Page 319 - Fluid Power Engineering

Financial Modeling of W ind Projects 285

where i is the year index, L is the life of the project in years, en(i)is
the amount of energy generated in year i, rc(i) is the total recurring
cost in year i, r is the discount rate, and TIC is the total installed cost.

L
i
pr = rc(i)/(1 + r) + TIC
L en(i)/(1 + r) i (13-2)
LCOE
i=1 i=1
In the above formula, a simplification is utilized based on the as-
sumption that TIC occurs in the first year. As expected, LCOE does
not depend on the tariff, equity/debt structure of project, incentives,
taxes, and other similar factors. When comparing LCOE of different
sources of energy, the assumptions used in computing recurring cost
and discount rate must be the same.
As an example, consider a 15 MW project with a production of
50,000 MWh of electrical energy annually. Assume the following:

TIC = $27 million or $1,800/kW, discount rate = 8%, life of

project = 20 years
Operations and maintenance = $0.01/kWh, annual O&M

cost = $500,000
Annual reserve fund = 1% of TIC = $270,000

Land lease + insurance and other administrative costs =
$250,000 + $81,000 = $331,000

L
i
en (i)/(1 + r) = 490,907 MWh (13-3)
i=1
L
i
rc(i)/(1 + r) + TIC = 10,809,780 + 27,000,000
i=1
= $37,809,780 (13-4)
pr = $0.077/kWh (13-5)
LCOE
The interpretation and use of pr LCOE is illustrated next. For the pur-
poses of illustration, assume:

Project is funded with 100% equity

Project pays no taxes

Project is in the United States with a fixed PPA

Production tax credit (PTC) = $0.021/kWh for 10 years

Average value of renewable energy credit (REC) =
$0.005/kWh