Cost and Uncertainty

The established metric for assessing the economic competitiveness of an electrical energy generation source is the Levelised Cost of Electricity (LCOE) i.e. the lifecycle cost of the electricity output for the planned duration of the system.  Comparing the upfront capital cost of a renewable energy source to that of a fossil fuel based system can be highly misleading.  The renewable energy source has no variable or marginal operating costs like the highly volatile fuel supply costs of a fossil fuel or nuclear system.  So although you can calculate the LCOE of a 25+ years PV installation with reliable precision, you cannot for a fuel-based system - the reason being that you cannot accurately predict how fuel supply costs will change over such a long period.


Clearly, an uncertainty factor also needs to be taken into consideration when comparing a PV and fossil fuel based system.  There should be an uncertainty band around the LCOE calculation based on the projected standard deviations of the solar resource and fuel supply costs for PV and fossil fuel systems respectively.  The standard deviation of the solar resource, over the project duration, can be predicted with much greater accuracy than fuel supply costs.  The minimisation of financial uncertainty, in long-term energy budgeting, is a huge PV benefit.


To plan and develop a financial model for a PV system, several factors have to be taken into account e.g.:

-          Annual Energy Yield at the location

-          Performance Ratio of the system

-          Annual degradation factor(s)

-          Upfront Cap Ex cost for turnkey installation

-          O & M provisions

-          Grid connection

-          Barren land availability, leasing

-          Cost of Capital, a function of credit risk

-          Legal and insurance costs                               continue…click here









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