Real LCOE

When computing the levelised cost of electricity or the levelised unit cost of something else, the ultimate objective is to compare the levelised cost to something. In this page I compute the real LCOE which is the LCOE adjusted for inflation. This means that a flat unit cost in nominal terms is not computed, but the cost is in real terms. This real cost can be compared to things like the cost of your electricity bill per kWh or the cost of natural gas. If you use the nominal LCOE that is in a sense the price at the middle of the life of a solar or other project, you would have to compare your electric bill in 10 or 15 years to the LCOE of the solar project. To compute the real LCOE, I show some techniques that use the PMT function with the real cost of capital rather than the nominal cost of capital. As with other issues, I have included a file with the examples and methods discussed on this page.

Some Formulas:

LCOE Nominal = NPV(Nominal Rate, Costs)/NPV(Nominal Rate, Units of Generation)

LCOE Real = NPV(Nominal Rate, Costs)/NPV(Real Rate, Units of Generation)

Where

Real Rate = (1+Nominal Rate)/(1+Inflation) -1