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.
