Levelized Cost of Energy Assessment for Offshore Wind Farms–An Examination of Different Methodologies, Input Variables, and Uncertainty

Abstract

Levelised Cost of Energy (LCoE) is the most common metric used in renewable energy assessments. However, this can be a very complex calculation with numerous methodologies depending on the perspective taken. Inputs including costs, energy production are generally forecasts and predictions based on publicly available information; therefore they are key areas of uncertainty. Elements of the calculation are site or region specific such as the tax rate or inclusion of grid connection costs. The business case and financial assumptions applied will be very project specific e.g. the discount rate applied. These numerous variables and uncertainties must be fully understood in order to effectively apply the metric or review and compare LCoEs. Therefore, this paper provides a comprehensive set of LCoE methodologies that provide a reference basis for researchers. A case study demonstrates the application of these methods and the variation in results illustrates the importance of correctly selecting the discount rate and cash flow based on the perspective and motivation of the user. Sensitivity studies further investigates the potential impact of key variables and areas of uncertainty on results. Analysis indicates that the energy production and discount rate applied will have the most significant impact on LCoE, followed by CAPEX costs. While the key areas of uncertainties cannot necessarily be solved, this paper promotes consistency in the application and understanding of the metric, which can help overcome its limitations.