You must reply to at least two colleagues in a manner that extends the discussion. A simple “I agree/disagree” will not be accepted. respond in a manner that further extends the discussion.
Levelized costs are the present value of the total cost of building and operating a power plant over its economic life, converted to equal amounts per watt-hour of electricity generated by the plant, (Heptonstall, 2007). This takes into account the amount of capital expenditures, operating and maintenance costs, and fuel costs, (Simkins, 2013).
Obviously, some of the most important expenditures are the construction costs associated with building the energy plant. These costs include: structural material and installation, mechanical equipment and installation, supply and installation of electrical instrumentation and controls as well as many others. The costs to initial construct the energy plant as well as ongoing costs or recurring costs should be considered. For example, inverters in solar PV plants must be replaced every few years, (Simkins, 2013).
Additionally, costs associated with operating the business should be considered as well. These costs may include office space and other areas needed by employees. Financing the plant is also a cost that should be included in calculating the levelized costs. Before a plant turns a profit, there is a lot of money that needs to go into constructing it, which most of the time will need to be financed. Fixed and variable costs associated with operating the plant also cut into the levelized cost of the plant.
Fortunately, there are also incentives that add to levelized costs. For example, there are tax credits available for solar or other renewable energy production and investment, as well as other tax credits for residential users of these renewable resources. Additionally, in the United States, there are special grant and loan programs available from the US Departments of Agriculture, Energy and the Interior. There are state incentives available as well (U.S. Energy, 2019).
Heptonstall, P. (2006, December). A Review of Electricity Unit Cost Estimates. https://ukerc.rl.ac.uk/UCAT/PUBLICATIONS/A_Review_of_Electricity_Unit_Cost_Estimates.pdf.
Simkins, B. J., & Simkins, R. E. (2013). Energy finance and economics: Analysis and valuation, risk management, and the future of energy (1st ed.). Hoboken, NJ: Wiley.
U.S. Energy Information Administration – EIA – Independent Statistics and Analysis. Renewable energy explained – incentives – U.S. Energy Information Administration (EIA). (2019, November 22). https://www.eia.gov/energyexplained/renewable-sources/incentives.php.
The levelized cost of energy (LCOE), also referred to as the levelized cost of electricity or the levelized energy cost (LEC), is a measurement used to assess and compare alternative methods of energy production. The levelized cost of energy of an energy producing piece of machinery or equipment, can be thought of as the average total cost of building and operating the asset, per unit of total electricity generated over an assumed lifetime. LCOE can also be thought of as the average minimum price at which the electricity generated by the asset is required to be sold for in order to offset the total costs of production over its lifetime.
In an article that I found titled Costs of electricity generation compared: beware of simple metrics. It talks about the key factors in influencing the choice of fuels and technologies used to generate electricity, which one of them is cost. Capital, maintenance, operating, and financing costs often vary across different technologies and fuels. Also, the regional differences in construction, fuel, transmission, and resource costs, means that location does matter with all these costs. This then takes us back to LCOE, it does not include contractual terms on price, duration, or price inflators, they should not be directly compared with other prices such as power purchase agreements. Power purchase agreements can involve, project- or corporate-specific finance terms (U.S. EIA Today). They reflect different contracting terms with the power purchaser, or reflects the value, rather than the cost of the energy. Also, some federal, state, local, etc. taxes can affect some costs associated with building certain power plants and other places where energy is produced.
Different technologies operate in different ways. Some of them are dispatchable, some can be scheduled, while others are dependent on energy sources, such as wind and solar. Some plants operate around the clock, others operate only during times of high demand. Since the electricity prices differ throughout the day, the timing of a plants output affects its cost recovery. The article also goes into talking about LACE, levelized avoided cost of energy. It measures the value to the electric system that certain technologies provide. LACE also shows the cost that would be sustained to provide the same supply to the system. The article mainly talked about LOCE, but I figured I would add some of the LACE mentioned in the article.
https://energypost.eu/costs-of-electricity-generation-compared-beware-of-simple-metrics/ (Links to an external site.)
https://www.nytimes.com/2020/07/11/business/401k-advice.html (Links to an external site.)
This article relating to retirement planning was meaningful to me because it covers an area that is often overlooked. The article is about how to minimize the fees that are associated with a typical 401(k). Basically, it conveys a saying that I like which is: “The answer is always no if you do not ask”. In the article, they explain how typical fees for retirement plans are normally quite low at around 1%. However, the article goes on to illustrate how it is easy to simply shop around for a better fee rate. For their example they are referring to those who work for medium to larger companies. These companies have the ability to easily look between different options and choose the ones that match their risks with a lower fee. Another thing they can do is to just reach out to the manager of the fund itself to potentially negotiate a lower fee rate. This is obviously an easier strategy for those larger companies with more influence and input. However, it still got me thinking personally about how to minimize fees in general because over time they will add up.
In the article “Retirement Planning for 20-Somethings: Don’t Fall Into the ‘Playing It Safe’ Trap”
I learnt about the importance of diversifying a portfolio and more importantly the use of stocks rather than using only bonds and interest rate funds. Another thing that I learned is that younger people are able to bare far more risk than those closer to retirement or in retirement already. This is even more relevant to those of us in our twenties. In order to maximize this target funds are the best option for younger people as they are very diverse and have a high risk tolerance to begin and gradually become more conservative as the target date is approached. This was a very interesting and informative read.