Figure 1.8 Typical LCOE cost ranges and weighted averages for electricity generation.
Source: Courtesy of IRENA Publications (2014).
As the name suggests, the “money” part of this equation consists of costs: specifically a summing up of all the costs spent over the whole lifetime (from year 1 to year n) of the project. So this is the money spent building a power plant – at the start, capital expenditure (capex), and a long list of operational expenditure (opex), for example fuel, maintenance and repairs, land lease, insurance, tax, and interest on bank loans. If you can sell your system for something at the end of the project lifetime, you can knock this residual value off your list of costs.
Some projects, such as solar PV and hydro, will involve considerable up‐front capex, but followed by years of very low operating cost. Others, such as a gas‐fired power plant, will see the majority of spending over the project lifetime during the operating years of burning fuel.
Indeed, levelized cost analysis is all about comparing different energy systems with very different cost structures on a “fairer,” long‐term basis. Comparing the two examples mentioned earlier, the revenue of the solar PV will depend on how sunny it is and by how much the output of the solar panels degrades over time. On the other hand, the revenue for the gas plant will depend on the capacity factor and how often it runs. The later will be more difficult to predict though, as it will depend on the interplay between electricity sale and gas purchase prices.
1.4.3 Marginal Cost of Energy
The LCOE cost can be considered the average cost of a particular type of generating source. Utilities are interested in the marginal energy cost also. It is the cost experienced by the utilities for the last (peaking) kWh of electricity produced and sold. The marginal cost is highly variable and could vary throughout the day between negative pricing when there is over generation and could increase to hundreds of $/MWh when the demand is high and supply is low. The marginal cost determines the ranking of the type of generating source that will be dispatched. Those with the lowest marginal costs are the first ones to be energized to meet the demand, while the plants with the highest marginal costs are the last to be brought on line.
For example, a wind or solar power plant has no fuel cost and relatively low O&M costs. It yields the lowest marginal energy provided when the sun is shining and the wind is blowing. There is a big difference in production cost whether the plant is generating 1 or 100 MW. Similarly, a gas turbine plant also has low marginal cost if the gas price is low, which it is right now (2017).
1.4.4 Profitability of an Industrial Plant
What is the profitability of an industrial plant? The investor is typically interested in the initial capex and a quick construction schedule to insure a quick loan repayment from the plant operating cost. The investors like to use a simple formula called a “payback time.” The investor is typically looking at a maximum of five‐year payback plan to repay the cost of the initial plant (capex) with the sale of the product, ore, or other merchandize and enjoy a loan and cost‐free life thereafter. Naturally, the economics are highly dependent on the commodity prices of the materials produced. Once the project is initiated, the cost estimate follows a more detailed approach.
Reference
1 1 IRENA: International Renewable Energy Agency (2014). LCOE, Levelized Cost of Energy.
Note
1 1 If you want to convert between the two, it is handy to remember that 1c/kWh = 10$/MWh.
2 Plant Key One‐Line Diagram
CHAPTER MENU
2.1 One‐Line Diagrams 2.1.1 What Is the One‐Line Diagram, or Single‐Line Diagram?
2.3 Site Conditions 2.3.1 Source of Power 2.3.2 Ambient Derating Factors 2.3.3 Reliability Criteria
2.4 Connection to Power Utility 2.4.1 Source Impedance 2.4.2 Line Conductor 2.4.3 HV Circuit Breaker Fault Interrupting 2.4.4 Double or Single Incomer Connection 2.4.5 Utility Generating Capacity 2.4.6 Firm Capacity 2.4.7 Line Protection 2.4.8 Lightning
2.6 Load Site Placement 2.6.1 Crushing 2.6.2 Grinding and Conveying
2.7 The Key One‐Line Diagram 2.7.1 Load Investigation 2.7.2 Connected Load – Operating Load 2.7.3 Voltage Level Selection 2.7.4 Switchgear Breaker Ratings 2.7.5 Single Incomer Substation for a Small Plant 2.7.6 13.8 or 33 kV Switchgear for a Larger Plant 2.7.7 Transformer Connections: Cable, Cable Bus, or Bus Duct? 2.7.8 Medium Voltage Switchgear and Controllers (4.16 kV) 2.7.9 Low Voltage Service Voltage 2.7.10 Bus Tie Breaker Switching 2.7.11 Plant Transformation