The Component Levelized Cost of Energy
Component Template
The Levelized_Cost_of_Energy.e-ctpl component template is located in the Component template library folder Key Figures.
How the Component Works
The Key Figure Levelized Cost of Energy (LCOE) characterizes the cost balance of a form of energy in relation to the corresponding demand: the specific generation costs. For example, an energy system operator can calculate and compare the levelized cost of heat (LCOH), the specific costs of generating one kilowatt hour of heat with several generation plants (CHP, heat pump, and hot water boiler), using this key figure. The key figure Levelized Cost of Energy is calculated by default according to the following formula in which \( i \) is the running index.
\( K_{Levelized\ Cost\ of\ Energy} = \frac {\sum K_{Costs, i}\ – \sum K_{Revenues, i}\ + \sum {\frac {I_{Invest, i}} {RBF_{i}}} \ – \sum K_{Credits, i}} {\sum P_{Reference\ value, i}}\)\(K_{Costs}\) und \(K_{Revenues}\) represent the cash flows that cross the system boundary during the simulation period and form the cost balance. The cost balance is the sum of the differences between the costs and revenues for the purchase and sale of energy, represented by the Tariff Components, and the operating costs and revenues of technical components. Optionally, the annualized investment costs of the technical components \( \frac {I_{Invest}} {RBF}\)are added, and the credits for allocation \( K_{Credits}\) are subtracted.
The reference value power corresponds to the respective demand (electricity, heat, cooling, steam) or generation capacity and refers to a specific form of energy (electricity, heat, cold, steam) or to all demands respectively all suppliers. The cost balance and the demand are normalized to the same time period, mostly the integral value of one year is used.
The following domain of definition applies to the key figure:
\( K_{Levelized\ Cost\ of\ Energy} \in \{-\infty,+\infty \} \)with following two limit values:
\( K_{Levelized\ Cost\ of\ Energy} \to \{+\infty \} \)
\( \quad Demand = 0 \)
\( \quad Costs \to +\infty \land Revenues = 0 \)
\( K_{Levelized\ Cost\ of\ Energy} \to \{-\infty \} \)
\( \quad Demand = 0 \)
\( \quad Costs = 0 \land Revenues \to +\infty \)
For example, the calculation of the LCOE of a CHP plant can be expressed in words as follows:
\( \frac {Fuel\ costs \ +\ Operational\ costs \ +\ \frac {Investment\ costs} {RBF} \ – \ (Revenues \ +\ Credit \ for \ allocation)} {Heat\ demand} \).
In this example, the CHP surcharge counts as revenue.
Input Data
Unlike the other Key Figures, the Input data for the Levelized Cost of Energy component are spread across three forms: Operational costs, Investment costs, and Allocation with benefit, the latter two of which are optional.
Operational Costs
If entries are made only in the Operational costs input data form, the formula for calculation of the LCOE reduces to:
\( K_{Levelized\ Cost\ of\ Energy} = \frac {\sum K_{Costs, i}\ – \sum K_{Revenues, i}\ } {\sum P_{Reference\ value, i}}\).
For this reason, the unused part (for investment costs) is grayed out in the formula shown in the form. Under the tab Operational costs, in the left column, choose for the Numerator, whether All costs and revenues, Only costs, or Only revenues shall be considered, and Add the elements to the sum and to subtract.
Use the button Import components to insert all data relevant to operational costs (costs and revenues) for the selected energy form from all components in the scheme at once. Alternatively, you can Add single selected elements. In the same way, you determine the Denominator with the Reference values, in the right-hand column: Select All demands, All suppliers, or only the demands/supply of one energy form from the drop-down list, and then the single component parts, for example, the Consumed electric power (see following figure).
Investment Costs
If investment costs are to be taken into account in addition to operating costs, the LCOE is calculated using the following formula:
\( K_{Levelized\ Cost\ of\ Energy} = \frac {\sum K_{Costs, i}\ – \sum K_{Revenues, i}\ + \sum {\frac {I_{Invest, i}} {RBF_{i}}}} {\sum P_{Reference\ value, i}}\)Under the second tab of the Input data, you can assign the Investment costs to be taken into account (see following figure).
The formula shown in this form highlights the investment costs. The calculation uses the annuity present value factor RBF (which depends on the Term of depreciation (Economic input data of the technical component)) and the interest rate (in the Economic base data), which is 13.59 for an interest rate of 4 % and a depreciation period of 20 years, for example. While the values from the simulation are calculated for the respective current year, the annualized investment costs are calculated based on the depreciation period, taking into account the time value of money, by dividing the investment costs by the annuity present value factor.
Allocation With Credit
If the LCOE relates to one form of energy (e.g., electricity) and other forms of energy (e.g., heat, cooling) are generated in the energy system, the costs and revenues must be allocated to the different forms of energy using appropriate allocation methods. For this purpose, you can use the credit method, which deducts the other forms of energy produced from the costs as revenues with a Reference price and Reference efficiency. Under the Allocation with benefit tab, you can set a Reference price and a Reference efficiency not only for the secondary energy production, but also for the tertiary and the quaternary. For example, you compensate for the electricity production in the levelized cost of heating energy of a CHP plant, and, conversely, with the levelized cost of electrical energy of a CHP plant, you compensate for the heat production, i.e., in the case of the levelized cost of electrical energy of a CHP plant, a credit for heat generation is appropriate.
Output data
The Output data contain the Sums for operating costs, operating revenues, investment costs, credits (allocation), and the component parts of the Reference value (see the following figure for an example).
Scenarios
If a generator meets a specific demand, the Specific Generation Costs of the electricity it generates result from the following four possible scenarios:
1. Positive electricity generation costs arise, i.e., costs are incurred to generate electricity.
\( K_{LCOE} >0 \)
2. The generated power corresponds exactly to the demand. There are neither costs nor revenues, because there is no interaction with the electricity supplier. The key figure assumes the value 0.
\( K_{LCOE} =0 \)
3. The key figure also takes the value 0 if the costs incurred exactly match the revenues. Due to the fluctuating energy supply by renewable energies, surplus energy must be fed into the power grid, for example, in the case of strong wind (wind turbine) and intensive midday solar radiation (PV), if no storage facility can be used. At other times of the day, electricity must again be drawn from the grid. If the feed-in tariff is significantly lower than the electricity price, it is more economical to use the generated electricity for internal consumption.
\( K_{LCOE} =0 \)
\( Revenues = Costs \)
4. A profit is made on the electricity fed into the grid, the cost balance is negative, and the key figure takes on a negative value.
\( K_{LCOE} ≤0 \)
\( Revenues > Costs \)
