Levelised Cost of Energy (LCOE) is a widely-used metric that calculates the average cost of electricity generation over the entire lifespan of a power-generating asset. It considers all the costs associated with constructing, operating, and maintaining the asset, as well as fuel costs.
The LCOE formula is, LCOE = (total lifetime cost of project) / (total lifetime energy generation). LCOE is commonly expressed in currency per unit of energy, such as dollars per kilowatt-hour.
What are the Advantages of the Levelised Cost of Energy (LCOE)?
The advantages are as follows-
1. One of the most significant advantages of LCOE is that it enables a comparison of different energy generation technologies regardless of their varying capital costs, operational costs, and lifetimes. This can aid investors, policy-makers, and energy planners in making informed decisions about which technologies to invest in or deploy on a large scale.
2. Another advantage of LCOE is that it can provide insights into the long-term economic feasibility of different energy generation technologies. It identifies areas for cost reduction and can inform decisions on energy policy and planning. For example, if the LCOE of a particular technology is considerably higher than that of other technologies, it may not be financially viable to deploy it at scale, unless there are other compelling reasons to do so.
3. LCOE can also identify areas where cost reductions could be made to increase a technology’s competitiveness. For instance, if the LCOE of a technology is high due to high fuel costs, then using less expensive fuels or increasing fuel efficiency could help reduce the LCOE. Furthermore, LCOE can be utilized to estimate future energy costs and to compare the long-term costs of fossil fuel and renewable energy technologies. This is especially useful in light of the increasing demand for renewable energy sources and the need to reduce reliance on fossil fuels.
4. Finally, LCOE can assist policy-makers and energy planners in determining the most cost-effective mix of energy generation technologies for a particular region or country.