When comparing the cost of building different types of electrical plants, firms will use various methods. For quick comparisons, firms will look at what the cost of building a plant overnight would be or the overnight cost of capital. This is a hypothetical scenario because a plant cannot be constructed in one night, but it evaluates the cost of a plant if it were built right away, with current prices. This is used as a quick reference for the cost of a plant because it does not take into account the time it would actually take and how prices rise over time. The calculation is made without the interest rate which would account for the rise in cost over time. The overnight cost is a very simple way to compare the cost of different plants.
Some of the costs that go into the determination of the overnight are:
A more accurate measure of the total cost is the levelized cost of energy because it takes into account the time over which the plant will be built and operate. The LCOE is a much smaller number because it is spread across the entire life of the plant whereas the overnight cost of capital is not spread over time at all.