Equations and Variables in ATB
The ATB captures various aspects of plant investment decision criteria, including:
- Capital investment
- Operations and maintenance
- Expected energy production
- "Cost of money" required to finance a new electricity generating plant.
The levelized cost of energy (LCOE) is provided as a summary metric in—but it is not a focus of—the ATB. It is comprised of the various components explained on this page.
Significant variations in LCOE are inherent due to differences in the nature of the renewable resource, site characteristics, and fuel prices. And, significant variations in each component of LCOE (e.g., capital investment) are inherent due to regional cost influences, site specific construction costs, equipment type, market-based pricing, project capital structure and finance terms.
ATB emphasizes fundamental, long-term technology changes rather than short-term market changes.
- The LCOE values presented here represent busbar costs at the plant gate; regional costs associated with materials or labor, transmission spur lines and electric system operation costs are not included. Incentives such as production tax credits or investment credits are also not included.
- Standard Scenarios results produced with the ReEDS model reflect additional system considerations such as planning and operating reserves, output correlation with nearby plants, transmission infrastructure expansion and regional costs associated with materials and labor. Incentives such as PTC and ITC are included according to existing law.
- This framework should be suitable to inform input assumptions for capacity expansion models such as the National Energy Modeling System (NEMS), MARKAL/TIMES, and Integrated Planning Model.
- This framework could be adapted to provide similar comparisons of inputs to other model-based studies such as those using System Advisor Model (SAM), Buildings Industry Transportation Electricity Scenarios (BITES), and the Cost of Renewable Energy Spreadsheet Tool (CREST).
Calculation of LCOE
In the ATB, the LCOE is calculated as follows:
LCOE=(FCR *CAPEX +FOM )/(CF×8,760)+VOM+FUEL
where FCR is the fixed charge rate, CAPEX is the capital expenditures, FOM is the fixed operations and maintenance costs, CF is the capacity factor, 8760 is the number of hours in a year, VOM is variable operations and maintenance costs, and FUEL is fuel costs (if applicable).
Assumptions common to all technologies include the following:
- Generation projects receive similar terms from lenders and equity investors over a 20-year project economic life (the distinction between economic life and technical life is described here). Two options representing market conditions are available in the spreadsheet: Current Market Conditions and Long-Term Historical Market Conditions.
- The federal/state blended tax rate does not vary; depreciation schedules vary by technology based on the tax code.
Technology-specific assumptions are detailed in each subsequent section and include:
- Capital expenditures (CAPEX) are represented by the total expenditures per kilowatt of plant capacity that is required to achieve commercial operation in a given year.
- Operations and maintenance (O&M) costs are represented by average annual fixed O&M (FOM) and variable O&M (VOM) costs over the technical life of the project (the distinction between economic life and technical life is described here).
- Fuel costs are applied to some technologies.
- The capacity factor is used to represent the average annual energy production per kilowatt of plant capacity over the technical life of the project.
- Variables are defined in the Financial Definitions worksheet in the ATB data spreadsheet.
- LCOE is the metric selected to represent typical electricity generation cost elements in a common framework including project finance (FCR), capital expenditures (CAPEX), fixed and variable operations and maintenance costs (FOM and VOM), and annual-energy-production-per-kilowatt plant capacity based on capacity factor, hours in a year (8,760), and fuel costs.
- The ATB data spreadsheet and accompanying documentation illustrate the range of LCOE for electricity generation technologies. Renewable generation technology cost ranges are generally dictated by natural long-term renewable resource characteristics. Fuel-based technology cost ranges are generally dictated by assumed range of future fuel cost.
- Project finance is represented using common assumptions for all technologies in order to focus differences on technical aspects. Depreciation is technology specific based on IRS tax code. Future ATB modifications to capture actual financing differences between technologies are under consideration.