PV economics: Methodology

Levelised Cost of Electricity (LCOE)

Levelised Energy Cost: "Levelized energy cost (LEC, also called Levelized Cost Of Energy or LCOE) is a cost of generating energy (usually electricity) for a particular system. It is an economic assessment of the cost of the energy-generating system including all the costs over its lifetime: initial investment, operations and maintenance, cost of fuel, cost of capital."

Also known as LUEC: Levelized Unit Energy Cost (LUEC)

see also: Cost of Electricity by Source

link to the appropedia internal article on this.

LCOE Calculations for Grid-Based Electricty

The utility structure for grid-based electricity is highly complicated and varies from utility-to-utility in all the states. For this paper, the utility data from four different states with different climatic conditions is collected from the appropriate sources. The LCOE of a grid based system is then calculated based on fixed charges, cost/kwhr, and taxes. The calculations are made using the excel spread-sheets to find the LCOE for grid consumers with different levels of energy consumption as a percentage of state-wide average consumption. The four different states chosen are Michigan, Florida, Arizona, and New York. These four states have same solar flux so it becomes easier to establish reasonable comparisons with the grid based technology. These four states also have very different climatic conditions from one another with Michigan being extremely cold with long winters and Arizona being very hot most part of the year. The LCOE for PV will compared with LCOE of grid with different levels of customers.

Example PV system Design

Simulation Input

The mathematical simulations for the calculations of the PV system's LCOE is performed in SAM tool. The type of simulation procedure used is PVWatts System model for LCOE calculations. The inputs to the model are Latitude of the location, analysis period, inflation rate, real discount rate, sales tax, ITC 30 % fixed, Degradation Rate, $/Wp cost of installation, DC-AC derate factor, tilt angle (latitude), azimuth =180, and nameplate capacity. Any kind of federal and state level incentives are ignored to maintain consistency at each level of simulation and at the same time that leads to close to realistic results.

Data Sources

Software Tool

• System Advisor Model: SAM allows users to investigate the impact of variations in physical, cost, and financial parameters to better understand their impact on key figures of merit. Runs on TRNSYS engine.
• RETScreen: A decision support tool developed with the contribution of numerous experts from the Canadian government, industry, and academia. The software can be used worldwide to evaluate the energy production and savings, costs, emission reductions, financial viability and risk for various types of Renewable-energy and Energy-efficient Technologies (RETs).

Outcome of this project

Some of the key outcomes of this project are as follows:

• Pricing structure of grid-based technology does not promote energy conservation in most locations across US.
• In most cases, the consumers with lower level of consumption end up paying far more than the ones with higher level consumption in $/kwhr.
• The LCOE of PV systems is compared with the LCOE of grid for each level of consumer as a percentage of average energy consumption. A percentage of consumers that are already paying more than they should be paying is shown.
• The percentage of customers of all the customers within the state that can get off the grid based on current costs of PV is determined from the simulations.
• Sensitivity Analysis is performed on $/Wp cost of PV systems vs the LCOE which will be less than or equal to that of the grid electricity.

• 
  LOCE result from an example case provided by SAM
• 
  After Tax Cashflow result from an example case provided by SAM
• 
  Annual Output result from an example case provided by SAM
• 
  Cumulative cash flows graph from an example case provided by RETScreen

Sensitivity Analysis