Economics

ElectricityGeneration
 CostScreening
Considerationswhenselectingatechnology(and
comparingtoanotheroption)
Lifetime whatiftheyarenotthesame?
Impactsoffuturefuelcosts escalation
Howiscostimpactedbyscale?
Howiscostimpactedbylearning?
Whatistheexpectedcapacityfactor?
Resourcedetermined?
Technologyrelated?
Systemicallydetermined?
Whatistheimpactofcarboncost?

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 Capitalized Cost
Oftenwefaceequipmentchoicesinsystemdevelopment(anumberofvendorsmakebidsto
providetheircomponent.)
Eachpieceofequipmenthasownlifetime(n), operatingcosts,andinitialcost
Howdowecomparethem?
Capitalizedcost (CK)
theinitialcostofanassetplusthepresentvalueoftheindefiniteannuitycorrespondingtoreplacement
oftheasseteveryn years.(assumingthereplacementcostisthesameinthefuture.)

Salvagevalue(S)mayhelpoffsetreplacementcost(CR )
C0 S
CR C0 S PV{C R }
iL
replacement cost
infinite series on discount rate for
life period, L period L

ConvertperiodLrate toannualdiscountrate
(1 iL ) (1 id ) N L iL (1 id ) N L 1
Thecapitalizedcostisinitialplusreplacementannuity(effectivecapitalcostforreplacementeveryNL
years.)
C0 S
C K C0
(1 id ) N L 1
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 Capitalized Cost
Letsconsiderthefollowingoptionsforataxifleetusinghydrogenasafuel:

Fuelcellstack:Initialcost=$3000,operatingcost,$400/yr,lifetime=2yrs,S=10%C0
ICengine:Initialcost=$5000,operatingcost$1000/yr,lifetime=5yrs,S=10%C0

Whichoneisabetterchoiceifthediscountrateis10%?

Annualized
Annual
Capitalized Capital Cost TotalAnnual
Operating
Cost[$] [$/yr] Cost[$/yr]
Cost[$/yr]
=iD xCK
FuelCell 15,860 1,590 400 1,990
ICEngine 12,370 1,240 1,000 2,240

Notmuchdifference.TheICengineappearsmuchworsebutthelifetimeisgood.

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BuildTime capitalcostuniformly
distributed

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 PowerPlantIII escalation
Whatiffuelpriceisexpectedtoincrease1.5%/yr(realescalation)?

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 PowerPlantIII escalation
Whatiffuelpriceisexpectedtoincrease1.5%/yr(realescalation)?

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 PowerPlantIII escalation
Whatiffuelpriceisexpectedtoincrease2.2%/yr(realescalation)?

Sell price is
insufficient
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 EconomiesofScaleandLearning
Curves
Economyofscale =biggerischeaperperunitofoutput
Ci,costofunitofsizeKi relativetocostofunitsizeK0,
n
Ci K i
where n ~2/3
C0 K 0

Learningcurve =moreischeaper
savingsduetosequentialmassproductionofalargenumberof
identicalunitsofsamerating
negative
CN
CostofNth unitrelativeto1st ofkind N where ~ -0.234
C1

ForaproductionrunofN units,theaveragecostoverallunitsis
approximatedby,
N 1 1
C1, N C1
1

1 1
2N
1 N
N
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 LearningCurves PVandLiion

CN
Nm
C1
CN
ln m ln

N
1
C
x
y

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 WindCosts

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 GeneratingFacilityCost
Capitalcostsandoperatinggivesimplescreeninginformation
Howdogeneratorscompare?

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 GenerationOptions

DOE Electricity Market Module Assumptions to the AEO 2016

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 CapacityFactor

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 CapacityFactor

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 CapacityFactor
Wind,solar resourceavailabilitydeterminesproduction,capacityfactor
Scenario OnshoreWind,CF=30%

Scenario OnshoreWindCF=45%

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 SolarCapacityFactors

Dale and Benson. Environ. Sci. Technol. 2013, 47, 34823489

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 Externalities
Fromatechnologydevelopersperspectiveoranintegrated
energycompany,thebottomlineisthecostperunitof
production
And,howthisimpactsprofits(i.e.howdoesitrelatetosellingprice)
Fromtheservice endoftheenergysystemarchitecturei.e.
consumer,weareconcernedwiththecostperunitofservice
Example:transportation
Oftentalkabout$/litre($/gallon),butintheendits$/kmtraveled that
impactsourfinances.
Amorecompletelookatanenergysystemshouldalsoaddress
emissions
Electricityproduction whatarethecostsofemissions?

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 CarbonTax
Chargetheemittersandtoincentivizelowcarbon
Applyacarbontaxtoourpreviousgasplantanalysis
30$/tCO2

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 Summary
Havereviewedbasicdiscountedcashflowanalysis
Timevalueofmoney
Presentingcashflowsonadiagram
Commonindicators,IRR,NPV
Equipmentdepreciationandsalvagevaluecanalsobe
includedinthecashflows
Salvageisanendorprojectflow
Depreciationisimportantindeterminingaftertaxcash
flows.
Onlyconsideredpretaximplications.
Capitalcost,operatinglife,andcapacityfactor
importantconsiderationsforLCOE
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