LCOE stands for Levelized Cost of Electricity. It is a metric used to determine the average cost of generating electricity over the lifetime of a power-generating asset, such as a power plant or wind farm. LCOE is measured in units of currency per kilowatt-hour (kWh) and is commonly used in the energy industry to compare different types of electricity generation technologies and determine their cost competitiveness.
To calculate the LCOE, the total costs associated with building, operating, and maintaining the power-generating asset over its expected lifetime are divided by the total amount of electricity it is expected to produce over that time. This includes various factors such as capital costs, fuel costs, operating costs, maintenance costs, and financing costs.
The LCOE metric provides a standardized way to compare the cost of electricity generation across different technologies, regardless of their varying upfront costs, fuel requirements, operational lifetimes, or capacity factors. It allows for a more accurate assessment of the long-term economic viability of a particular technology.
The LCOE metric is useful for policymakers, energy planners, and investors as it helps them make informed decisions about electricity generation investments, policy formulation, and determining the most cost-effective options for meeting energy demand. By comparing LCOE values, stakeholders can identify which technologies are more economically competitive and can contribute to achieving a sustainable and affordable energy mix.
