LCOE (levelized cost of electricity)

What does LCOE (levelized cost of electricity) mean?

The levelized cost of electricity is the present value of all a plant's lifetime costs (building, fuel, operation, maintenance) divided by the present value of all the electricity it produces. It gives one cost per MWh for comparing technologies. Example: a solar plant costs 100 million to build and 2 million a year to run, and produces 200,000 MWh a year for 25 years. At an 8 percent discount rate, the build cost spread over 25 years is about 9.4 million a year, so the yearly cost is about 11.4 million and the LCOE is about 57 per MWh. LCOE leaves out system costs, such as backup for when the sun sets and grid connections, so it flatters variable sources. Lazard and the IEA publish regular LCOE comparisons.