Levelized Cost of Electricity: What Is It?

Levelized cost of electricity (LCOE) represents the average revenue per unit of electricity generated needed to recover the costs of building and operating a generating plant over its financial life. It’s used for investment planning and comparing different methods of electricity generation.
Imagine you love pizza and you spend $30 every week on it. Over a year, that adds up to $1,560. Now, if you plan to keep eating pizza for the next 25 years, you would spend a total of $39,000, assuming the price stays the same. However, pizza prices usually increase over time due to inflation, so the actual cost could be much higher.
Now, suppose a pizzeria offers you a deal: pay $20,000 upfront for a “Lifetime Pizza Card” that lets you eat as much pizza as you want for the next 25 years. This is a big upfront cost, but it could save you money in the long run.
To decide if this deal is worth it, you need to calculate the average cost per pizza slice over the 25 years. This is similar to calculating the LCOE for energy projects. The LCOE is the total cost of building and operating an energy project (like a power plant) divided by the total amount of electricity it will produce over its lifetime. It helps you compare different energy sources by giving you a single number that represents the average cost per unit of electricity.
LCOE is like figuring out the average cost per slice of pizza over 25 years, considering both the upfront cost of the Lifetime Pizza Card and the total number of slices you expect to eat.
#lcoe
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