What is Levelized Cost of Electricity (LCOE) and How to Calculate LCOE?

Levelized cost of electricity (LCOE) represents the kilowatt-hour cost of building and operating a power generation plant over an assumed financial life and duty cycle.

For a solar PV plant, the typical economic life is 25 years. Essentially, LCOE is utilised as a means of comparing different sources of generating technologies which have different lifetime period and supported by different financing schemes. For example, LCOE provides a fair evaluation of intermittent sources like a solar PV or wind power plant with base-load generators like nuclear or coal.

LCOE is given by,

Thus, if the total sum of costs for a solar power plant comes to \$10000 for 25 years and the plant generates 100000 units over this period, the LCOE = 10000/100000 = \$0.1/kWh or about 10 cents/kWh.

The LCOE is generally represented in units of currency per Kilowatt-hour such as \$ or cents KW-hr (or the equivalent currency unit for the corresponding region)

The inputs that are considered as part of the LCOE evaluation include all the possible costs during the 25 year lifetime of the solar power plant – capital costs, O&M costs, financing costs as well as factors like depreciation and subsidy programs. Fuel costs are zero in the case of solar PV and so these have no part to play in the LCOE calculation.

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One thought on “What is Levelized Cost of Electricity (LCOE) and How to Calculate LCOE?”

1. phalguni

Hi Sir.
Have read some of your discussion threads and these are very useful. Thanks for explaining so beautifully and simply.

I don’t have much idea about solar finance.

somebody asked me what could be the most suitable tariff for a 1 MW solar rooftop, BOT mode with transfer after 10 years and the information we know is that the cost being incurred is Rs. 5.5 crore. Can you please help me with this.

Thank you

India Renewable Energy Expert