When you leave school you will encounter many different ways (languages) of expressing concepts you have likely already learned. This can be confusing but you can always try to refer what you are hearing to something you already know. Often it is just a simple matter of word definitions and nothing more.

One phrase you might encounter is “levelized costs”. Let’s connect this often used, “real world”, term to what we already know.

Let’s say you are producing 10,000 units of energy from a new facility. The facility costs $10,000,000 in capital (investment) to build and its annual cost is $250/unit to produce the energy. You expect the facility to have effectively an infinitely long life. What is the minimum price ($/unit) you should charge a buyer to obtain a 10% return on the $10 million investment?