What Is LCOE? Why the Levelized Cost of Energy Is the Fairest Yardstick for Comparing Power Sources

What Is LCOE and How Is It Calculated?

LCOE divides a power plant's total lifetime cost — construction, fuel, operations and maintenance, and financing — by its total lifetime electricity output, producing a single cost-per-megawatt-hour figure that lets different power sources be compared on equal footingCITE:E1. Instead of judging a plant by its price tag alone, LCOE spreads every dollar spent over every MWh the plant will ever generateCITE:E1.

Why Isn't Upfront Construction Cost Enough on Its Own?

Solar, wind, natural gas and nuclear plants differ so widely in construction cost, fuel cost, operating lifespan and hours of actual generation that comparing only "cost to build" cannot answer which power source is cheapestCITE:E2. LCOE folds all of these variables into a single per-MWh cost, which is why it functions as the common yardstick for answering that question across power sourcesCITE:E2.

How Do Different Power Sources' LCOE Actually Compare — Why Is Solar the Cheapest?

Utility-scale solar's unsubsidized LCOE ranges from $38 to $212 per MWh in Lazard's 2025 U.S. analysis, with its low end and average sitting below every other source measuredCITE:E3.

Solar and wind LCOE are both reported as generally lower than fossil-fuel and nuclear generation in this analysis, even though gas prices remained lowCITE:E3.

A Decade of Solar's Cost Collapse — How Does LCOE Measure This Revolution?

The global weighted-average LCOE for utility-scale solar fell to about $43 per MWh in 2024, down roughly 90% from 2010, according to IRENACITE:E4. That decade-long decline is the same metric shown in the Lazard comparison above, tracked over a longer time horizon and a global rather than U.S.-only scopeCITE:E4.

What Is LCOE's Blind Spot — Why Isn't the Cheapest Power Always the Most Reliable?

LCOE does not account for intermittency or dispatchability, so a low per-MWh figure for solar or wind does not by itself mean round-the-clock reliable supplyCITE:E5. Solar only generates during daylight hours and wind output depends on weather, so delivering steady 24-hour power requires pairing either source with energy storage or dispatchable generation, and battery storage carries its own separate levelized cost, LCOSCITE:E5.

What Are the Pitfalls When Citing LCOE — Why Do Numbers for the Same Source Vary So Much?

LCOE figures for the same power source can differ significantly depending on capacity factor, system integration costs, and whether subsidies are included in the calculationCITE:E6. Because these assumptions vary by region and by year, any LCOE figure should be read alongside who calculated it, for what year, and under what methodologyCITE:E6.

Taken together, the evidence shows LCOE explains why solar's low end of $38/MWh and IRENA's roughly 90% cost decline since 2010 have made it the cheapest per-MWh source in these comparisons, while also carrying the caveats that keep that cheapness from being the whole story: it excludes intermittency and reliability costs, and its exact number shifts with capacity factor, integration cost, and subsidy assumptions within the same reportCITE:E5CITE:E6.