What is LCOE?
What "levelised cost" means — and what it misses
In plain English: If you build a power station, you spend money upfront (building it) and every year after (fuel, maintenance, staff). The LCOE spreads all these costs over all the electricity the plant will ever produce — to give you a single "cost per unit of electricity." This lets you fairly compare a solar farm (expensive to build, free fuel forever) with a gas plant (cheaper to build, expensive fuel every year). The LCOE is like calculating the "true cost per kilometre" of owning a car, including the purchase price, insurance, fuel, and maintenance, over the life of the car — rather than just comparing the sticker price or the petrol cost alone.
The LCOE formula: LCOE = (Sum of all discounted costs) ÷ (Sum of all discounted electricity generation)
Costs included: Capital expenditure (CapEx — building the plant), operations and maintenance (O&M), fuel costs, financing costs (interest on capital), decommissioning, and taxes/incentives.
What it enables: Comparing a nuclear plant (high upfront capital, near-zero fuel cost, long life) with a gas plant (lower upfront cost, high ongoing fuel cost) on an equal footing — by spreading all costs over all electricity produced.
Critical caveat: LCOE does not account for the value of when electricity is generated. Solar electricity at midday (when there is already lots of solar) is worth less than electricity at 7pm (when demand peaks and solar is unavailable). This "value of time" matters more as renewable penetration grows.
Costs included: Capital expenditure (CapEx — building the plant), operations and maintenance (O&M), fuel costs, financing costs (interest on capital), decommissioning, and taxes/incentives.
What it enables: Comparing a nuclear plant (high upfront capital, near-zero fuel cost, long life) with a gas plant (lower upfront cost, high ongoing fuel cost) on an equal footing — by spreading all costs over all electricity produced.
Critical caveat: LCOE does not account for the value of when electricity is generated. Solar electricity at midday (when there is already lots of solar) is worth less than electricity at 7pm (when demand peaks and solar is unavailable). This "value of time" matters more as renewable penetration grows.
LCOE = Σ[(It + Mt + Ft)/(1+r)ᵗ] / Σ[Et/(1+r)ᵗ] where It = capital expenditure in year t, Mt = O&M costs, Ft = fuel costs, r = discount rate (WACC), Et = electricity generation in year t. Key sensitivity drivers: (1) Discount rate (WACC): renewable projects are capital-intensive with near-zero operational costs — LCOE is highly sensitive to WACC. At 3% discount rate, solar LCOE can be $30/MWh; at 10%, the same project might be $80/MWh. This is why financing costs dominate the LCOE story for renewables in emerging markets. (2) Capacity factor: output per MW of installed capacity. Solar in Rajasthan (25–35% CF) is cheaper than solar in the UK (9–11% CF) for the same CapEx, because the denominator (energy) is much larger. (3) CapEx trajectory: solar CapEx has fallen from ~$4,500/kWp (2010) to ~$700/kWp (2024) — a 90% reduction driving the LCOE collapse. The "System LCOE" concept (IEA, 2020) adds grid integration costs: Firm LCOE = Plant LCOE + Profile cost (loss of value at high penetration) + Balancing cost (for variability) + Grid cost. At 30%+ solar penetration, profile costs become significant.
Source: Lazard LCOE Analysis 2024 · IEA System Costs of Renewable Energy · Hirth, L. (2013) "The Market Value of Variable Renewables", Energy Economics
The complete comparison — Lazard 2024 data
LCOE for new plants — every major technology, USA 2024
All data from Lazard's Levelised Cost of Energy Analysis Version 17.0 (2024) — the most widely cited independent LCOE study globally. All figures are for new US plants, unsubsidised, in 2024 USD/MWh. International costs vary: solar and wind are cheaper in high-irradiation/high-wind locations (India, Middle East, Australia). Nuclear is cheaper in South Korea (APR1400 design) than in the USA or UK. Ranges reflect regional cost variation, different plant sizes, and financing assumptions. Source: Lazard LCOE Analysis 2024
| Energy source | LCOE range ($/MWh) | Scale (0–220) | Trend since 2010 |
|---|---|---|---|
| ☀ Solar PV (utility-scale) | $24 – $96 | ↓ –90% since 2010 | |
| 💨 Wind (onshore) | $27 – $73 | ↓ –70% since 2010 | |
| 🔋 Wind + 4hr battery (combined) | $62 – $110 | ↓ declining | |
| ☀ Solar + 4hr battery (combined) | $55 – $120 | ↓ declining | |
| 🔵 Natural gas (CCGT) | $60 – $100 | → Volatile (gas price sensitive) | |
| 🔵 Natural gas (peaking, OCGT) | $107 – $175 | → Volatile (gas price sensitive) | |
| 🌋 Geothermal | $60 – $90 | → Relatively stable | |
| ⬛ Coal (new, no CCS) | $65 – $166 | ↑ Rising (few new builds) | |
| 💨 Wind (offshore, fixed) | $72 – $140 | ↑ Rose 2020–23, stabilising | |
| ☀ Solar PV (rooftop residential) | $71 – $222 | ↓ –80% since 2010 | |
| 🌿 Biomass (dedicated plant) | $80 – $130 | → Relatively stable | |
| 💧 Large hydropower (new) | $25 – $90 | → Site-dependent, limited new | |
| ☢ Nuclear (new, large) | $141 – $221 | ↑ Rising (Western markets) | |
| ☢ Nuclear (existing, extended life) | $30 – $60 | ↓ Capital cost paid off |
Source: Lazard Levelised Cost of Energy Analysis Version 17.0 (2024) · Unsubsidised · USA · 2024 USD. Bars proportional to midpoint of range vs scale of 0–220 (nuclear upper bound).
