Lots of very smart people work very hard to calculate the cost of electricity, no matter how it is generated – fossil fuels, nuclear fission, wind, geothermal, solar photovoltaics, solar thermal

*etc*. It’s an endeavour fraught with contentious assumptions. For example … What is the estimated capital cost? What is the capacity factor and output? How is the project to be funded? What is the level of government support? What is the interest rate and how long will it take to pay back loans? How is taxation calculated? What level of profit is demanded by investors? What is the present and expected cost of fuel? What are the operating and maintenance costs? How to cost externalities such as CO_{2}emitted or radioactive waste?In this blog, I shall only look at solar power – both PV and solar thermal. I’ll make a set of standard assumptions at the outset, namely

· there is no inflation,

· taxation implications are neglected,

· projects are funded entirely by debt,

· all projects have the same interest rate (8%) and payback period (25 years), and

· all projects have the same annual maintenance and operating costs (3% of the total project cost).

These assumptions will be applied consistently to all projects. No currency conversions will be made. The cost of capital is given by the rate of capital return. To pay back a loan at 8% over 25 years, annual payments must be 9.4% of the funds borrowed.

Estimates will be given for two cost metrics – the power per peak Watt and the Levelised Electricity Cost (LEC). To make these estimates, all that is now required is the capital cost of the project, the peak power output and the total power output per year.

Example (1) is my passive solar evaporation heat engine as described at www.sunoba.com.au and in a recent conference paper: N.G. Barton, “Annual Output of a New Solar Heat Engine”,

*Proc AuSES Conf*, Canberra (2010).Suppose we have a 1 km^2 horizontal canopy area, with output as per simulations conducted for Wellington, New South Wales. The peak power output is estimated as 65 MW with annual output 74 GWhr. Construction costs are estimated at AUD 25 / m^2 for the collectors (glass, land, frame, construction) and AUD 1,000 / kW for the evaporation engine and balance of plant including water treatment. So the total capital cost for the 1 km^2 project would be AUD 90 million.

Cost per peak Watt AUD 1.38 / Wp

LEC AUD 150 / MWhr

The components of the LEC are:

CAPEX {0.094 × AUD 90×10

^{6}} / {74×10^{3}MWhr} = AUD 114 / MWhrOPEX {0.030 × AUD 90×10

^{6}} / {74×10^{3}MWhr} = AUD 36 / MWhr
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