The use of levelised cost in comparing supply and demand side options

Abstract

This paper explores the use of levelised cost in planning for infrastructure networks. Levelised cost provides a useful measure comparing supply or conservation options on varying scales on an equivalent basis. Comparison is made to annualised cost, a metric often used as a means of comparing different supply side options. Urban water supply is used as the primary example, however levelised cost is equally applicable to other infrastructure networks, such as electricity or gas. The levelised cost is calculated as the ratio of the present value of projected capital and operating cost of an option to the present value of the projected annual demand supplied or saved by the option. The paper demonstrates that levelised cost is the constant unit cost of supply, provided by an option at present value. It is also the average incremental cost of the option at the point of implementation. When translated to a unit cost, annualised cost does not account for unutilised capacity in large scale schemes, systematically under representing actual costs. By using levelised cost this inherent bias is removed. Use of levelised cost would facilitate the inclusion of smaller scale and more incremental supply options into infrastructure networks providing both economic and environmental benefits.

Economic implications of water efficiency measures I: assessment methodology and cost-effectiveness of micro-components

“…The approach takes the time value of money into account by annualising the initial cost at a particular discount rate (Fane et al 2003). This capital cost is then added to annual operating and maintenance costs that are assumed to be constant (Equation (3)).…”

“…The method is widely used in the water industry (White and Howe 1998, White and Fane 2002, Fane et al 2003, Smout et al 2008 and is considered as the most appropriate metric for comparing urban water options where a study considers options that are additional to an existing system (Mitchell et al 2007). The AIC method has also become a standard for water supply and WDM measures in the UK (EA 2012).…”

“…Most of the earlier studies conducted to evaluate the cost of urban WDM strategies focused on water supply and wastewater operations (White and Howe 1998, White and Fane 2002, Fane et al 2003, Mitchell et al 2007, Aulong et al 2009, Chong et al 2008, Hughes et al 2009, Maurer 2009). Marshallsay et al (2007) investigated the capital cost of water efficient micro-components for the Code for Sustainable Homes (DCLG 2008), whereas Bochereua et al (2008) and the EA (2007) examined the cost of retrofitting certain water saving micro-components/fittings from the perspective of water service providers.…”

Developing industrial water reuse synergies in Port Melbourne: cost effectiveness, barriers and opportunities

“…Water reuse synergies identified in this paper were evaluated using a cost effectiveness framework ($/kilolitre) based on levelised unit cost as described by White and Fane (2002), Fane et al (2003). Cost-effectiveness is the cornerstone of Integrated Resources Planning which has been advocated in the water and energy industries for comparing supply augmentation and demand reduction measures on an equal footing (Turner et al, 2008;Fane et al, 2002).…”

“…human food crops consumed raw or industrial use in open systems with worker exposure potential (Environment Protection Authority Victoria, 2003). 3 Cost effectiveness was calculated using the levelised cost of water (Fane et al, 2003).…”