Define the levelized cost of energy (LCOE) and identify its main components.

• A. LCOE is the net present value of total lifetime costs divided by total electricity produced; components include Capex, Opex, fuel, financing, and decommissioning.
• B. LCOE is the average price paid for electricity over the plant’s life.
• C. LCOE includes only upfront capital costs and excludes ongoing operating costs.
• D. LCOE is the ratio of annual revenue to annual energy production.

Answer: (A)

LCOE measures the economic lifetime cost of a power plant by dividing the net present value of all costs over the plant’s life by the total electricity it produces, yielding a levelized cost per unit of energy. The main components are capital expenditure up front, ongoing operating and maintenance costs, fuel costs where applicable, financing or cost of capital, and end-of-life decommissioning. This approach uses discounting to account for when costs are paid and how much energy is generated, allowing fair comparisons between technologies with different lifetimes and scales. Other descriptions fall short because they omit either the time value of money or key cost elements, or they describe revenue or simple averages rather than lifetime costs per unit of energy.