This question usually comes to us either as "Why doesn't HOMER rank systems by cost of energy (COE)?" or "Why didn't HOMER choose the system with the lowest COE?". The real question is, why is the total net present cost (NPC) better than the COE as an economic metric? The answer is because the NPC is a more trustworthy number than the COE.

The concept of COE is simple enough -- it's the average cost per kWh of electricity. But in developing a precise mathematical definition of the COE, some questions arise. For example, if the system serves both electric and thermal loads, should you try to isolate the cost of serving just the electric load, separate from the cost of serving the thermal load? If so, how? Also, if the system supplies less than 100% of the electric demand, should you calculate the cost per kWh of demand, or per kWh of load actually supplied?

To develop the equation for the COE we made the following decisions:
 

• To isolate that portion of the total annualized cost that reflects the cost of producing electricity (as opposed to producing heat) we decided to subtract from the total annualized cost the product of the boiler's marginal cost and the total annual thermal load.
• In calculating the total amount of useful electricity produced by the system, we decided to use the amount of electric load the system actually serves, rather than the total electric demand. The two are not necessarily the same if the user allows some unmet load.
• We include the amount of electricity sold to the grid in the total useful electrical production.

The result is that the value of COE is also somewhat arbitrary and disputable. The same is not true of the total NPC. It is a simple mathematical concept that doesn't require any of the above judgements. For that reason we use the total NPC as the primary economic figure of merit in HOMER Pro.