Levelised Cost of Energy (LCOE)

Its not correct if we talk just about the cost of energy.We should find out the LCOE.It is calculated by accounting for all of a system’s expected lifetime costs (including construction, financing, fuel, maintenance, taxes, insurance and incentives), which are then divided by the system’s lifetime expected power output (kWh). All cost and benefit estimates are adjusted for inflation and discounted to account for the time-value of money. As a financial tool, LCOE is very valuable for the comparison of various generation options. A relatively low LCOE means that electricity is being produced at a low cost, with higher likely returns for the investor. If the cost for a renewable technology is as low as current traditional costs, it is said to have reached “Grid Parity“. 

LCOE enables a comparison of different energy generating technologies of unequal life times and differing capacities and permits grid competiveness comparisons to be readily made for different locations. 

There are three ways one can calculate LCOe for a renewable energy project:
1. Target or Goal seeking approach:- based upon carrying charge rate.Simplest. You need to know the interest rate, carrying charge from EBIDTA/cost.
2. NPV :- based uponNPV of revenue and  NPV of generation
3. Cost based:- you dont need PPA price etc. Just get the NPV of OPEX, NPV of CAPEX and the NPV of cost and generation.