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Levelized cost of energy

Finn Gunnar Nielsen looks at a frequently used way of comparing cost of energy, the levelized cost of energy or electricity (LCOE).

Cost of energy is always a key issue, in particular the question: Can renewable energy compete with traditional energy resources? There is not a simple answer to this question, other than the cost picture changes rapidly. In this lecture, I will have a look at a frequently used way of comparing cost of energy, the levelized cost of energy (LCOE).

Learning outcome.

  • Understand the concept of LCOE and the parameters involved.
  • Understand how the key parameters affects the LCOE.
  • Understand some key limitations of the LCOE concept.


After having watched the video, reflect the following issues:

  • How important is predictable cost of energy in the choosing source of energy? (For example: Costs from a renewable energy source with known investments, versus a gas power plant with uncertain future gas price).
  • How will future inflation influence the energy price in the two above cases?
  • How could intermittency and balancing costs be accounted for in the cost estimates?

Further reading.

Nissen, Ulrich, and Nathanael Harfst. 2019. “Shortcomings of the Traditional ‘Levelized Cost of Energy’ [LCOE] for the Determination of Grid Parity.” Energy 171: 1009–16.

Aldersey-Williams, J., and T. Rubert. 2019. “Levelised Cost of Energy – A Theoretical Justification and Critical Assessment.” Energy Policy 124 (October 2018): 169–79.

Nielsen, F. G. (2024) Offshore Wind Energy: Environmental Conditions and Dynamics of Fixed and Floating Turbines, Cambridge, Cambridge University Press

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