Measuring The Impact of Risk On LCOE(Levelized Cost of Energy) In Geothermal Technology

Abstract

Geothermal technology has a high level of uncertainty and, thus, requires thorough risk analysis for economic decisions. The Levelized Cost of Energy (LCOE) is a basic economic analysis widely used in determining an investment or energy mix. Many reputable institutions and government agencies provide LCOE, to which they apply different levels of discount rates to reflect project risk. It is a proxy for the Weighted Average Cost of Capital (WACC). Theoretically, determining whether using a higher discount rate for a risky project is appropriate in calculating LCOE has not been scrutinized. The purpose of this paper is to propose a certainty equivalent method of LCOE as an alternative way of reflecting risk. We present a theoretical background and formula based on the utility theory, improving the probabilistic LCOE estimation methodology of previous studies. We also perform scenario analysis to show how the LCOE with certainty equivalent model moves over the change of risk in major input factors, whereas traditional LCOE does not. Additionally, we suggest that the traditional LCOE should be used prudently, recognizing it can distort the result when an individual project has a different level of risk from the industry average.

A Novel Hybrid CSP-PV Power Plant Based on Brayton Supercritical CO2 Thermal Machines

“…This stored thermal energy is then converted into electricity during hours when solar radiation is unavailable. This innovative approach eliminates the need for expensive battery storage [4] and avoids the necessity of oversizing the solar field. This is because it only needs to generate enough thermal energy to be converted into electricity during periods without solar radiation.…”