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Energy Studies | 31st Jan, 2023

Exploring the Levelized Cost of Energy (LCOE)

When considering different investment options for an energy-producing asset, the Levelized Cost of Energy can help you examine the feasibility of what you have at stake.

Reading time : 2 min

Written by

Tomás Oliveira

Read through as we help you make an informed decision by highlighting its key features and which costs it covers.

What is the Levelized Cost of Energy (LCOE)?

The minimum average price that an electricity-producing asset requires in order to offset its investment and operational costs over its lifetime.


Use Cases


Basic Formula

(Present value of total investment and operational costs) / (Present value of total generated electricity)


Calculating the LCOE


The total costs associated with the project:
It = Investment costs in year t
Mt = Operation and maintenance costs in year t
Ot = Other costs in year t

The total output of the power-generating asset will include:
Et = Electricity generation in year t

Important factors to be considered in the equation:
 = Life of the asset
= Discount rate (the rate of return used to discount future cash flows to their present value)



LCOE formula


Key Points


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