A multidisciplinary engineering institution based in Scotland


Levelised cost estimates for electricity generation


The IESIS levelised cost spreadsheet 2018


Covering paper

The spreadsheet can be used to give indications of the relative costs of  methods of generation.  The use of probabilities via the macro scratchpad can be used to do sensitivity analysis.

A 2011 version of the Spreadsheet that includes worksheets for 4 different types of coal generation and for the Severn Barrage tidal project is available here.  Covering paper here.

Levelised cost

The levelised cost methodology was developed to inform long-term strategic discussions on the relative costs of various types of generating plant. The method should not be used as a planning tool.  Planning should be done using Total System Cost analysis which would take account of the characteristics of the particular system e.g. the shape of the load curve, the existing and follow-on generation plant, the existing transmission system etc.

The basis of the levelised cost method is first to identify the cost items that contribute to the overall cost.  The cost of each item is then (a) estimated for each year of the investment period, (b) discounted to present value and (c) summed for all years. The energy generated per MW of installed generation is estimated and also discounted. The sum of all the discounted cost items is then divided by the discounted energy production to give the levelised cost of electricity (LCOE) - normally stated in £/MWhr.All the costs to the customer of a type of plant should be included e.g. System Integration Costs.  The studies should be done at current prices, but with any forecast ‘real’ cost changes included.  Re-financing could be considered if the riskiness of the project is forecast to change over its life.  It is not necessary to include ‘general inflation’ since this could vary over the life of a project and is ‘unknown’ on long timescales.  Also, changes to the discount rate used over the life would be required

It should be noted that the chosen input figures in the spreadsheet and the handling of these data are those of the authors, and not necessarily those of IESIS

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