Levelized production cost. An alternative form of discounted cash flow analysis
- Pacific Northwest Lab., Richland, WA (United States)
Levelized production cost (LPC) is an alternative form of discounted cash flow analysis that expresses the annual cost of an investment per unit of production. The LPC defines the price that would have to be charged per unit of production to achieve a net present value (NPV) of zero for an investment. The procedure is most commonly employed in the electric utility industry to calculate the unit cost of electricity (i.e., $/kWh) for alternative generating technologies, but can be usefully employed in any situation where understanding the cost per unit of service is important. The primary purpose of this article is to present the mechanics of LPC analysis so that the reader will be able to implement and understand the technique. Toward that end, the main section of this article presents the basic equations for calculating a LPC, illustates the use of the equations with an example, and describes the fundamental concepts, assumptions, and limitations of the procedure. An overview of discounted cash flow principles and other profitability analysis techniques is presented first. 6 refs., 1 fig.
- OSTI ID:
- 6934849
- Journal Information:
- Cost Engineering (Morgantown, West Virginia); (United States), Vol. 36:8; ISSN 0274-9696
- Country of Publication:
- United States
- Language:
- English
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