The EU energy transition needs to look beyond LCOE Factsheet

Europe’s power system is undergoing a rapid transformation to meet the intertwined challenges of decarbonisation, affordability, and energy security. Ubiquitous, simple, standardised tools like Levelised Cost of Electricity (LCOE) are widely used by policymakers to compare energy technologies and guide investment decisions.

LCOE is not without its limitations, as outlined in a new CATF report, that make it unsuitable for comparing the value of different electricity generation and demand response technologies. LCOE does not account for macroscale electricity grid system needs nor the generation profile of a given technology, and only considers projects from the perspective of developers (rather than ratepayers).

While LCOE offers a helpful snapshot of project-level costs, over-relying on LCOE risks overlooking the broader system needs and trade-offs critical to building a resilient, low-carbon grid. To achieve European security, affordability, and decarbonisation, a systems-level analysis is more apt—one that entails a diverse set of generation (both variable renewable and clean firm), storage, and demand-response technologies.

Find out more in this factsheet.