Cost Is the Key to Comparison
- March 16, 2021
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.
© 2021 All rights reserved. This report is intended for informational purposes only. All information provided and opinions expressed are subject to change without notice. The information and statistical data contained herein have been obtained from sources we believe to be reliable. No part of this report may be reproduced in any manner without the written permission of Oppenheimer Asset Management or any of its affiliates. This material is not a recommendation as defined in Regulation Best Interest adopted by the Securities and Exchange Commission. It is provided to you after you have received Form CRS, Regulation Best Interest disclosure and other materials. Investing in securities involves some risk and may result in loss of principal. Some of the information in this document may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or industries. Actual events or results may differ materially. 3472658.1