Appendix 3 presents the methodology for calculating the Levelized Cost of Electricity (LCOE), providing a standardized metric to compare generation costs across different power technologies included in the Technology Catalogue. LCOE represents the average cost of producing one unit of electricity over the lifetime of a project, based on consistent techno-economic assumptions.

The methodology is intentionally simplified to support comparative analysis rather than detailed project finance evaluation. As such, it does not fully incorporate financial structures such as debt financing, taxation, depreciation, or specific contractual arrangements, unless explicitly added by the user.

The approach distinguishes between two main categories of power generation technologies. For non-thermal technologies (such as wind and solar), electricity output is primarily determined by installed capacity and capacity factor or full-load hours. In contrast, for thermal technologies (such as coal- and gas-fired power plants), generation costs are strongly influenced by fuel prices and plant efficiency.

The LCOE calculation involves several key steps: estimating annual electricity production, identifying cost components (including capital expenditures, operation and maintenance costs, and fuel costs where applicable), and discounting these costs over the project lifetime to obtain a present-value-based cost per unit of electricity. Users may adjust key input parameters such as discount rate, plant lifetime, and operational assumptions to reflect specific contexts.

The appendix also distinguishes between real and nominal LCOE, depending on whether inflation is considered. Importantly, it highlights the limitations of the approach, particularly its inability to fully capture financial risks, market dynamics, and project-specific conditions. Therefore, LCOE results should be interpreted as a comparative indicator across technologies rather than a definitive basis for investment decisions.