Levelized cost of electricity is a benchmark that simplifies comparative analysis of energy sources.
Historically, energy transitions were critical developments in powering change and innovation. Due to the commodity-like nature of electricity, consumers typically are indifferent or can’t distinguish its root sources. Electrons generated from coal-fired plants are the same as those created by plants powered by natural gas, nuclear and renewable energy. Therefore, researchers believe the optimal way to determine the preferred source of energy for society can be narrowed down to its cost.
Comparing the benefits and cost of energy from different sources can be difficult, as each have their own benefits and challenges. And how they’re extracted, transported, harnessed and stored vary widely. However, a formula known as the levelized cost of electricity, or LCOE, is a standard metric used to compare the cost of producing electricity from various sources of generation. It measures dollars per megawatt hour (MWh) of electricity produced. The ability to compare multiple sources of power using a single metric has played an important role in the various transition cycles throughout history.
Levelized Cost of Electricity (LCOE)
LCOE calculates present value of the total cost of building and operating a power plant over an assumed lifetime.
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