Levelised cost of electricity
Also called: LCOE, Levelised cost of energy · Topic: Infrastructure: Transport, Communications and Energy · NCERT: Beyond NCERT
Meaning
The levelised cost of electricity (LCOE) is the average cost of producing one unit of electricity over a plant's whole life. It includes building, fuel, operation and maintenance costs.
LCOE = Lifetime discounted costs ÷ Lifetime discounted generation
"Discounted" means that future costs and output are counted as worth less than today's. LCOE puts very different technologies on one scale. For example, solar costs a lot to build but nothing for fuel, while coal costs less to build but needs fuel every year.
Example
Suppose a solar plant's lifetime discounted costs are ₹500 crore and its lifetime discounted output is 200 crore units (kWh). Its LCOE is ₹500 crore ÷ 200 crore units = ₹2.5 per unit. If a new coal plant's LCOE is higher, solar has reached grid parity.
Don't confuse with
- Tariff: The tariff is the price a buyer pays per unit, and it can include profit and subsidies. LCOE is the producer's average cost per unit.
Related concepts
- Energy infrastructure
- Energy security
- Plant load factor
- Aggregate technical and commercial losses
- Power purchase agreement
- Cross-subsidy
- Open access (electricity)
- Time-of-day tariff
- Feed-in tariff
- Grid parity