When offering financing options to a renewable energy c&I prospect, you will do your clients a service by looking at the loan as you might a PPA: by citing the actual cost-per-kilowatt-hour ($/kWh).

To do this accurately, you have to get two critical values:

– the financing cost over the entire term of the loan, net of government incentives.

– the total kWh production of the system over its expected life, inclusive of de-rating.

These two values give you a ratio…and that ratio is called the **Levelized Cost Of Energy (LCOE)**, and it is represented as $/kWh, exactly the way the utility charges for electricity.

LCOE allows you to make a side by side comparison with the current and future cost of energy…or even a PPA and its riser.

It allows you to put all power buying options in an “apples to apples’ comparison. **Predictability and stabilization of future costs is priceless for business operators and CFO’s**. The ability to present LCOE options will make any proposal stand-out, and facilitate a sale.

### Like a PPA quote, but for a loan.

If you were to use CleanFi’s BidDesk to put your project out for PPA quotes, the key value that would be returned would be the starting $/kWh for the term of the PPA; but most likely that PPA would have an associated “riser”, an incremental annual percentage increase in that base rate.

The beauty of LCOE is that it gives you that base rate, with zero annual incremental increase!..thus the term “levelized”, because it is a fixed rate for the life of the system.

LCOE turns cash flow on its head by opening the curtain on the cost of long-term financing.

Simply put, LCOE calculations show that, everything else being equal, the longer the term of your financing, the more you pay for the energy you have bought.

It makes sense, right? The longer you use someone else’s money, the more you are going to have to pay for it. But LCOE transforms that logic into startling numerical truth.

**>> **__Access the LCOE calculator to download it__

__Access the LCOE calculator to download it__

(Look for the file in your Download folder after clicking the link)

### Using the calculator to get your LCOE from CleanFi options

To demonstrate how easy it is to use this worksheet, let’s imagine a solar project that you have entered into CleanFi:

Size:250kW

Cost: $600,000

ITC: $180,000

Financed Amount on CleanFi: $420,000

**First**, input at the top of the worksheet the system’s annual de-rating factor.

**Next**, enter the anticipated first year of energy production.

This automatically calculates your 25-yr anticipated lifetime production.

**Now** turn to CleanFi, select the financing option of your choosing, and **enter the Term** (number of years of financing) **and the annual payment** for that term into the worksheet.

For a comparison of one Term over the other, repeat the last step for a second Term.

Here are **four different LCOE results for 4 different Term options**. Each pair has fairly equivalent rates:

The range from 10.4 cents/kWh to 7 cents may not seem like much, but if you are displacing 14-cent energy that will double in the course of the Term, it is proportionally quite significant.

**In this example, LCOE demonstrates that the company can pre-pay 25 years worth of power at 7 cents per kWh.**

### When does LCOE easily sell a shorter term financing option?

**Answer**: When Avoided Cost is high (see Avoided Cost). In the example above, let’s say the Avoided Cost is 17 cents; your annual energy production has a current utility cost annual value of $63,750, *with* an anticipated annual escalation of, say, 4%.

Most CFO’s in this case would select the 10-year financing option, because even though the annual payment is $66,400, that cost is *levelized*…flat at 8 cents a kWh for 25 years. It also comes with all sorts of fiscal benefits such as depreciation and deductions which will bring that financed cost at less than the first year utility cost. Then, after 10 years the benefit to the company is exponential for the entire life of the solar system.