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TEA Analysis
Introduction
This document presents the methodology for calculating the Levelized Cost of Energy (LCOE) in the ENLITEN model, drawing on the foundational work of Short et al. [1]. The LCOE represents the average price per kilowatt-hour ($/kWh) at which electricity generated by the energy system must be sold to recover the total revenue requirements over the designated analysis period.
It is important to note that the analysis period—the duration over which costs are recovered—may differ from the project life. To simplify the analysis, the analysis period and project life are equal. A residual value calculation can be established if analysis period and project life vary.
Levelized Cost of Energy
LCOE ($/kWh) can be calculated by equating the total present value of all project revenue requirements over the analysis period – including taxes, depreciation, and other components – to the total present value of the LCOE ($/kWh) multiplied by the energy output (kWh) for each year within the analysis period. For the purposes of this analysis, we assume that the energy system becomes operational in Year 1, which simplifies the LCOE calculation. By rearranging this equation, we can solve for LCOE ($/kWh).
Revenue Requirements
Revenue requirements encompass the total revenue necessary to recover all costs associated with the project. This includes overnight capital costs (OCC), project financing (such as interest paid on debt used for capital financing), operations and maintenance (O&M) costs, tax depreciation, investment tax credits (ITC), costs for charging the energy system (accounting for round-trip efficiency (RTE) losses), as well as any augmentation, replacement, or major overhaul (ARMO) costs incurred to maintain operations.
The net present value of each cost component is calculated noting that the overnight capital costs (OCC) are already expressed in present value. These values are then annualized to derive the annualized revenue requirement (ARR), which represents the constant annual payment that must be made each year during the analysis period to cover all costs.
Internal Rate of Return (IRR)
The IRR represents the discount rate that makes the NPV of all cash flows equal to zero. Cash flows are determined from all in and out cash flows. IRR is calculated by solving the following equation for the discount rate(r):
TEA Assumptions and Financial Parameters
Term (Units) |
Definition |
Formula |
Value |
|---|---|---|---|
system_capex_USD (USD) |
Total system capital expenditure. |
User-defined |
|
system_annual_OM_USD (USD) |
Annual fixed O&M costs. |
User-defined |
|
system_annual_VOM_USD (USD) |
Annual variable O&M costs. |
User-defined |
|
system_to_load_annual_MWh_e (MWh) |
Annual renewable energy production. |
User-defined |
|
system_augment (USD) |
Additional system costs over the analysis period. |
User-defined |
|
ITC (%) |
Investment Tax Credit. |
0.5 |
|
DF (%) |
Debt Fraction, fraction of capital financed with debt. |
0.5 |
|
COE (%) |
Cost of Equity, assumed rate of return on equity-financed assets. |
0.13 |
|
I (%) |
Interest rate on debt. |
0.08 |
|
grant_percentage (%) |
Grant percentage, reduces upfront capital costs. |
0 |
|
tax (%) |
Combined state and federal tax rate. |
0.257 |
|
inflation (%) |
Inflation rate. |
0.028 |
|
property_tax (%) |
Property tax rate. |
0.0084 |
|
insurance (%) |
Insurance rate. |
0.004 |
|
depreciation_period (Years) |
Depreciation period. |
5 |
|
esc (%) |
Escalation rate for O&M costs. |
0.028 |
|
analysis_period (Years) |
Analysis period. |
30 |
|
VOM (USD/kWh) |
Variable O&M cost per kWh. |
0.003 |
|
e_sale (USD/kWh) |
Electricity sale price per kWh. |
0.07 |
Examples
Notebook Examples
Modules
Indices and tables
References
[1] W. Short, D. J. Packey, and T. Holt, “A Manual for the Economic Evaluation of Energy Efficiency and Renewable Energy Technologies,” National Renewable Energy Laboratory, Golden, Colorado, 1995. [Online]. Available: https://www.nrel.gov/docs/legosti/old/5173.pdf
[2] https://eta-publications.lbl.gov/sites/default/files/land_requirements_for_utility-scale_pv.pdf
[4] https://atb.nrel.gov/electricity/2023/utility-scale_pv
[5] https://www.teslarati.com/tesla-megapack-pge-monterey-ca-moss-landing/