Levelized Cost of Energy (LCOE)

LCOE is one of the solar industry’s most commonly used metric for benchmark. A proposed PV project is considered viable and attractive if the LCOE of say RM0.15/KWh  is much less than the prevailing utility tariff, say at RM0.509/KWh.
At its most basic level, the Levelized Cost of Energy is the lifecycle cost (taking 25 years life cycle for the PV system) of a solar installation, divided by the total amount of energy the installation generates in the project lifecycle.

LCOE= [ IC – ITA-CA + Σnn=1{MM/(1+d)n} + Σnn=1{IR/(1+d)n} + Σnn=1{FC/(1+d)n} ] / Σnn=1PV yield

The total life cycle cost of the PV project includes: 
1) the upfront total Investment Cost
2) minus the total Investment Tax Allowance (ITA) and Capital Allowance (CA) provided
3) add sum of the lifetime PV Modules Maintenance cost of the installation converted to present value
4) add sum of the life cycle Inverters Replace cost at year 10th converted to present value
5) add sum of Finance Cost including loan instalments converted to present value (if any)
For example, the numerator of the LCOE equation is as below:
Life cycle cost of solar project = IC – ITA -CA + MM + IR + FC
Where
IC investment cost (RM201,932.80)
ITA Investment tax allowance (RM56,343.60)
CA Capital Allowance (RM56,343.60)
MM modules maintenance cost (RM104,340.00)
IR inverters replacement cost (RM30,884.64)
FC finance cost (nil)

For the denominator, the lifetime production of solar project is the total energy yield in KWh forecasted from our engineering project design calculation, rather accurately, for the 25 years period. For example, the project size of 69.56KWp produces the total yield for the project cycle is calculated to be 2,310,822KWh 

Therefore,
LCOE = RM (201,932.80-56,343.60-56,343.60+104,340+30,884.64) / 2,310,822KWh
= RM 0.146/ KWh

Thus, the LCOE of RM0.146/ KWh against the prevailing utility tariff at RM0.509/KWh is obviously a feasible project to proceed with.