Decommissioning Cost
Introduction
Levelized cost of electricity (LCOE) is the measure of the average net current cost of generating power from a generator over its life cycle (Environmental) life cycle. It is used for investment planning and to constantly compare different methods of creating energy.[4].
The LCOE represents the average revenue per unit of electricity generated necessary to recover the cost of construction and operation of the generating plant over an assumed financial life and useful cycle. It is calculated as the quotient of all discounted costs throughout the life cycle of the power generating plant divided by the discounted sum of the amount of energy actually emitted. The figures used are chosen according to the estimator. They may include the capital cost, plant dismantling, fuel cost, fixed and variable operations, maintenance costs, financing costs and the assumed usage rate.[5].
Budgets
Plant factor
The budgeted plant factor is of great importance when calculating the LCOE, since it determines the actual amount of energy produced for a particular installed capacity. The formulas to calculate the cost per unit of energy (€/MWh) already take into account the capacity factor. On the other hand, the formulas to calculate the cost per unit of power (€/MW) do not take it into account.
Discount rate
The cost of capital expressed as a discount rate is one of the most controversial variables in the LCOE equation, since it greatly affects the result and several comparisons use arbitrary discount rates without explaining why that value has been chosen.
Comparisons with public financing budgets, subsidies and social cost of capital tend to choose low discount rates (3%), while comparisons made by private investment banks tend to assume high discount rates (7-15%). These latter rates are linked to for-profit commercial financing. The assumption of low discount rates favors sustainable energy and nuclear energy projects, which require a high initial investment but whose operational costs are low.
In a 2020 analysis by Lazard, it was observed that sensitivity to varying discount factors in the range of 6%-16% give different LCOE values, but the identical ordering of different types of power plants if the discount rates are the same are the same for all technologies.