The LCOE Calculator uses a simple fixed-charge rate (FCR) method to calculate a project's levelized cost of energy (LCOE), using only the following inputs:
- Capital cost, $ (TCC)
- Fixed annual operating cost, $ (FOC)
- Variable operating cost, $/kWh (VOC)
- Fixed charge rate (FCR)
- Annual electricity production, kWh (AEP)
The LCOE Calculator uses the following equation to calculate the LCOE:
LCOE = ( FCR * TCC + FOC ) / AEP + VOC
The fixed charge rate is the revenue per amount of investment required to cover the investment cost. For details, see pp. 22-24 of Short W et al, 1995. Manual for the Economic Evaluation of Energy Efficiency and Renewable Energy Technologies. National Renewable Energy Laboratory. NREL/TP-462-5173. (PDF 6.6 MB)
This method is an alternative to the cash flow method used by SAM's other financial models. It is appropriate for very preliminary stages of project feasibility analysis before you have many details about the project's costs and financial structure. It also useful for large-scale studies of market trends, such as those used for the NREL Annual Technology Baseline study.
When comparing LCOEs generated by the two methods, note the following:
- Compare real LCOE and real levelized cost.
- NPV for the Single Owner model should be positive. If the NPV is negative, the LCOE for the two methods will not be the same.
- IRR and IRR year in Single Owner results should be the same as IRR target and IRR target year. In some cases the year IRR is achieved may be less than the target IRR year, in which case the LCOE for the two methods will not be the same.
- The IRR and nominal discount rate for the Single Owner model should be the same. This should result in an NPV equal to or very close to zero.