LCOE — Levelized Cost of Energy
The Levelized Cost of Energy (LCOE) is the average cost per unit of electricity ($/kWh) generated over the entire lifetime of a power plant, accounting for all capital costs, operating and maintenance costs, financing costs, and total electricity produced. It enables direct comparison of different electricity generation technologies despite different cost structures and lifetimes.
LCOE = Total Lifetime Costs ($) ÷ Total Lifetime Energy Production (kWh)
LCOE is the most widely used metric for comparing solar, wind, nuclear, gas, coal, and other generation technologies on an economic basis.
Solar LCOE Trends
Solar PV LCOE has dropped approximately 90% since 2010, making it the lowest-cost source of new electricity generation in many markets:
- Utility-scale solar PV (2024, US): $0.024–$0.060/kWh
- Commercial solar (2024, US): $0.060–$0.100/kWh
- Residential solar (2024, US): $0.080–$0.130/kWh
Compare to new natural gas combined cycle: $0.045–$0.074/kWh (2024 NREL estimates).
Limitations of LCOE for Solar
LCOE doesn't fully capture the time-value of solar's output. Solar energy is produced during daytime and concentrated in midday hours, which may have different value than baseload generation depending on the grid. "Value of Solar" or LCOS (Levelized Cost of Storage) analyses provide more complete economic comparisons that account for timing.
LCOE also doesn't capture integration costs (transmission, grid balancing) that may differ between technologies. Use LCOE as a starting point for economic comparison, not the only metric.