What Is LCOE?
LCOE (Levelized Cost of Energy) is a standardized way to compare the cost of generating electricity across different technologies and projects. It converts all lifetime project costs into a single value per unit of electricity, usually expressed in $/MWh or ¢/kWh.
In practical terms, LCOE answers this question: "What average price per MWh would this project need over its lifetime to break even on a discounted basis?"
How This LCOE Calculator Works
This calculator models project economics using a discounted cash flow approach. It includes:
- Upfront capital expense (CAPEX)
- Fixed annual operations and maintenance costs
- Variable O&M and fuel costs tied to electricity production
- Energy output based on plant capacity, capacity factor, and annual degradation
- Discounting over project life
- Optional end-of-life decommissioning cost
The final metric is:
LCOE = Present Value of Costs / Present Value of Energy
Input Guide
1) Capital Cost
Total upfront installed project cost in dollars. This includes equipment, construction, EPC, interconnection, and soft costs.
2) Plant Capacity and Capacity Factor
Capacity (MW) is the maximum output rating. Capacity factor is the average utilization over time. Annual energy before degradation is:
Energy = Capacity × 8,760 × Capacity Factor
3) Project Life and Discount Rate
Project life is how many years the plant operates. Discount rate reflects cost of capital and risk. Higher discount rates usually push LCOE up because future energy and future costs are valued less today.
4) O&M and Fuel Costs
Fixed O&M is annual regardless of output. Variable O&M and fuel are per MWh, so they rise or fall with energy production.
5) Degradation and Decommissioning
Degradation lowers output over time (common in solar and batteries). Decommissioning is an optional terminal cost applied at the end of project life.
Interpreting the Result
A lower LCOE generally indicates better cost competitiveness, but LCOE is not the only decision metric. Use it alongside:
- Resource profile (dispatchable vs intermittent)
- Market value and time-of-day pricing
- Grid integration and balancing requirements
- Policy incentives, tax credits, and carbon pricing
- Financing structure and debt terms
Common Mistakes to Avoid
- Using unrealistic capacity factors
- Ignoring degradation for technologies where it matters
- Comparing projects with different risk profiles using the same discount rate
- Treating LCOE as a complete revenue model
- Forgetting replacement, overhaul, or end-of-life expenses
Quick Example
Suppose a 100 MW project costs $120M to build, runs at a 30% capacity factor, has 25-year life, 7% discount rate, and moderate O&M costs. You might see an LCOE in a range that is competitive with utility-scale generation in some regions, but less competitive in others depending on market design and resource quality.
Use this tool for rapid screening and scenario testing. For investment decisions, pair it with detailed production modeling, financing assumptions, tax effects, and sensitivity analysis.
Final Thoughts
LCOE is one of the most useful first-pass metrics in energy economics. If you tweak one variable at a time (capacity factor, CAPEX, discount rate), you will quickly see which drivers matter most for your project.