# What Is Levelized Cost of Energy (LCOE)?

Recently, solar power has been shown to have increased in use as an energy supply by 23%. For solar companies, different metrics help to calculate the value of solar energy with the goal of making a profit. … Recently, solar power has been shown to have increased in use as an energy supply by 23%.

For solar companies, different metrics help to calculate the value of solar energy with the goal of making a profit. One important measurement that helps here is the levelized cost of energy.

Read on for your guide on all there is to know about how this metric is used to benefit solar providers.

## What Is the Levelized Cost of Energy?

The levelized cost of energy (LCOE) is also commonly known as the levelized cost of electricity. LCOE is a metric used for making price comparisons between different sources of energy.

The figure represents the total average price of expenses involved for construction and energy production, taking into account its expected lifetime usage. This helps the company determine the price it will charge for supplying solar energy in order to profit.

## What Makes LCOE Vital?

The LCOE helps solar companies discern whether or not an investment will be a lucrative one. This then assists them in making an informed decision about how to proceed with their prospects.

Will the energy production method break even or return a net profit? LCOE gives the answer! If the LCOE shows that the return on investment will yield a loss, it’s best not to move ahead. But if a profit’s predicted, then it could just be a great solution.

Financial analysts use LCOE to contrast the following across different energy sources including solar:

• Costs
• Risks
• Scope of the project

Determining the cost of energy per unit helps with price setting.

## How Is LCOE Calculated?

To calculate the LCOE, the total building and energy production costs are taken. You divide this figure by the lifetime generated electricity costs.

All-in-all, the price for energy production involves the following:

• Start-up investment
• Costs for supplying and maintaining energy
• Fuel expenses (if used)

To find out how much energy’s provided, the total supply value is determined. Lastly, how long the energy supply lasts and any set discounts are considered.

## How Useful Is LCOE?

There are several benefits to using LCOE for comparing energy supply costs. Here are some of the top ones:

• It’s economically friendly since grid or end sales aren’t required when factoring in prices
• Comparisons between various energy systems, including solar, wind, and nuclear help determine which will be the most valuable
• It makes it easy to predict whether a profit will be likely made
• Decision-making stress is lowered with this simple calculation

While disposal costs can be high for some energy sources, such as nuclear power, it’s almost always nullified with solar. Since it’s a much more efficient source of energy, it can incur fewer overall expenses.