LCOE limitations — what it doesn't tell you
What LCOE misses — and why it matters
The intermittency problem
LCOE treats all electricity as equal regardless of when it is generated. But a kWh of solar electricity at midday on a sunny Sunday is worth much less to the grid than a kWh at 7pm on a cold winter evening. As solar and wind penetration grows, the "profile cost" of their generation increases — the more solar you have, the less valuable additional solar is (because everyone else has it too at midday, driving prices to zero or negative).
The "System LCOE" concept (IEA, 2020) attempts to fix this by adding: profile cost (devaluation at high penetration) + balancing cost (for variability) + grid cost (transmission upgrades). At 30%+ solar share, system LCOE can be $20–40/MWh above the plant LCOE. Source: IEA System Costs 2020
The "System LCOE" concept (IEA, 2020) attempts to fix this by adding: profile cost (devaluation at high penetration) + balancing cost (for variability) + grid cost (transmission upgrades). At 30%+ solar share, system LCOE can be $20–40/MWh above the plant LCOE. Source: IEA System Costs 2020
Why nuclear and gas have lower "system" value too
LCOE also understates the value of "firm" power — electricity available on demand, regardless of weather. A nuclear plant running at 90% capacity factor produces electricity 24/7/365 — every kWh has firm, predictable value. A solar plant at 20% capacity factor produces electricity only when the sun shines — much of its output occurs when the grid is already well-supplied.
This is why comparing nuclear ($141–221/MWh LCOE) directly with solar ($24–96/MWh LCOE) can be misleading: nuclear provides 4–5× more electricity per MW of installed capacity per year, and it provides it when demand is high, not just when the sun shines. The fair comparison requires assessing "firm capacity value" alongside LCOE. Source: IEA Nuclear and Secure Energy Transitions 2022
This is why comparing nuclear ($141–221/MWh LCOE) directly with solar ($24–96/MWh LCOE) can be misleading: nuclear provides 4–5× more electricity per MW of installed capacity per year, and it provides it when demand is high, not just when the sun shines. The fair comparison requires assessing "firm capacity value" alongside LCOE. Source: IEA Nuclear and Secure Energy Transitions 2022
India and the LCOE story
India has seen some of the world's lowest solar LCOE auction prices. In 2020, the Gujarat NTPC auction cleared at ₹1.99/kWh (~$24/MWh) — one of the world's lowest bids at the time. By 2024, bids have continued below ₹2.50/kWh for solar-plus-storage in favourable locations. These prices are possible because: (1) India has very high solar irradiation (5.5–6.5 kWh/m²/day in Rajasthan and Gujarat — far higher than the USA Midwest or Europe); (2) Labour and land costs are lower than Western markets; (3) Long-term Power Purchase Agreements (20–25 years) at fixed prices allow projects to finance at lower WACC.
India's coal electricity from state utilities currently costs approximately ₹4–6/kWh ($48–72/MWh) at the tariff level — making new solar unambiguously cheaper than new coal in most Indian states. Source: CEA India · CERC India · MNRE tender data
India's coal electricity from state utilities currently costs approximately ₹4–6/kWh ($48–72/MWh) at the tariff level — making new solar unambiguously cheaper than new coal in most Indian states. Source: CEA India · CERC India · MNRE tender data
Cost trends — the 15-year revolution
How costs changed since 2010
Solar: $400/MWh → $24/MWh — a 94% cost reduction
In 2010, utility-scale solar cost approximately $400/MWh. By 2024, the Lazard range starts at $24/MWh — a 94% reduction in 14 years. No other technology in energy history has achieved this rate of cost reduction. The drivers: scale (global manufacturing grew from ~20 GW/year to ~500 GW/year), learning curves (silicon purification, cell efficiency, module power per unit area), polysilicon price collapse (from ~$450/kg in 2008 to ~$5–15/kg in 2023), and competition (Chinese manufacturers drove down margins). Source: IRENA Renewable Power Costs 2023
Offshore wind: temporarily rising before falling again
Offshore wind costs fell from ~$200/MWh (2010) to ~$72/MWh (2019) — a 64% reduction. They then rose to ~$100–140/MWh by 2023 due to: supply chain inflation, steel and copper price spikes post-COVID, rising interest rates increasing financing costs, and developers' bids previously set too low. The UK's 2023 Contract for Difference (CfD) round received no offshore wind bids — costs exceeded the maximum strike price. By 2024, supply chains are stabilising and new bids are emerging. Long-term trend: declining as larger turbines and supply chain maturity drive costs down. Source: Lazard 2024
Questions
Questions people ask — answered
Is solar now the cheapest form of electricity?
