LCOE Definition

New utility solar produces power for as little as $38/MWh; new nuclear runs $141-220/MWh. These numbers come from a single metric that the entire energy industry uses to compare technologies: LCOE, or levelized cost of energy.

LCOE is total lifetime cost divided by total lifetime output, both discounted to present value. It answers one question: what is the minimum price per kilowatt-hour a generator must earn over its life to break even? The numerator includes everything: construction, financing, fuel, maintenance, and decommissioning. The denominator is every kilowatt-hour the plant will ever produce. "Levelized" means a dollar spent in year 20 is discounted to be worth less than a dollar spent today, and the same applies to kilowatt-hours produced in year 20.

Build a simple LCOE. A 100 MW solar farm costs $100 million to build, has no fuel cost, $1 million/year in maintenance, and runs for 25 years at a 25% capacity factor. Total output: 100 MW x 8,760 hours x 0.25 x 25 years = 5,475,000 MWh.

Calculate. Total cost (undiscounted, simplified): $100M + $25M = $125M. LCOE = $125M / 5,475,000 MWh = roughly $23/MWh.

Why would two identical solar farms in different locations have different LCOEs?

Capacity factor is the denominator driver. A farm in Arizona at 28% capacity factor produces more lifetime MWh than one in Ohio at 18%. Same cost, more output, lower LCOE. Location determines the denominator.

LCOE is the starting point for every technology comparison, but it measures cost, not value. It says nothing about when the electricity is delivered or what grid services the plant provides.

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