LCOE: A Useful and Valid Indicator—Replica to James Loewen and Adam Szymanski

Kuckshinrichs, Wilhelm

doi:10.3390/en14020406

“…In addition, in any scientific field, scientific opinions can vary within a broad spectrum, especially when dealing with complex systems such as grid-scale electricity systems. For instance, until recently, the levelized cost of electricity (LCOE)-the most popular economic measure employed to compare the cost of different energy sources-is still controversial among researchers [59][60][61][62][63][64][65]. The limitations of the LCOE are succinctly explained in [65], while the basics of renewable energy economics can be found in [66].…”

Section: Who Should Define Sustainable Energy?mentioning

confidence: 99%

Sustainable Energy: Concept and Definition in the Context of the Energy Transition—A Critical Review

Halawa

2024

Sustainability

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The term sustainable energy is very familiar to all of us, yet its exact definition or meaning has so far been vague. To date, the widely adopted definition of sustainable energy has been inspired by the definition of sustainable development formulated more than 30 years ago in Our Common Future—the UN’s Report of the World Commission on Environment and Development. The current definition conceals the true spirit of the report, and this has some ramifications. It raises the question as to whether we have put too much emphasis on attaining the future dimension of sustainability in the middle of a situation where energy survivability is in fact the real issue in many parts of the world. In this paper, the role of energy in sustaining the livelihoods of low-income communities is discussed. The existing definition of sustainable energy that the whole world seems to have embraced is looked at critically and its downsides exposed. The identified pillars of sustainable energy and the associated issues are discussed, and the need for an additional pillar, i.e., affordability, is discussed and called for. This paper will argue that the global definition of sustainable energy seems inappropriate and should be jettisoned, and a more realistic definition should be formulated, adopted, and embraced at the local (i.e., national or regional) level taking into account local attributes and factors. The current push for a transition from the reliance on conventional energy sources to “cleaner” energy sources (generally associated with renewable energy) has further exacerbated the issue of energy affordability that has made the conditions even more dire for so many groups of the world’s population. In the midst of this situation, those who push for a rushed energy transition seem to be those who also produce an unsustainably high carbon footprint but who can easily offset their carbon footprint through the ‘net-zero’ concept.

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“…LCOE is based on the Net Present Value (NPV) concept (Bertoni, 2021;Kuckshinrichs, 2021). All issues are discounted to an initial point in time that corresponds to zero.…”

Section: Social Return On Investmentmentioning

confidence: 99%

Untitled

2023

DIEM Dubrovnik International Economic Meeting

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The purpose of the paper is to present an example for the electrification of rural Africa. We will discuss the preconditions, necessities and obstacles of building a solar power plant in rural Niger. For the energy supply of a small village in West Africa a solar pilot plant (20 kWp solar plant with battery storage) is installed. This energy hub makes it possible to provide solar-powered electricity for the town, operate a (ground) water pumping system-delivering water for households and for irrigation of fields. The aim of the paper is to determine the social and individual welfare effects of the new energy system. Therefore, the social well-being of the village is analysed by the social return on investment (LSROI) model. The analysis starts with an empirical survey of the households of the village. The villagers were asked to assess the benefits of the new solar power plant investment for their household and for the whole village. Investment and household valuation are intertemporal decisions whose consequences occur at different points in time, and social actors may have different time preferences. Therefore, two different discount methods are considered. The classical standard discounting model for the technical investment and the hyperbolic discounting for the discounting of the utility of the pilot plant for the households. Four different time preference rates (0%, 1%, 5%, 10%) are used to capture different risk assumptions caused by the current global and local risks (rising energy and food prices, corona pandemic, climate change, water scarcity) and defining thereby the social time preference space. The social return on investment model determines the social return on investment for the households of the village. By rising the time preference rate from 0% to 10% a significant decline of the social benefits of the solar pilot plant can be determined. The global and local risks will rise the time preference rate of the villagers because the present becomes more and more difficult to manage and the visible future is reduced. Hence, the social revenues of the pilot plant decrease over time.

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Measuring the Social Welfare of a Solar Power Plant in West Africa - A Social Return on Investment (Sroi) Model

Schlör,

Kuckshinrichs

2023

DIEM Dubrovnik International Economic Meeting

1

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The purpose of the paper is to present an example for the electrification of rural Africa. We will discuss the preconditions, necessities and obstacles of building a solar power plant in rural Niger. For the energy supply of a small village in West Africa a solar pilot plant (20 kWp solar plant with battery storage) is installed. This energy hub makes it possible to provide solar-powered electricity for the town, operate a (ground) water pumping system-delivering water for households and for irrigation of fields. The aim of the paper is to determine the social and individual welfare effects of the new energy system. Therefore, the social well-being of the village is analysed by the social return on investment (LSROI) model. The analysis starts with an empirical survey of the households of the village. The villagers were asked to assess the benefits of the new solar power plant investment for their household and for the whole village. Investment and household valuation are intertemporal decisions whose consequences occur at different points in time, and social actors may have different time preferences. Therefore, two different discount methods are considered. The classical standard discounting model for the technical investment and the hyperbolic discounting for the discounting of the utility of the pilot plant for the households. Four different time preference rates (0%, 1%, 5%, 10%) are used to capture different risk assumptions caused by the current global and local risks (rising energy and food prices, corona pandemic, climate change, water scarcity) and defining thereby the social time preference space. The social return on investment model determines the social return on investment for the households of the village. By rising the time preference rate from 0% to 10% a significant decline of the social benefits of the solar pilot plant can be determined. The global and local risks will rise the time preference rate of the villagers because the present becomes more and more difficult to manage and the visible future is reduced. Hence, the social revenues of the pilot plant decrease over time.

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LCOE: A Useful and Valid Indicator—Replica to James Loewen and Adam Szymanski

Abstract: Recently, in two publications, Loewen expressed skepticism on the validity of the levelized cost of energy (LCOE) indicator, used to compare the economics of energy technologies [...]

Cited by 4 publications

References 32 publications

Sustainable Energy: Concept and Definition in the Context of the Energy Transition—A Critical Review

Sustainable Energy: Concept and Definition in the Context of the Energy Transition—A Critical Review

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Measuring the Social Welfare of a Solar Power Plant in West Africa - A Social Return on Investment (Sroi) Model

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