HFCV LCC (i) ($/yr) = number of new HFCVs (in year i) × vehicle first cost (in that year) ($/yr) + Σ [H2 fuel cost (i) + O&M cost (i) + policy cost (i)] × total number of HFCVs in the fleet (i)
Reference vehicle LCC (i) ($/yr) = # number of new HFCVs (i) × reference vehicle first cost (i) ($/yr) + Σ [gasoline fuel cost (i) + O&M cost (i) + policy cost (i)] × total number of FCVs in the fleet (i)
ΔLCC (i) = reference vehicle LCC (i) ($/yr) − LCC HFCV (i) ($/yr) = number of new HFCVs (i) × [reference vehicle first cost (i) − HFCV first cost (i) ($/yr)] + Σ [gasoline fuel cost (i) − 2 fuel cost (i) + Δpolicy cost (i)] × total number of HFCVs in the fleet (i)
The difference in life-cycle costs ΔLCC at each year (cash flow) represents the funding that would have to be supplied each year to make the cost of HFCVs equivalent to that of the reference gasoline vehicles. Initially, HFCVs cost a lot more than gasoline vehicles (but the number of new HFCVs is low) so the cash flow is negative. Eventually as costs for HFCVs come down via learning, under some conditions ΔLCC (i) becomes positive.
When the costs are equal, the annual cash flow ∆LCC (i) = 0. The year that this happens is termed the “LCC breakeven” year. Presumably, at this point the net cost to the economy is the same for FCVs and gasoline reference vehicles.
Add up incremental HFCV vehicle and fuel costs to get to the LCC breakeven year (compared to the gasoline reference vehicle). These are transition or “buydown” costs.
Buydown cost ($) = Σ ΔLCC (i) i = 1 to the breakeven year
Initially, the first cost of the HFCV will be much higher than that of the reference vehicle. This cost falls over time (with increased learning and mass production of HFCVs), so that eventually, under some conditions ΔLCC (i) = 0, and the negative cash flow “bottoms out.”