1.

Background
LCOE stands for Levelized Cost of Electricity, which is a metric used to evaluate the
cost of producing electricity from a particular power source over its lifetime.
Management of Company X has approached and requested the energy department
to provide a comparison of the typical costs of different energy sources, such as
wind, solar, natural gas, and coal, in order to determine which source is the most
cost-effective. The report will give a broad overview of the concept of LCOE with
high level examples.

2. Introduction
The Levelized Cost of Electricity is a metric used to measure the lifetime cost of
energy produced by an energy system. The LCOE is a useful tool to compare the
cost of various energy sources such as solar, wind, water etc and to determine
whether deployment of the energy source will yield a profit or loss. The LCOE can be
an indicator of what minimum price electricity must be sold for the project to be break
even. The LCOE is simply determined by taking the Total Lifetime Costs of the
energy source divided by the energy produced over the asset’s lifetime. In financial
terms this is understood as the Net present value of the total cost of constructing and
operating the energy plant divided by the total electricity produced over its lifespan.
Equation:
 LCOE =

The LCOE is expressed as rands per kilowatt -hour and considers parameters such
as:
 Capital Cost expressed in rands per kilowatt (R /kW)
 Fixed Operation and Maintenance expressed in rands per kilowatt-year.
 Variable Operation and Maintenance costs in Rands per kilowatt (R/kWh)
 Annual Fuel Costs expressed in rands per gigajoule (R/GJ) which can be
further converted into megawatts hour by multiplying a constant of
0.277777778 MWh.
 Capacity of the power generating assets expressed in MW.
 Lifespans of the power generating assets which usually span 20 – 60 years.
The LCOE will be applied to for the various power generating technologies. The
technologies that will be studies are both conventional and alternative energy. The
conventional technologies that will be studied are Nuclear, Coal, Open Cycle Gas
Turbines and Combined-cycle gas turbine. The alternative energy to be studied will
be Solar PV, Concentrated Solar Power, Wind, Pumped Storage and Hydro plants