Levelized cost of electricity

Levelized cost of electricity (LCOE) estimates a generating asset’s average lifetime cost per unit of electricity. It discounts costs and output over time to express them as a single figure.

Discounted cash flow: A valuation method that converts future cash flows into present value using a discount rate. LCOE discounts construction, operating, and decommissioning costs across an asset’s lifetime.
Solar power: Electricity generated by converting sunlight into electrical energy. Solar LCOE depends strongly on equipment cost, sunlight, financing, and plant output.
Value-adjusted levelized cost of electricity: A metric that adjusts generation cost for the market value of electricity produced at different times. It addresses LCOE’s omission of when and where electricity is delivered.
Social cost of carbon: An estimate of the economic damage caused by emitting one additional tonne of carbon dioxide. Whether climate damages are included can change comparisons between emitting and low-carbon generation.
Capacity factor: The ratio of a generator’s actual output over a period to its maximum possible output. It determines how much electricity spreads the asset’s fixed costs.
Wind power: Electricity generated by converting the kinetic energy of moving air. Wind projects use LCOE to summarize costs across construction and decades of generation.
System cost of electricity: A measure that includes costs imposed on the wider power system by a generation technology. It can capture balancing and network costs that plant-level LCOE leaves out.
Carbon pricing: Policies that assign a monetary cost to greenhouse-gas emissions, such as taxes or emissions trading. Its inclusion changes the apparent lifetime cost of carbon-intensive generation.
Capital cost: The expenditure required to acquire, construct, or install a long-lived asset. Upfront construction costs are a major component of the numerator in LCOE.
Nuclear power: Electricity produced by heat from controlled nuclear fission, typically in a power plant. High construction costs and long operating lives shape nuclear LCOE estimates.

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