Levelized Cost of Energy (LCOE)

Levelized Cost of Energy represents the average revenue required per unit of electricity generated over the lifetime of a power plant to recover all construction, operation, maintenance, fuel, and financing costs, expressed in dollars per megawatt-hour. This metric serves as the standard benchmark for comparing generation technology economics across different fuel types, scales, and operating conditions.

LCOE calculations incorporate capital expenditures, fixed and variable operating costs, fuel expenses, financing terms, and decommissioning obligations, discounted to present value terms. The metric enables direct comparison between technologies despite different capital structures and operating profiles. Solar PV projects might have high upfront costs but low operating expenses, while gas plants exhibit the opposite pattern.

LCOE has declined dramatically for renewable technologies over the past decade, with solar and wind achieving grid parity in many markets. However, the metric has limitations in valuing energy storage, ancillary services, or location-specific value, leading to complementary metrics like Levelized Cost of Storage or Value-Adjusted LCOE.