Economic Competitiveness Evaluation of the Energy Sources: Comparison between a Financial Model and Levelized Cost of Electricity Analysis

Sanghyun Sung and Wooyong Jung
Additional contact information
Sanghyun Sung: Department of NPP Engineering, KEPCO International Nuclear Graduate School (KINGS), 658-91 Haemaji-ro, Seosaeng-myeon, Ulju-gun, Ulsan 45014, Korea
Wooyong Jung: Department of NPP Engineering, KEPCO International Nuclear Graduate School (KINGS), 658-91 Haemaji-ro, Seosaeng-myeon, Ulju-gun, Ulsan 45014, Korea

Energies, 2019, vol. 12, issue 21, 1-21

Abstract: The levelized cost of electricity (LCOE) is used widely to compare the economic competitiveness of the energy mix. This method is easy to understand and simple to apply, which makes it preferable for many energy policymakers. However, the method has several disadvantages from the energy business perspective. First, the LCOE approach does not consider revenue, and a high-interest rate usually correlates with the tariff growth rate. Thus, if a high-interest rate increases the cost, that high rate increases the revenue, which can affect economic competitiveness. Second, the LCOE does not consider different stakeholders. Equity investors and loan investors have different interests depending on different financial indicators, which influence the same energy sources’ differential economic attractiveness. This study analyzes and compares the LCOE, Project Internal Rate of Return (Project IRR), Equity Internal Rate of Return (Equity IRR), and Debt Service Coverage Ratio (DSCR) of an illustrative wind, coal, and nuclear power project using Monte-Carlo simulations. The results show that energy sources’ economic competitiveness can vary depending on financial indicators. This study will help energy policymakers develop more economically realistic energy portfolios.

Keywords: energy business; energy source; project finance; financial model; levelized cost of electricity; internal rate of return; tariff growth rate; loan period; sensitivity analysis (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.mdpi.com/1996-1073/12/21/4101/pdf (application/pdf)
https://www.mdpi.com/1996-1073/12/21/4101/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jeners:v:12:y:2019:i:21:p:4101-:d:280813

Access Statistics for this article

Energies is currently edited by Ms. Agatha Cao

More articles in Energies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().