Calculating LCOE Sample Clauses

Calculating LCOE. Put simply, LCOE is an estimate of the price at which a unit of electricity would need to be sold in order for the plant to recover expenses and pay investors. It is represented by the following equation: ∗ ∗ (1 − ) & & = + + 8760 ∗ ∗ (1 − ) 8760 ∗ + 1,000 ℎ ℎ where N indicates plant lifetime, T represents taxes, D denotes depreciation, Capacity Factor the percentage of the year at which the plant operates at full capacity, and O&M representing operations and maintenanc e costs. (1 + ) = (1 + − 1 where RD represents discount rate and N plant lifetime. The LCOE is therefore the combination of amortized initial capital costs to build the plant , with yearly payments depending on discount rate, plant lifetime, expected rate of return for financing, taxes, depreciation, and capacity factor, plus fixed O&M costs (again varying by capacity factor), plus variable O&M costs (which change based on plant output) and finally the costs of fuel (OpenEI, 2016). The result is the total cost of producing one unit of electricity, usually stated in Currency per Megawatt- hour or per kilowatt-hour. LCOEs enable a degree of comparison between different types of generation technologies because they represent an initial calculation of the cost to produce a single unit of electricity incorporating all factors which may affect costs over time . However, it is apparent that LCOEs do not take into account a variety of factors which have an impac t on the eventual cost of elec tricity to consumers. Referring back to Fehler! Verweisquelle konnte nicht gefunden werden. , LCOEs embody the direct cost of electricity, from the buying and using of equipment and fuel to gene rate power (NEA, 2012). This does not include, for example, the costs associated with policy interventions such as government subsidies or the costs charged for emitting CO2 faced by fossil-based generation technologies. It also does not take into account additional costs which may be faced by certain renewable technologies, such as system costs , as further discussed in Section 3. LCOEs vary widely by technology, region, and over time, and are discussed in the next sections.