Levelized Cost of Energy (LCOE) is an important metric to evaluate the cost and performance of electricity production generation alternatives, and combined with other measures, can be used to assess the economics of future hydropower development. Multiple assumptions on input parameters are required to calculate the LCOE, which each contain some level of uncertainty, in turn affecting the accuracy of LCOE results. This paper explores these uncertainties, their sources, and ultimately the level of variability they introduce at the screening level of project evaluation for non-powered dams (NPDs) across the U.S.
Owing to site-specific differences in site design, the LCOE for hydropower varies significantly from project to project unlike technologies with more standardized configurations such as wind and gas. Therefore, to assess the impact of LCOE input uncertainty on the economics of U.S. hydropower resources, these uncertainties must be modeled across the population of potential opportunities. To demonstrate the impact of uncertainty, resource data from a recent nationwide non-powered dam (NPD) resource assessment (Hadjerioua et al., 2012) and screening-level predictive cost equations (O’Connor et al., 2015) are used to quantify and evaluate uncertainties in project capital and operations & maintenance costs, and generation potential at broad scale. LCOE dependence on financial assumptions is also evaluated on a sensitivity basis to explore ownership/investment implications on project economics for the U.S. hydropower fleet.
The results indicate that the LCOE for U.S. NPDs varies substantially. The LCOE estimates for the potential NPD projects of capacity greater than 1 MW range from 40 to 182 $/MWh, with average of 106 $/MWh. 4,000 MW could be developed through projects with individual LCOE values below 100 $/MWh. The results also indicate that typically 90 % of LCOE uncertainty can be attributed to uncertainties in capital costs and energy production; however, for small projects (below 10 MW) O&M uncertainty plays an important role. The potential NPDs have costs with uncertainty bands extending well above 100 $/MWh in some cases. A truly representative evaluation should complement LCOE with an assessment of potential revenues from the provision of ancillary services. Moreover, hydroelectric production is often part of multipurpose water resource projects where other purposes (e.g., irrigation, flood control, navigation, recreation, etc.) also provide value. Neither of these considerations are accounted for LCOE.