Cost comparison of energy projects: Discounted cash flow and revenue requirement methods

Both the discounted cash flow (DCF) and revenue requirement (RR) methods are frequently used in the cost analysis of energy projects. Each is especially well suited in special circumstances. For most forward looking ventures, the RR method appears to be more useful. This paper provides simple formulations for the two methods and some special cases of interest for costing practices. Both formulations are applicable to either free or regulated enterprises and also under constant-dollars or inflationary conditions. The interpretation of cost results depends on the selection of cash-flow streams and/or the intent of revenue requirements. Several numerical examples are given.