.2011.07.104 DOI] and [http://mtu.academia.edu/JoshuaPearce/Papers/1540664/A_Review_of_Solar_Photovoltaic_Levelized_Cost_of_Electricity Open access]


==Background and Major Findings==
==Background and Major Findings==
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# Lifetime of the project and term of financing (these are not necessarily equal).
# 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.
# 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
# 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).
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.
Thus, the author would suggest the degree of applicability of their analysis so that sweeping assumptions as to future policies are not incorrectly made.


==Related Research Pages==
==LCOE Quick Calculator==
*[[Levelised Cost of Electricity Literature Review ]]
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.
*[[Lifespan and Reliability of Solar Photovoltaics - Literature Review]]


==LCOE Quick Calculator==
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.
Here, a simple 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.


Download the calculator formatted for Microsoft Excel here:
Download the calculator formatted for Microsoft Excel here:
*[http://www.appropedia.org/File:ECM032_-_Solar_PV_LCOE.xls File: ECM032 - Solar PV LCOE.xls]
*[[Media:ECM032_-_Solar_PV_LCOE.xls|ECM032 - Solar PV LCOE.xls]]


Download the calculator formatted for [http://www.openoffice.org/ OpenOffice] here:
 
*[http://www.appropedia.org/File:ECM032_-_Solar_PV_LCOE_-_OO.ods File: ECM032 - Solar PV LCOE - OO.ods]
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 [https://sam.nrel.gov/ 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.
 
==Related Papers==
* 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). [http://dx.doi.org/10.1016/j.rser.2011.07.104 DOI] and [http://hdl.handle.net/1974/6879 Open access]
 
==Related Research Pages==
*[[Levelised Cost of Electricity Literature Review ]]
*[[Lifespan and Reliability of Solar Photovoltaics - Literature Review]]
*[[Emerging economic viability of grid defection in a northern climate using solar hybrid systems]]
* [[Economic viability of captive off-grid solar photovoltaic and diesel hybrid energy systems for the Nigerian private sector]]


==See Also==
==See Also==
*[http://www.csptoday.com/pvbalanceofsystems/presentations/Day2/PM-3-50-Matt-Campbell-SunPower.pdf Sun Power levelized cost review for solar]
*[http://www.csptoday.com/pvbalanceofsystems/presentations/Day2/PM-3-50-Matt-Campbell-SunPower.pdf Sun Power levelized cost review for solar]
*[http://www.pv-tech.org/guest_blog/100gw_of_demand_and_the_coming_inflection_point_in_the_us_solar_market 100GW of demand, and the coming inflection point in the US solar market]
*[http://www.pv-tech.org/guest_blog/100gw_of_demand_and_the_coming_inflection_point_in_the_us_solar_market 100GW of demand, and the coming inflection point in the US solar market]
 
* [[Economic Advantages of Dry-Etched Black Silicon in Passivated Emitter Rear Cell (PERC) Photovoltaic Manufacturing]]
==Related Papers==
* [[Policies to Overcome Barriers for Renewable Energy Distributed Generation: A Case Study of Utility Structure and Regulatory Regimes in Michigan]]
* 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). [http://dx.doi.org/10.1016/j.rser.2011.07.104 DOI] and [http://hdl.handle.net/1974/6879 Open access]
* [[The Potential for Grid Defection of Small and Medium Sized Enterprises Using Solar Photovoltaic, Battery and Generator Hybrid Systems]]