In ideal conditions (high irradiation, low financing cost, large scale), new utility solar is the cheapest source of electricity ever built. Lazard 2024 shows solar at $24–96/MWh in the USA. IRENA's global average for new utility solar in 2023 was approximately $44/MWh — below the operating cost of most existing coal plants. In India and the Middle East, solar auction prices have cleared below $20/MWh. However, this is electricity only when the sun shines. Adding 4-hour battery storage to make solar dispatchable costs an additional $50–100/MWh — making the combined system more expensive than gas in most markets today. The question "is solar cheapest?" needs a qualifier: cheapest per kWh when the sun shines, yes. Cheapest as a firm, round-the-clock electricity source, not yet without storage or grid support. Source: Lazard LCOE 2024 · IRENA 2023.
Source: Lazard LCOE Analysis 2024 · IRENA Renewable Power Generation Costs 2023
Why is nuclear so expensive to build?
New nuclear in Western markets costs $141–221/MWh (Lazard 2024) — primarily because of: (1) Very high capital costs ($7,000–12,000/kW in USA and UK vs $2,500–3,500/kW in South Korea). US and UK nuclear projects have had severe construction cost overruns — Hinkley Point C (UK) and Vogtle Units 3&4 (USA) both exceeded initial budgets by 2–3× and took 10+ years to build. (2) Long construction timelines (10–20 years) mean financing costs accumulate. Interest on $10 billion over 15 years is enormous. (3) Very high safety and regulatory standards (necessary but costly). South Korea builds nuclear at significantly lower cost because it has standardised designs (APR1400) and a continuous construction programme that maintains workforce expertise. The IEA notes that extending the life of existing nuclear plants costs only $30–60/MWh — the cheapest firm clean electricity available. Source: Lazard LCOE 2024 · IEA Nuclear 2022.
Source: Lazard LCOE Analysis 2024 · IEA Nuclear Power and Secure Energy Transitions 2022
What is the cheapest electricity in India?
New utility-scale solar is the cheapest new electricity in India — with bids in recent auctions clearing at approximately ₹2.0–2.5/kWh ($24–30/MWh) in high-irradiation states like Rajasthan, Gujarat, and Andhra Pradesh. Onshore wind in strong wind zones (Tamil Nadu, Rajasthan) costs approximately ₹2.5–3.5/kWh. Existing coal plants with fully paid capital costs operate at approximately ₹2.0–3.0/kWh (fuel and O&M only) — competitive with renewables in terms of short-run cost. New coal at full capital recovery would cost ₹5–8/kWh. India's existing large hydro plants (Bhakra, Tehri, Koyna) operate at very low cost (₹0.5–1.5/kWh) as capital was paid decades ago. Source: CEA India · CERC tariff orders · MNRE tender data.
Source: CEA India 2024 · Central Electricity Regulatory Commission tariff orders · MNRE auction results
Why did offshore wind get more expensive?
After a decade of cost reductions, offshore wind costs rose significantly in 2021–2023 due to: (1) Supply chain inflation — steel prices doubled post-COVID, copper and rare earth prices rose; (2) Macroeconomic conditions — rising interest rates in 2022–23 increased the cost of financing capital-intensive projects by 30–50%; (3) Optimistic historical bidding — some UK and US projects had bid at prices below viable costs during the low-interest-rate era; (4) Labour costs — skilled offshore construction workers are scarce. Several UK and US offshore wind projects were cancelled or renegotiated in 2023. By 2024, supply chains are stabilising, some interest rate pressure is easing, and new project economics are improving. Lazard's 2024 offshore range of $72–140/MWh remains above 2019 levels. Long-term: expected to fall as turbine sizes increase (fewer units per MW = less installation cost) and supply chains scale. Source: Lazard LCOE 2024.
Source: Lazard LCOE Analysis 2024 · Ørsted Annual Report 2023 · UK BEIS CfD Round 5 results
Compare more
Sources
LazardLCOE Analysis Version 17.0 (2024) — primary source for all cost datalazard.com/lcoe-2024
IRENARenewable Power Generation Costs 2023 · Global average LCOE datairena.org/power-costs-2023
IEASystem Costs of Renewable Energy · Nuclear and Secure Energy Transitions 2022 · WEO 2024iea.org/weo-2024
CEA IndiaTariff data · Generation cost by source · India renewable auction resultscea.nic.in
CERC IndiaCentral Electricity Regulatory Commission · Tariff orders by technologycercind.gov.in