Which of the following statements about levelized cost of electricity (LCOE) factors is true?

• A. LCOE depends only on fuel cost.
• B. LCOE is influenced by the discount rate and cost parameters.
• C. LCOE is unaffected by financing terms.
• D. LCOE is only a measure of emissions.

Answer: (B)

Levelized cost of electricity expresses the average cost per unit of electricity over a project’s lifetime, accounting for capital costs, operating and maintenance, fuel, and the effect of financing through a discount rate. Because finance terms determine how large upfront costs are worth today and how future costs are valued, the discount rate directly shapes LCOE. In addition, all the cost parameters—capital cost, fuel price, O&M, efficiency, and capacity factor—alter the overall price. So the statement that LCOE is influenced by the discount rate and cost parameters best captures how this metric works. It is not solely determined by fuel cost, financing terms do influence it, and it is not a measure of emissions.