LCOE can be thought of as the price at which energy must be sold to the market to break even over the lifetime of the technology. It represents the net present value of lifecycle cost divided by the net present value of the total energy production, in terms of, for example, €-cents per kilowatt-hour:
This equation can be applied to essentially any energy technology. When comparing different technologies with the LCOE methodology one should be careful to include all relevant factors, including external costs from pollution, emissions and other footprints and also system integration costs such as intermediate storage and grid connection.
LCOE represents the averaged levelized cost of energy over the lifecycle of an installation. Thus, to compare dispatchable energy technologies (e.g. large hydro, coal & gas power) with intermittent technologies such as wind and solar, one must also consider the value of the generated energy at any given time, in addition to the LCOE. This approach will enable apple-to-apple comparisons.