Cost is one of the key factors influencing the choice of fuels and technologies used to generate electricity. While simple metrics are sometimes used for cost comparisons, it is important to understand their limitations.
Levelized cost of energy (LCOE), a common metric for cost comparisons across projects and technologies, considers a plant's expected lifetime and operation cycle and amortizes those costs over an assumed financial lifetime. LCOE comparisons have some notable limitations. For example, when comparing new capacity to existing capacity, some types of existing plants that were expensive to build but have relatively low operating costs can continue to operate competitively, even though the LCOE for new plants of these types may be higher than the LCOE for other technologies.
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