What is Levelised Cost of Energy (LCOE)?

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What is Levelised Cost of Energy (LCOE)?
Efficiency and Levelised Cost of Energy (LCOE) are terms we hear in relation to measuring the performance of power generating
technologies (including photovoltaics), but what do these terms actually mean and how do they relate to the built environment?
Efficiency
The traditional measure of efficiency for photovoltaics (PV)
is calculated using the power output achieved when
exposed to a light source of 1 sunlight A (1,000 W/m2)
perpendicular to the plane of the panel at Air Mass 1.5
(meaning the sun is at 45 degrees to the atmosphere - not
at the equator) with the panel maintained at 25°C.
This is a measure of instantaneous power output under
highly prescribed conditions and does not provide the
energy conversion (kWhr) capability of the product in
normal, real-world variable conditions and applications.
For this reason, efficiency as a measure of power output,
doesn’t tell the whole story in terms of power generation
outside of the lab in real-world conditions which include
seasonal light variation, daily weather impact on sunlight,
angle and direction of product installation and global
location among other factors.
Note A: “1 sunlight” or “1 sun” is a standardised measure of illumination. It means exposure to a standardised light source of 1,000 Watts / meter
squared at 25 °C. The ‘AM 1.5G’ (Air Mass at 1.5 global) radiation corresponds to the amount of solar energy striking the earth’s surface after
passing through nominally 1.5 times the thickness of earth’s atmosphere, or said differently, after passing the atmosphere at an angle of 48.2
degrees from perpendicular. This standardised illumination is often referred to as “1 sun”. For laymen, ‘1 sun’ approximates to 12:00 o’clock noon
on a clear summer day.
Levelised Cost of Energy (LCOE)
Levelised cost of energy is calculated by summing all the costs incurred during the lifetime
of the generating technology divided by the units of energy produced during the lifetime of
the project expressed as dollars per kilowatt hour ($/kWhr). In calculating LCOE the time
value of money has to be accounted for.
The key point to understand is, LCOE enables a comparison of different energy
generating technologies of unequal life times and differing capacities and permits grid
competiveness comparisons to be readily made for different locations.
Building-Integrated Photovoltaics (BIPV) vs Solar Farms
For the purpose of this article, BIPV is defined as the incorporation of a photovoltaic element into a building material that forms
parts of the building fabric. Therefore the building becomes an active power generator. This differentiates BIPV from solar panels
that after manufacture have to be incorporated into structures or used in solar farms.
BIPV is cost competitive with the building materials it replaces (e.g. glass façade, stainless steel, granite, etc.) when the cost
recovery over the lifetime of the building product exceeds the lifetime cost of the PV component of the building product. The
incremental cost of the BIPV (that is the additional cost of providing an active PV energy generating building product, compared to
the standard building product it replaces) can be relatively small if it is integrated in a process that is normally used by the building
products manufacturer. This is the case in the project with Tata Steel. In Dyesol’s project with Pilkington in the USA to produce
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façade glass the percentage of the final product cost for the PV element may be quite small as façade structures are normally
double glazed and have a high basic cost per sqm typically around $500. The economic return is not just from selling power, but
also from the value of the ‘green’ building for rental and naming rights. It is well documented that lease rates for green buildings
have a good premium over those for ‘brown’ buildings. The lower energy footprint of the building equates to lower operational costs
and more attractive rental returns - a direct impact of marketing green buildings.
Glass-based (Dyesol-Pilkington) and metal-based (Dyesol-Tata Steel) products are excellent substrates for DSC BIPV. The major
target applications are for roofing materials, façades (windows and non-view spandrel), and architectural features including atria.
An important differentiator between central generation (including solar farms) and BIPV is that BIPV is effectively end-of-grid, and
so avoids all transmission losses and additional transmission infrastructure. Because the systems are smaller than solar farms, cost
of electrical conversion can be proportionally lower. The building structure and infrastructure is already capable of integration of the
electrical and mechanical elements of the structure.
Unique Characteristics of DSC
DSC has a number of unique characteristics that favour this technology in building integrated applications. These characteristics
include:
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Superior performance in diffuse light (does not need direct sunlight);
The relative efficiency of DSC is higher at low light levels (real world solar conditions);
Operating voltage is virtually constant at all light levels;
DSC is significantly less affected by the angle of incidence of sunlight (which makes DSC a good match for building
facades and normal roofs);
Improved (relative) performance at higher operating temperatures;
A range of natural colours and optional transparency are available;
Low cost of production;
Clean, green materials are used in manufacture; and
Embodied energy is lower than traditional PV and therefore potentially lowest cost.
Economics of DSC in the Built Environment
Incorporating DSC into building products can create
an aesthetically pleasing and environmentally “wellcredentialed” building; however, the key question is
whether the economic benefit is greater than the
cost when DSC is incorporated in a building. The
following schematic portrays the economic benefits
and that result from
a BIPV installation.
