Levelized Cost of Energy (LCOE)

Calculating a cost of energy, or a “Levelized Cost of Energy” (LCOE), provides a consistent means of economically comparing generation projects. The LCOE calculation accounts for both the energy generated, and the total capital and operating costs for a generation facility over its expected lifetime. Levelized Cost of Energy models base the valuation on net present value calculations of the time value of capital costs, operating costs, and energy outputs. For Next Generation Hydro, LCOE has been calculated two ways (Full Utilization LCOE and Forecast Utilization LCOE).

Full Utilization LCOE

The Full Utilization LCOE, expressed in $/MWh, is calculated assuming that a project is built at its maximum size and capacity, that the project generates at its maximum potential, and that all of the generated energy is consumed in a useful manner. This method does not take into account the reality of producing electricity on the Yukon’s isolated grid because we cannot sell excess electricity and make use of 100% of the hydro facilities energy in periods of low demand or high supply (e.g. in the summer months).

Forecast Utilization LCOE

The Forecast Utilization LCOE is more reflective of how a generation asset will be used over time in the Yukon and the costs associated with the Yukon’s electricity use. This method does not assume that the project is built to full size immediately, and it also does not assume that the entire energy output is fully consumed. As a result, the Forecast Utilization LCOE is always higher than the Full Utilization LCOE because the cost of the generation asset must be paid for with less energy being produced.