Chapter 01 · Climate & transitionEnergy & Transition
Levelized cost of energy (LCOE)
Definition
Levelized cost of energy is an estimate of the average cost of generating electricity over a project lifetime per unit of electricity produced.
References
This reference provides supporting context for how “Levelized cost of energy (LCOE)” is defined and used.
Overview
What it means in practice
Levelized cost of energy (LCOE) should be read as an energy-transition term. Its meaning depends on the technology, market, contract, grid boundary and emissions-accounting method.
In practice, users should state the boundary, method, instrument and evidence. That keeps levelized cost of energy (lcoe) specific enough for review without turning it into a broader claim.
Why it matters
Levelized cost of energy (LCOE) matters because energy language can mix physical supply, contractual instruments, timing and emissions claims. Clear boundaries help readers understand what is actually being changed or evidenced.
Common misconception
A common error is to use Levelized cost of energy (LCOE) without stating the system boundary or calculation method. Those details often determine the meaning of the claim.
Review questions
What instrument, boundary or method gives the term meaning? What evidence supports it? What limitation would change how a reader interprets the claim?
How it is used
Governments, companies, investors and technical teams use “Levelized cost of energy (LCOE)” in climate strategies, transition plans, emissions inventories, scenarios and investment decisions. In each case, the user should state the relevant methodology, emissions boundary, baseline, timeframe and underlying data; otherwise, the same term may be applied to materially different situations.
In this context, it refers to an estimate of the average cost of generating electricity over a project lifetime per unit of electricity produced.