06. Energy Markets 1

—> wants to balance Sustainability, Affordability and Security of Supply

Sustainability: Transition of a countries energy system about avoiding environmental harm and climate change impacts

Affordability: Assesses a contries ability to provide universal access to affordable, fairly priced energy

Security of Supply: Nations capacity to meet current and future energy demand reliably, no disruptions of supply

The value of money over time will decrease due to inflation rate

1. Static methods

   • simple and cost-effective based on averaging methods

   • 4 different calculation methods (cost, profit, profitability comparison and amortization)

2. Dynamic methods

   • more accurate: recording of inflows and outflows over the entire useful life of the investment

   • Cash flows can vary, therefore comparability is done by discounting the cash flows (before start or at the end of the investment period)

• Cost of several investment opportunities

• Attempts to determine the one with lowest cost

• Case: Investment objects generate different returns

• Extension of cost comparison calculation, because of focus on different sale prices

• Also takes into account of differences in quality

• Comparison of the annual profit to the tied-up capital (gebundenes Kapital)

• Result: interest rate of tied-up capital in %

• Invest with highest profitability is advantageous

• Methods: capital return, pay-off or pay-back

• Determines the period in which the original capital investment for an investment from the future cash suplus flows back into the company

• Capital investments —> purchase payouts - liquidation proceeds

• Excess payments —> difference between deposits and withdrawals attributual to the investment

1. Time value

   • (Known) Value of a payment at the time it is incurred (entstanden)

   • E.g. Investment now, price now

2. Final value

   • (Sought-after) value, which results from compounding the time value

   • E.g. Investment now, price in the end according to the interest rate

3. Present value

   • (Sought-after) value, which results from discounting the time value

   • E.g. Investment in 3 years, value now with discounting (jetzt weniger zahlen, als in 3 Jahren, quasi zurückrechnen)

4. Compounding

   • How much is a payment made earlier on the Worth the end of the investment?

   • E.g. Investment now, future: investement + interest rate

5. Discounting

   • How much is a payment made at a later date? Worth it at the beginning of the investment?

   • E.g. Investment in 3 years, price is lower because of discounting

• Current value of future payments

• Difference: One-off or several payments

—> Determined by discounting the cashflows (inflow-outflow) given at the individual points in time (t)

• Discount = interest rate (i)

Characteristics

• Vary in amount and timing

• Comparability of different cash flows by discouting to their present value

• NPV = Sum of present value of all excess payments - purchase payout

• Reflects the total profit of an investment

• NPV = 0 —> investement earns exactly the discount rate

• NPV = > 0 —> investement is beneficial

—> used to consider a a power plant investment and calculate the cost of electricity, LCOE of a typical year

Levelized Costs of Electricity

= lifetime costs / energy production

• For comparison of different technologies e.g. PV and Windturbine

• Fossil generators have other cost parameter (operating and fuel costs are higher, investment lower)

• Considering discount factors

In Prüfung den Weg erklären!

or:

• Comparison of LCOE for one kWh

• Comparison of full system costs of RES with LCOE of conventional generators

• Comparison of LCOE of RES with electricity prices on electricity exchange or operating costs of fossil fuel power plants

• Grid parity: Comparison of LCOE of RES with retail electricity price

• E.g.: Wind, PV, Biogas, solid Biomass, Lignite, Hard coal,… LCOE increasing

LCOE = average total costs over lifetime

Annual costs = actual annual costs

Examples:

LCOE

Annual full costs

2022

40,07 ct/kWh

• 21 % Acquisition / sales

• 8 % Grid fee

• 6 % Value-added tax

• Electricity tax

• Concession fee

• CHP and other surcharges