Beyond LCOE: Methodological Limitations and a Macroeconomic Framework for Energy Transition Costs

While Levelised Cost of Electricity (LCOE) can be useful as a project‑level screening tool, this paper argues that it is not a reliable basis for comparing electricity generation technologies or assessing the wider cost of energy transition. Standard LCOE calculations embed inconsistent discount rates, overlook end‑use differences, omit key technologies such as nuclear from headline comparisons, and treat projected carbon prices as fixed inputs rather than uncertain policy variables. Individually and in combination, these methodological choices distort cost comparisons and risk misleading policy decisions. To address this, the report introduces a simple macroeconomic framework that links persistent changes in the real cost of energy to national income using a small number of observable variables, making the cost of transition explicit and testable under alternative scenarios. Together, these insights highlight the need to move beyond narrow generation metrics toward more transparent, economy-wide assessments of energy transition costs.