The Levelized Cost of Constant Energy (LCOCE) is my proposed metric for measuring the price of electricity. It is a way to measure the real world cost of providing energy 24/7. The measurement is defined as the total lifetime cost of providing a constant supply of energy 24/7. It is able to overcome the shortfalls of many other types of project evaluation metrics.
The most common way of economically measuring energy projects is the Levelized Cost of Electricity (LCOE). This is a well accepted way to measure the cost of an energy project. It takes the total lifetime costs and divides them by the total lifetime energy generated. If used appropriately taking into account its limitations, it’s a decent way to compare alternative energy projects. However, it is in no way applicable to energy storage systems, and doesn’t take into account the imposed system costs of a new project. LCOE is recognized to have serious deficiencies.
The financial advisory firm Lazard presents the Levelized Cost of Storage (LCOS) to measure the costs of energy storage systems. Once again, it takes into account the total costs over the lifetime of a system and divides them by the total lifetime energy able to be stored based on cycling and capacity. The study is careful to only come up with metrics for specific and realistic battery use-case combinations. While this is a very thorough way to compare storage capabilities against other storage capabilities, it provides no insight into evaluating these systems against generation. Conventional generation is always an alternative to storage. A more universal approach is needed to better compare real alternatives.
Including the costs of integrating the technology into the existing system is very important in understanding the true costs of a proposed project. This has been done before for electricity generation. The EIA has come up with the Levelized Avoided Cost of Energy (LACE) measures the cost of what the proposed project would offset in the system it is being implemented in. It is always coupled with LCOE to provide a more complete picture of the system cost for a proposed project. Even this LCOE-LACE combination has very little ability to measure the impact of a project that includes storage technology.
The Levelized Cost of Constant Energy (LCOCE) provides a complete system picture of cost that can be inclusive of storage technologies. It measures the total lifetime cost of a system providing a constant energy supply 24/7. This matches with the real demands of a grid to have to supply electricity 24/7. It takes into account the variability costs of variable production by pricing in the cost of making up for this variability. It is universal in ensuring it includes system cost, and it is indiscriminate in being able to incorporate any technology.
An example case is a solar panel battery combination to provide for the constant energy needs of a house. A solar panel provides power to the house and to a battery when the sun is shining. The battery has stored enough energy to provide power to the house when the sun is not shining. This is the ideal distributed energy system. This set-up can be derived and calculated as:
Most of the assumptions are taken from Lazard’s LCOE Report or LCOS Report. One of the biggest assumptions in this calculation is that power demand is a constant 1 kW. Power needs fluctuate throughout the day, so this was done for simplification. The formula could be modified for different use cases. For example you could use the average cost of generation for a system as the compensation cost for when the sun doesn’t shine instead of using battery cost. There are certainly additional factors that could be taken into account and different ways of calculating, but this gives you an idea of what is trying to be accomplished.
The LCOCE is a way to measure the costs of providing electricity within the context of real world needs. It is measured as the cost of providing 24/7 electricity. The metric is able to take into account system costs and is able to handle energy storage technologies.
You can see a spreadsheet of my calculations on my Github account.