What are capital costs? What do these include?

Question

Capital Costs -
Examples:

What are operating costs? What do these include?
Operating Costs -
Examples:

Which energy source has a higher capital cost? Renewable or Nonrenewable (Circle or Highlight the correct answer)

Which energy source has a higher operating cost? Renewable or Nonrenewable (Circle or highlight the correct answer)

Levelized Cost of Energy (LCOE) compares _________________ ________________ of energy generation.

LCOE is the __________________ ___________ per kWh at which ________________ ______________________________________________________________________ over the lifetime of a power-generating project.

The formula for a simple LCOE calculation is (capital costs) + (average yearly operating costs)x(number of project years)(total production)
Unit is Dollars per kWH. **Be sure to multiply average yearly operating cost by number of years before adding capital costs (PEMDAS)**

Use the formula to answer the following question: A solar energy project is expected to have capital costs of $750,000, average yearly operating costs of $125,000, and a lifetime of 15 years. If the total production during the lifetime of the project is 89,500,000 kWh, what is the levelized cost of energy (LCOE)?

Solar and wind energy do not contribute to ___________________ ________________.

Answer 1

Capital Costs

Capital costs refer to the upfront expenses incurred to create or acquire a fixed asset, such as a power generating facility. These costs are typically one-time expenses and represent investments in physical assets that will be used in energy generation.

Examples of Capital Costs:

• Construction costs of power plants (e.g., solar farms, wind turbines, nuclear plants)
• Equipment and machinery purchases
• Land acquisition and development expenses
• Permitting and regulatory fees
• Financing costs associated with loans for construction

Operating Costs

Operating costs are the ongoing expenses associated with the operation and maintenance of a facility after it has been built. These costs are necessary to ensure continued functionality and performance.

Examples of Operating Costs:

• Labor costs for staff and maintenance
• Routine maintenance and repairs
• Insurance
• Utility costs like water or electricity used in operations
• Administrative costs
• Waste disposal and environmental compliance expenses

Capital Cost Comparison

Which energy source has a higher capital cost?
Renewable or Nonrenewable (Highlight the correct answer)
Answer: Renewable

Operating Cost Comparison

Which energy source has a higher operating cost?
Renewable or Nonrenewable (Highlight the correct answer)
Answer: Nonrenewable

Levelized Cost of Energy (LCOE)

LCOE compares the total lifetime costs of energy generation.

LCOE is the average cost per kWh at which electricity must be generated for a project to break even over the lifetime of a power-generating project.

LCOE Calculation

The formula for a simple LCOE calculation is: \[ LCOE = \frac{(capital costs) + (average yearly operating costs) \times (number of project years)}{(total production)} \]

Use the given data to calculate the LCOE:

• Capital Costs: $750,000
• Average Yearly Operating Costs: $125,000
• Lifetime of the project: 15 years
• Total Production: 89,500,000 kWh

First, calculate the total operating costs over the lifetime: \[ Total Operating Costs = Average Yearly Operating Costs \times Number of Project Years \] \[ Total Operating Costs = 125,000 , \text{USD/year} \times 15 , \text{years} = 1,875,000 , \text{USD} \]

Now, calculate the total costs: \[ Total Costs = Capital Costs + Total Operating Costs \] \[ Total Costs = 750,000 , \text{USD} + 1,875,000 , \text{USD} = 2,625,000 , \text{USD} \]

Now, calculate LCOE: \[ LCOE = \frac{Total Costs}{Total Production} \] \[ LCOE = \frac{2,625,000 , \text{USD}}{89,500,000 , \text{kWh}} \approx 0.0293 , \text{USD/kWh} , \text{or} , 2.93 , \text{cents/kWh} \]

Environmental Impact Statement

Solar and wind energy do not contribute to greenhouse gas emissions.