LCOE Calculator Model
A diverse wind industry consortium pledged to governments to reduce offshore wind generation costs by 40% by 2020 through a collaborative initiative. To fulfill this commitment and facilitate discussions on cost savings throughout the supply chain, the parties recognized the necessity for a standardized methodology to calculate production costs and monitor reductions.
No sooner said than done, DAFRE guided the birth of a unique offshore wind cost calculator. The calculator, which is a mathematical formula, allows users to enter data in a standardised way and to arrive at a Levelized Cost of Energy (LCOE) that everyone can agree on.
By definition, LCOE is an en expression of the production cost of each unit of electricity generated over the working life of the plant taking into account wind farm development costs, capital investment, financial costs and lifetime running costs.
A common industry standard for LCOE modelling solves the problem. It facilitates like-for-like comparison of wind farm costs; it helps pave the way for common efforts to cut costs by identifying main cost drivers and their relative potential for LCOE reduction; and it provides a basis for benchmarking progress towards the minus 40% goal.
The cost calculator design mirrors methods already used by the offshore wind industry to evaluate the cost elements when deciding to invest in a project.
Hence, the LCOE model has been validated by the players who initiated it: Vattenfall, Siemens Wind Power, Vestas Wind Systems, MHI Vestas Offshore Wind, DONG Energy Wind Power, E.ON and DTU Wind Energy.
The calculator was created for Danish Alliance For Renewables by ESP Consulting, an energy consultancy firm operating out of London, Copenhagen and Amsterdam.