Accelerating decarbonization has been focused on our world. Numerous companies deploy their ambitions, direction, etc. about how they do (sometime not do), what they are. Many renewable energy projects have been developed (Nuclear, Wind, Solar, etc.) in different stages frequently measured using indicating things such as TRL combined with feasibility study.

Why is LCOE important?

Roughly comparing energy projects, Levelized cost of energy (LCOE) has been popular for providing the preliminary benchmarking that it is a useful tool for policy makers, investors, and energy companies to evaluate the costs and benefits of different energy sources and methods, which make simply and quickly decisions about the deployment of energy generation technologies.

What is the definition of LCOE and How do we calculate it?

Levelized cost of energy (LCOE) is the indicator to measure the average total cost of generating energy from a specific source over total electricity generation over its lifetime.

LCOE = [Net present value (NPV) of total cost of the energy-generating system over lifetime] / [Net present value (NPV) of Total energy produced over the lifetime of the system]

“Net present value (NPV) of total cost of the energy-generating system over lifetime” could be calculated following simple factors:

• Investment expenditures in year t.
• Running expenditures (Operation, maintenance, Fuel, etc.) in year t
• Financing expenditures, including interest, discount rate, etc.

There are two major LCOE methods are used:

1. LCOE annuitizing method: suggested by National Renewable Energy Laboratory (NREL)
2. LCOE discounting method: suggested by Department for Business, Energy & Industrial Strategy

Some of LCOE Report and Study

LCOE: Disadvantage

• Oversimplify: LCOE provides summarized value from a complex set of costs and benefits, we need to detail analysis in different energy sources.
• Neglect external factors: LCOE does not consider external costs and benefits, such as environmental impacts, greenhouse gas emissions, or the impact on local ecosystems.
• High uncertainty: LCOE calculations do not include uncertainties that can be changed over time.
• Different calculation methods: There is no standard method for calculating LCOE, and different organizations may use different methods and assumptions, making it difficult to compare the LCOE of different energy sources.
• Restrictive scope: LCOE does not consider the cost of energy transmission, distribution, or storage.

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