The two DSC BIPV economic benefits that can
readily be quantified are the value of electricity and
greenhouse gas savings (measured by carbon
dioxide emission avoidance). The other benefits are
more difficult to quantify but can result in
advantages for the building developer, the owner
and/or
the
tenant.
In the case of electricity, the value can be simply the
amount of electricity saved multiplied by the tariff
applying to the building. However, where solar
energy is paid a premium (e.g. feed in tariff applies)
the value of electricity produced is the kWh
multiplied by the preferential tariff received.
For greenhouse gas savings, the owner or operator
may be able to sell the greenhouse credits – that is
the amount of carbon dioxide emissions saved, but
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currently is of less importance. Each kWh of electricity produced by solar PV panel typically saves up to 1.5 kg of carbon dioxide
emissions when compared to 1kWh produced by a coal-fired power station. Each tonne of carbon dioxide saved is typically worth
US$15-25 where CER certificates can be traded.
The incorporation of DSC BIPV involves the additional costs highlighted in the schematic below.
To allow a meaningful comparison, the costs should be the additional (incremental) cost over the convention building material
replaced. DSC BIPV targets a lifetime similar to other building materials therefore replacement cost is not a major cost, with one
exception – the electronics that capture and convert the electricity into grid quality power may have a shorter life – as is also the
case for solar farms where up to 3 maintenance cycles are planned.
The capital cost has two components:
1. the additional cost of the BIPV product over the traditional building product replaced, and
2. the additional installation costs - primarily the power electronics and wiring to harness the power, convert it to grid quality
AC power, meter the output and the grid connection equipment.
When installed, the same cleaning, etc. applies as for the building material replaced therefore recurrent/periodic expenditure are
unchanged (note that DSC BIPV is only marginally affected by dirt on the building as most light is still refracted into the solar
collector and can even provide an enhanced output compared to direct light).
An “often asked” question in applying DSC BIPV is whether the additional costs can simply be recovered from the electricity
generated or if it is possible to generate surplus revenue from the electricity generated. The factors that affect this are the cost of
the BIPV building product, its efficiency which influences the amount of energy captured over a period of time, and the electricity
cost or buy-back rate offered by the electricity utility. Throughout Europe, BIPV is granted a much higher feed-in-tariff rate than
solar farms – up to 50%. So the ability to compete is much more facile.
The wide spread utilisation of DSC in BIPV applications will depend on the levelised cost of energy generated and the durability
(lifetime) of the resultant product. For buildings the life of any DSC enhanced building must exceed 15 years.
Dyesol research has and continues to concentrate on having materials sets and technology designs that are cost effective, perform
well and are durable.
This is represented in the golden triangle below.
Each node of the triangle is critical for the commercial success of DSC BIPV application. The arrows represent the outcomes being
generated by the R&D activity underway.
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Cost-Performance Analysis (case study)
The LCOE of a DSC panel – and any PV installation – is dependent on panel cost, the efficiency, the location and orientation of the
installation. The location and orientation determine the available solar radiation, while the efficiency determines the amount of
energy captured. What determines if an installation is profitable is whether the LCOE is lower than the cost of electricity for the
installation, or if a buy-back tariff applies to the rate for solar buyback.
The following graph is based on modelling using solar radiation data for a Middle Eastern city with a moderate climate. It plots
DSC LCOE against efficiency for a incremental capital cost of US$300/m2 for a south-east façade orientation. In this example if the
target energy cost is US$0.30, a breakeven point occurs at an efficiency of about 4.5% for this (conservative) incremental
capital. The cost includes the extra cost of manufacture of the DSC enhanced building product, and the additional cost of
installation mainly attributable to the energy capture and conversion system. If the capital cost falls (e.g. under larger volume DSC
product manufacturer) the breakeven occurs at lower efficiency point. Similarly at higher efficiency the unit cost ($/m2) can be
higher to meet the target. The aim, however, is to simultaneously increase efficiency and lower the unit cost of the DSC enhanced
building product in order to lower the levelised cost of energy and therefore maximise the return. The modelling undertaken showed
that for all façade orientations, the LCOE for DSC was lower than that for Crystalline Silicon despite the very significant difference
in raw efficiencies.
An increase in efficiency or reduction in panel cost will lower the cost of energy produced. If the target LCOE is equivalent to a buyback tariff, then generation costs below this target will result in an effective surplus (income is greater than the cost of generation).
In many feed-in tariff situations, BIPV attracts a premium over central PV generation. This reflects the advantages of distributed
generation where energy consumption is at the point of generation, enabling more effective utilisation of infrastructure, avoiding
losses associated with transmission and distribution and providing additional security of supply.
When the BIPV product output is within the surplus zone, it has ready access to market as it creates a positive return over the
product life. The project is bankable. As Dyesol is now achieving efficiencies exceeding 8% at industrial scale strip cell, this will
translate into lower LCOE costs and greater performance output.
Dyesol Ltd
3 Dominion Place
Queanbeyan, NSW 2620
Australia
Tel: +61 2 62991592
www.dyesol.com
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