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A Levelized Cost of Energy (LCOE) model for wind farms that include Power Purchase Agreements (PPAs)

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  • Bruck, Maira
  • Sandborn, Peter
  • Goudarzi, Navid

Abstract

The Cost of Energy is a major concern for the electric power industry. Customers are sensitive to the cost of renewable energy, which is typically more expensive than conventional energy generation due to the variability and uncertainty associated with their sources. Power Purchase Agreements (PPAs) are developed to balance the energy price and associated risks with poewr gerneation and transmission. The energy delivery limits imposed by current PPAs impact the Levelized Cost of Energy (LCOE) in ways that are not accomodated by existing LCOE models. In this work, a new cost model is developed to evaluate the LCOE from a wind power source under a PPA contract. The application of the model to real wind farms demonstrates that the actual LCOE depends on the defined minimum/maximum energy purchase limitations within a PPA contract. The developed cost model can be used as a basis for setting appropriate PPA terms, such as a price schedule and performance metrics. Hence, it can help the Seller to negotiate penalties and energy price within their PPAs.

Suggested Citation

  • Bruck, Maira & Sandborn, Peter & Goudarzi, Navid, 2018. "A Levelized Cost of Energy (LCOE) model for wind farms that include Power Purchase Agreements (PPAs)," Renewable Energy, Elsevier, vol. 122(C), pages 131-139.
    • Handle: RePEc:eee:renene:v:122:y:2018:i:c:p:131-139
    DOI: 10.1016/j.renene.2017.12.100
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    References listed on IDEAS

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    1. Myhr, Anders & Bjerkseter, Catho & Ågotnes, Anders & Nygaard, Tor A., 2014. "Levelised cost of energy for offshore floating wind turbines in a life cycle perspective," Renewable Energy, Elsevier, vol. 66(C), pages 714-728.
    2. Wiser, Ryan & Namovicz, Christopher & Gielecki, Mark & Smith, Robert, 2007. "The Experience with Renewable Portfolio Standards in the United States," The Electricity Journal, Elsevier, vol. 20(4), pages 8-20, May.
    3. John Foster & Liam Wagner & Alexandra Bratanova, 2014. "LCOE models: A comparison of the theoretical frameworks and key assumptions," Energy Economics and Management Group Working Papers 4-2014, School of Economics, University of Queensland, Australia.
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