What is meant by life cycle cost and how it is determined?

HOMER uses the total net present cost (NPC) to represent the life-cycle cost of a system. The total NPC condenses all the costs and revenues that occur within the project lifetime into a single lump sum in year-zero dollars, with future cash flows discounted back to year zero using the discount rate. Costs may include capital costs, replacement costs, operating and maintenance costs, fuel costs, the cost of buying electricity from the grid, and miscellaneous costs such as penalties resulting from pollutant emissions.  Revenues may include income from selling power to the grid, plus any salvage value that occurs at the end of the project lifetime.

With the NPC, costs are positive and revenues are negative. This is the opposite of the net present value (NPV). As a result, the NPC differs from NPV only in sign.

To see a detailed breakdown of the how HOMER calculates the total NPC for any system in the Optimization Results list, double click on that system to see the Simulation Results window, switch to the Cash Flow tab, and click the Details button in the top right corner.  HOMER will display a spreadsheet showing the cash flows that occur in every year of the project lifetime, broken down by component and type.  If you choose to display the discounted cash flows, the total net present cost will appear in the bottom right cell.