Generalized Profit Structure of Coal Plants

To answer the research question, we begin by modeling the profitability of existing coal plants and comparing them with renewable energy plants. The generalized profit structure of a coal plant is given by:

\(Profit_{coal} = Revenue - Costs\)

Where:

• Revenue is calculated as the electricity generated multiplied by the electricity sale price: \(Revenue = Energy Output \times Sale Price\)
• Costs include operating, maintenance, and fuel costs (coal).

For the renewable energy plant, the revenue should remain the same, as it generates the same amount of electricity, and the sale price of electricity is assumed to be the same.

Levelized Cost of Energy (LCOE) Calculation

To determine how profitable an energy plant is to evaluate a transition to renewable energy, we evaluate whether the annual costs of a renewable energy plant are cheaper than continuing to operate an existing coal plant. The key calculation here is the Levelized Cost of Energy (LCOE) calculation, which is defined as:

\(LCOE = \frac{Total Costs}{Energy Output}\)

Where the total costs include both capital and operating costs over the plant's lifetime, and the energy output is calculated based on the plant's capacity and capacity factor.

The LCOE calculation takes into account the entire lifespan of the plant. For coal plants, this includes all yearly operational and maintenance costs and the energy output, which is calculated as: \(Energy Output_{coal} = Capacity \times Capacity Factor\)

Data Sources and Framework

The data we used includes:

• Energy output and plant specifications for existing coal plants from the Global Energy Monitor's coal plant tracker.
• Annual generation and cost data for coal plants, sourced from Carbon Tracker.
• Installed costs and operation and maintenance (O&M) costs for solar and wind power, obtained from the International Renewable Energy Agency's (IRENA) reports on the costs of renewable generation.
• Country-specific discount rates used in the LCOE calculation were derived from Damodaran's estimates of country risk premiums.

LCOE Calculation for Renewable Plants

For renewable plants, such as wind or solar, we calculate the LCOE using generation based on specific plant locations. Solar output comes from the Global Solar Atlas (https://globalsolaratlas.info/), and wind capacity is from the Global Wind Atlas (https://globalwindatlas.info/en/). We use optimal tile and azimuth for solar output, and IEC Class II is used for wind capacity factors. Then we calculate the required installed capacity to match the annual energy output of each coal plant. The amount of installed capacity necessary is calculated as:

\(Installed Capacity_{renewable} = \frac{Energy Output}{Capacity Factor_{renewable}}\)

We multiply the installed capacity by the costs specific to each country to calculate the total cost for the renewable plant. Here we used an estimated lifetime of 30 years for solar plants, and 25 years for wind plants.

Furthermore, for renewable plants we begin calculating output and annual O&M costs at year 1, while the installed plant costs begin at year 0.