==Media Coverage==
==Media Coverage==
*[http://www.mtu.edu/news/stories/2011/november/story57349.html Affordable Solar: It's Closer Than You Think] - Michigan Tech News
* New Study: Solar Grid Parity Is Here Today [http://www.greentechmedia.com/articles/read/New-Study-Solar-Grid-Parity-Is-Here-Today/ Green Tech Media]
* Solar energy cheaper than you might think, says researcher [http://www.financialpost.com/news/Solar+energy+cheaper+than+might+think+says+researcher/5826207/story.html The National Post], [http://www.thestarphoenix.com/business/fp/Solar+energy+cheaper+than+might+think+says+researcher/5826207/story.html Star Phoenix], [http://www.leaderpost.com/business/fp/Solar+energy+cheaper+than+might+think+says+researcher/5826207/story.html Leader Post], [http://www.ottawacitizen.com/business/fp/Solar+energy+cheaper+than+might+think+says+researcher/5826207/story.html Ottowa Citizen], [http://www.canada.com/business/fp/Solar+energy+cheaper+than+might+think+says+researcher/5826207/story.html Canada.com], [http://www.theprovince.com/business/fp/Solar+energy+cheaper+than+might+think+says+researcher/5826207/story.html The Vancouver Province], [http://www.edmontonjournal.com/story_print.html?id=5826207&sponsor= Edmonton Journal], Nanaimo Daily News, St. John’s Telegram, Waterloo Record, and on many websites across Canada.
* Researcher says solar power not so costly [http://www.calgaryherald.com/business/Researcher+says+solar+power+costly/5829161/story.html Calgary Herald]
* Cost of solar falling according to study [http://www.ctv.ca/CTVNews/SciTech/20111207/price-of-solar-power-queens-university-study-111207/ CTV], [http://www.citytv.com/toronto/citynews/news/national/article/173512--cost-of-solar-falling-according-to-study-by-queen-s-university-professor City News Toronto], [http://www.winnipegfreepress.com/canada/breakingnews/cost-of-solar-falling-according-to-study-by-queens-university-professor-135172078.html Winnipeg Free Press], [http://www.metronews.ca/winnipeg/canada/article/1044071--cost-of-solar-falling-queen-s-prof-says MetroNews], [http://thetyee.ca/CanadianPress/2011/12/07/Solar-Power-Study-15374817/ TheTyee], [http://www.680news.com/news/national/article/307566--cost-of-solar-falling-according-to-study-by-queen-s-university-professor 680 News], [http://www.brandonsun.com/national/breaking-news/cost-of-solar-falling-according-to-study-by-queens-university-professor-135172078.html?thx=y Brandon Sun], [http://www.inews880.com/News/National/Article.aspx?id=313477  iNews880]
* Solar power much cheaper to produce than most analysts realize, study finds [http://www.queensu.ca/news/articles/solar-power-much-cheaper-produce-most-analysts-realize-study-finds Queen's U News], [http://www.rdmag.com/News/2011/12/Energy-Solar-Energy-Solar-Power-Much-Cheaper-To-Produce-Than-Most-Analysts-Realize/ R&D]
* Solar Power Much Cheaper to Produce Than Most Analysts Realize, Study Finds [http://www.sciencedaily.com/releases/2011/12/111207132916.htm Science Daily]
* Solar power not as pricey as most believe, professor says [http://www.vancouversun.com/business/Solar+power+pricey+most+believe+professor+says/5829554/story.html The Vancouver Sun]
* Affordable Solar: It's Closer Than You Think [http://www.mtu.edu/news/stories/2011/november/story57349.html Michigan Tech News], [http://www.physorg.com/news/2011-12-solar-closer.html PHYSORG], [http://www.newswise.com/articles/affordable-solar-it-s-closer-than-you-think Newswise]
* Public Kept In Dark About Solar Power Viability, Study Finds [http://www.newsroomamerica.com/story/198491/public_kept_in_dark_about_solar_power_viability,_study_finds_.html News Room America]
* Solar power can now be produced for less than $1 a watt, study finds [http://www.clickgreen.org.uk/analysis/general-analysis/122909-solar-power-can-now-be-produced-for-less-than-$1-a-watt,-study-finds.html Click Green]
* Solar Power Less Expensive than Analysts Purport [http://cleantechnica.com/2011/12/08/solar-power-less-expensive-than-analysts-purport/ Cleantechnica]
* L'énergie solaire serait beaucoup moins chère à produire [http://www.enerzine.com/1/13123/impression-breve.html Enerzine]
* Professor: Cost of solar power  dropping [http://thechronicleherald.ca/canada/40532-professor-cost-solar-power-dropping Chronicle Herald]
* Outdated models overestimate solar energy cost [http://summitcountyvoice.com/2011/12/08/outdated-models-overestimate-solar-energy-cost/ Summit County Citizen's Voice]
* Study says solar power now cheaper than what analysts think [http://www.ecoseed.org/component/resource/article/138-news-briefs/12031-study-says-solar-power-now-cheaper-than-what-analysts-think Ecoseed], [http://www.evwind.es/noticias.php?id_not=15070 REVE]
* Is Solar Power About To Go Mainstream?:Study suggests economics are reaching tipping point [http://www.consumeraffairs.com/news04/2011/12/is-solar-power-about-to-go-mainstream.html Consumer Affairs]
* Question Answered: Solar Has Already Met the Grid [http://www.getsolar.com/News/Solar-Energy-Facts/General/Question-Answered:-Solar-Has-Already-Met-the-Grid-800659857 Get Solar]
* New Queen’s University study: Solar power much cheaper to produce than most analysts realize; PV systems near grid parity[http://www.solarserver.com/solar-magazine/solar-news/current/2011/kw49/new-queens-university-study-solar-power-much-cheaper-to-produce-than-most-analysts-realize-pv-systems-near-grid-parity.html Solar Server]
* Solar Grid Parity Is Here [http://www.fool.com/investing/general/2011/12/09/solar-grid-parity-is-here.aspx The Motley Fool]
* Study claims solar power is more viable than ever [http://www.tgdaily.com/sustainability-brief/60119-study-claims-solar-power-is-more-viable-than-ever TG Daily]
* Solar Power Much Cheaper to Produce Than Most Analysts Realize, Study Finds [http://thinkprogress.org/romm/2011/12/11/387108/solar-power-much-cheaper-than-most-realize-study/ Think Progress]
* Study: Analysts get solar costs wrong [http://www.upi.com/Science_News/2011/12/07/Study-Analysts-get-solar-costs-wrong/UPI-40011323306958/ UPI]


[[Category:QAS completed projects and publications]]
[[Category:QAS completed projects and publications]]
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[[Category: Finance]]
[[Category: Finance]]
[[Category:MOST completed projects and publications]]
[[Category:MOST completed projects and publications]]
[[Category:Queens_Green_IT_ECMs]]

Revision as of 00:45, 10 December 2019

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:

  1. The Solar PV technology and degradation rate (e.g. c-Si or a-Si:H, and 0.5%/year degradation rate etc.).
  2. Scale, size and cost of PV project [including cost breakdown] (residential, commercial, utility scale/# kW, # MW, $/Wp).
  3. Indication of solar resource: capacity factor, solar insolation, geographic location, and shading losses.
  4. Lifetime of the project and term of financing (these are not necessarily equal).
  5. Financial terms: financing (interest rate, term, equity/debt ratio, cost of capital), discount rate.
  6. 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.

Related Papers

  • 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

Related Research Pages

See Also

Media Coverage

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