Life cycle costs of energy (LCOEs) are commonly employed to estimate the economic costs of energy supplies. This chapter offers a step-by-step calculation of the components comprising LCOE for a wide range of power generation technologies. This includes the capital recovery factor, variable costs, fuel costs, and externalities or subsidies. Among these variables, fuel cost variations significantly account for LCOE volatility among fossil fuel-based supplies. For this reason, each technology’s “competitiveness” dynamically shifts with fuel cost volatility. The use of LCOE provides a common language for understanding the economic costs of supply for firms, in addressing strategic, policy and societal issues.
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