To accompany this lesson, there is provided another simple online calculator (it’ll open in a new window).:
Please read the notes tab of the calculator before you use it, in order to be clear about the various inputs and outputs.
To illustrate how sensitive LCOE figures can be to some of the key assumptions made, you can make use of the questions posed in the quiz below.
Test Your Understanding…
Start by setting up a “base case” in the calculator as follows:
A 50MW PV plant costs $75m to build and $400,000 ($0.4m) to operate each year.
80% of the cost is borrowed as debt ($60m), repaid over the 20 year assumed lifetime of the project, at an interest rate of 6%.
The plant is in a sunny location, achieving a capacity factor of 25%, with the energy output assumed to be maintained at its initial levels throughout the project life. This electricity output can be sold for $50/MWh.
Tax is paid at 35% and a discount rate of 10% is applied to future values (of energy and costs).
Calculated on a leveraged basis, what is the base case LCOE?
Without changing any other assumptions, by how much does a) a reduction and b) an increase in the chosen discount rate – by 5% in each case – change the calculated LCOE?
Go back to the base case (you can press “reset” to do this) and now increase the installed cost by 20%, to $90m. What is the impact on leveraged LCOE?
Go back to the base case (press reset) and now increase the O&M costs by 20%, to $0.48m per year. What is the impact on leveraged LCOE?
From the base case, what percentage increase in O&M costs would it take to increase leveraged LCOE by the same amount as was seen from a 20% increase in installed cost? (i.e. from $46/MWh in the base case, to $59/MWh)
Go back to the base case (press reset)
Now assume that the annual energy generated reduces: degrading at 1% a year (let’s say this is due to lack of panel cleaning). What is the impact on leveraged LCOE?
Go back to the base case.
Now let’s assume less favourable terms from the debt lender: they want their money back in 10 years and charge an interest rate of 8%. How does this impact leveraged LCOE?
Keeping those increased financing costs, and assuming that the debt amount cannot rise higher than 80% of the installed costs, how low would these installed cost need to be, to get back to our base case leveraged LCOE ($46/MWh)?