What LCOE Shows, and What It Leaves Out

Levelized cost of energy (LCOE) converts a project's discounted costs and generation into one cost per unit of electricity. It is useful for a like-for-like cost comparison. It is not the full investment decision.

The formula

LCOE = NPV(total costs) / NPV(total generation)

The numerator can include capital cost, operating cost, fuel, decommissioning, and other submitted costs. The denominator is the discounted electricity generated over the same period.

Inputs that need a source

• Capital cost and construction schedule
• Operating, maintenance, and fuel costs
• Capacity factor and degradation
• Project life and discount rate
• Decommissioning cost and residual value treatment

A calculator result inherits the quality of these assumptions. Keep the source date and basis next to each input.

Where LCOE helps

• Compare cost assumptions for projects with the same output boundary.
• Show which inputs move the result under sensitivity tests.
• Make financing and generation assumptions explicit.
• Identify differences that need a separate operating or revenue analysis.

What LCOE does not show

• The time and location value of generated electricity
• Revenue, curtailment, congestion, or capacity payments unless modeled separately
• Interconnection timing and network-upgrade risk
• Contract terms, taxes, ownership structure, or counterparty credit
• Charging cost and round-trip efficiency for storage

The GreenCIO calculator excludes battery storage because a plain LCOE model without charging cost and round-trip efficiency would produce a misleading result.

Use LCOE with the missing constraints

Compare LCOE under the same method, then review revenue, schedule, grid, contract, and financing risks separately. A lower LCOE can support a decision. It cannot make the decision by itself.