The concept of levelized costs is simply the rate at which you have to meter your product to recover your total costs over some timeline (usually the lifetime of your production facility).

All industry goals are to get down to at least 5 cents per KWH for a levelized cost so that particular technology can become competitive.

To first order levelized costs can represent a common framework for comparing technologies, but only when you know what assumptions are used to define those costs. Different assumptions produce different models

Levelized costs have four basic components:

• Capital costs land acquisition, manufacturing of devices, installation of devices. The generic ballpark is to achieve a capital cost of 1 dollar per 1 watt (e.g. 1 million dollars per megawatt). Future construction costs are always very hard to predict, however.

• Fixed costs this is usually operational expenses and annual maintenance ( and generally involves human salaries more than equipment costs. Health care initiatives can therefore impact opearational expense projections.)

• Variable costs this is usually related to various distribution costs if you have to import your fuel or energy source. For instance, this would include the actual price of natural gas for a NG fired electricity plant.

• The estimated lifetime of your facilities. You can game the system by artifically inflating the lifetime of your facility this is done all the time. For example
  

  Hence, you have to know the assumptions

As you can see, the relative values of these 3 costs varies significantly with energy source. Some technologies can have an apparently low levelized cost if their production timescale is very long (e.g. coal).

No two credible sources usually give the same exact values for levelized costs for various technologies because the calculations are all done in a slightly different manner. However, usually the relative values (e.g. solar vs wind) are what one should look it.

For reasons to be seen later, COE for wind is projected to have the lowest levelized costs of any technology.

But wind is somewhat difficult to do because there is an important potential dependence on transmission line costs:

Overall, levelized costs can be a useful framework for undestanding future costs and which projects need to be invested in but one has to use more than levelized costs because one can always optimize assumptions to make favorable cases appear.

Levelized costs can also be strongly influenced by Investment Tax Credits or Production Tax Credits. (e.g. any governmental incentive can serve to lower levelized costs and in many cases this is just assumed but not revealed).