Last year, we introduced the rationale for going beyond LCOE , to help optimise wind turbines and wind farms in a world where subsidies have gone and income comes (mostly) from merchant sales at the hourly electricity price.
We showed that project IRR, rather than simple LCOE, becomes the value we have to optimise, but that meant we had to move away from our familiar and simple metric, and also produce a full project cashflow every time we wanted to evaluate a change.
The good news is that, with the help of some maths that is too dull to show here, we have derived a new metric to optimise that does not require a full project cashflow. We’ve called it ‘levelised cost of energy at market price’ or LC-EMp. This is builds on LCOE as we currently know it, but uses two extra factors which reflect:
- the expected future average energy prices over the life of the project, and
- the expected ‘capture price’ that wind farms can achieve as a percentage of those average prices.
Of course we still need WACC, and we will need to model how a change in turbine design or wind farm layout affects capture price. Most importantly we need to generate a view of how the capture price evolves as a network sees increasing penetration of wind power. Using LC-EMp, we can make better business decisions taking into account risk, market dynamics and technology enhancements,
The bottom line is that we are now in a position to use LC-EMp in exploring issues such as:
- How much commercial benefit you get from a bigger rotors compared to overplanting.
- How much energy storage adds most value, and when in a project should it be deployed?
- How much value is gained from smarter OMS, and smart consumption of fatigue life?
If you’re a developer, technology supplier or enabling organisation, the chances are that these questions are starting to affect you.
My colleague Kate Freeman will be at the Augusta/Word About Wind Executive Breakfast and Network in London on 21 March and I’ll be at the WindEurope conference in Bilbao 2-4 April. If you’re going to be there, I’d love to discuss how BVGA can help your business.