Page 29 - Fundamentals of Ocean Renewable Energy Generating Electricity From The Sea

20 Fundamentals of Ocean Renewable Energy

With respect to the time preference for money, there is generally a preference for
current consumption built into every individual and organization. In addition,
the future is uncertain, and there may be other opportunities to invest, which
an organization or individual may have to forego due nonavailability of cash.
Discount rate varies per technology [17], but 10% is a value commonly used in
LCOE calculations for renewable energy projects [e.g. 16].
To calculate LCOE, first, cost and generation data/estimates should be
gathered. Next, the net present value (NPV) of total expected costs for each
year should be summed:

Total capex and opex costs n
NPV of total costs = (1.1)
(1 + Discount rate) n
n
where n is the time period. The NPV of expected generation for each year should
next be summed:
Net electricity generation
n
NPV of electricity generation = (1.2)
(1 + Discount rate) n
n
Finally, the LCOE can be calculated by dividing Eq. (1.1) by Eq. (1.2)
NPV of total costs
LCOE = (1.3)
NPV of electricity generation
Discounting physical values such as power output may not seem intuitive
(Eq. 1.2), because physical units neither change in magnitude over time nor do
they pay interest [16]. However, what is discounted is the value of the output,
rather than the output itself.
Table 1.2 shows the estimated values of LCOE for various technologies.
Note, for instance, that in general, solar energy is more expensive than onshore
wind. Natural gas is very competitive compared with other forms of electric-
ity generation. Well-developed renewable energy technologies like wind can
compete with fossil fuels, although they are not as reliable. Because marine
renewable technologies (tidal and wave) are immature, their LCOE is much
higher. For instance, an NREL (National Renewable Energy Laboratory of the
United States) report estimates their LCOE to be of order $1000/MWh [18].
Offshore wind is currently much more financially attractive ($197/MWh). Note
that the LCOE for wind energy has reduced significantly over time in response
to advances in wind energy technology. It is expected that wave and tidal energy
technologies will follow the same trend.

1.4 OCEAN RENEWABLE ENERGY
In the following chapters, we will discuss the ocean renewable energy resource
in detail, but here we wish to place ocean energy in context, and to chart
commercial progress against progress in an analogous renewable energy sec-
tor, wind.