Definition:
A measure of the average net present cost of electricity generation over a project’s lifetime, used to compare the cost-effectiveness of different energy sources.
Key Components:
- Capital Expenditures (CapEx): Upfront investment in infrastructure.
- Operational & Maintenance Costs (O&M): Ongoing expenses to keep the facility running.
- Fuel Costs (if applicable): Applies to fossil fuel and nuclear generation.
- Capacity Factor: Percentage of time a plant produces at maximum capacity.
Use Cases/Industries:
- Renewable Energy Projects: Comparing wind, solar, and hydro costs over time.
- Power Plant Development: Evaluating the economic viability of new generation facilities.
- Investment & Policy Making: Determining subsidies and incentives for energy projects.
Advantages:
- Standardized Comparison: Allows apples-to-apples evaluation of energy sources.
- Informs Financial Planning: Helps investors assess long-term project viability.
Challenges:
- Market & Policy Variability: Costs fluctuate due to regulation and commodity prices.
- Grid & Storage Integration Complexity: Renewables require energy storage considerations.
Related Terms:
Energy Cost Modeling, Capital Recovery Factor, Electricity Cost Analysis
Example:
A wind farm project had an LCOE of $35/MWh, making it more cost-effective than new natural gas generation.
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Synonyms:
Cost per Megawatt-Hour (MWh), Energy Cost Benchmark, Full-Cycle Generation Cost
