The Levelized Cost of Energy (LCOE) is a simple way to compare the cost of generating electricity from different sources, like solar, wind, or coal. It tells you how much it costs to produce one unit of electricity (like a kilowatt-hour) over the lifetime of a power project, including things like building, running, and maintaining the system.

You can use LCOE to:

1. Compare Options: See which energy source is cheaper over time.
2. Plan Investments: Decide where to spend money on energy projects.
3. Understand Costs: Know the true cost of generating electricity from different technologies.

It’s like calculating the “price per mile” for a car, but for electricity. It helps make smart, long-term energy decisions.

Definitions:

1. Overnight Capital Cost ($/kW)

• What it is: The cost to build your energy project (like solar panels or wind turbines) if you paid for everything upfront in one go—like a lump-sum payment.
• Why it matters: It shows how expensive the system is to set up, based on how much electricity it can produce (measured in kW).

2. Fixed O&M Cost ($/kW-yr)

• What it is: The yearly cost to maintain your system, like regular servicing or cleaning, spread out based on the system’s capacity (per kW).
• Why it matters: It’s the “fixed” amount you have to spend every year, no matter how much energy your system produces.

3. Variable O&M Cost ($/kWh)

• What it is: The cost of maintaining and running your system based on how much electricity it actually produces (per kWh).
• Why it matters: It depends on how much you use the system—more energy production means higher variable costs.

4. Capacity Factor (%)

• What it is: How much energy your system actually produces compared to its maximum potential, expressed as a percentage.
• Example: If a wind turbine could produce 100 kWh but actually produces 50 kWh, its capacity factor is 50%.
• Why it matters: It shows how efficiently your system operates. Weather or downtime can lower this.

5. Discount Rate (%)

• What it is: A way to measure how much future money is worth today. For example, $1 today is usually worth more than $1 five years from now because of inflation and other factors.
• Why it matters: Helps to calculate the true cost of your project over time.

6. Book Life (years)

• What it is: How long your energy project is expected to last before it wears out or needs to be replaced.
• Why it matters: Longer lifespans mean your upfront costs are spread over more years, which can lower the overall cost of energy.