Levelized Cost of Electricity / by Norris McDonald

The Levelized Cost of Energy (LCOE) is a way to combine all the construction, fuel and operational costs into a form that can be compared among all energy sources. The LCOE also has assumptions about financing periods, taxation, depreciation and owner costs that are hard to compare between short-lived systems like wind and long-lived systems like large hydro and nuclear.

LCOE offers an apples-to-apples comparison of the costs of financing, building, operating, and maintaining a power plant. The values are expressed in dollars per megawatt-hour or cents per kilowatt hour.

The following table compares the levelized cost of electricity (LCOE), in U.S. 2013 dollars per megawatt-hour, from different generation sources.

Generation Type          LCOE of Existing          LCOE of New*          LCOE of New**

Conventional coal                39.9                             N/A                        95.1

Combined Cycle Gas           34.4                             55.3                       75.2

Nuclear                               29.1                             90.1                        95.2

Hydro                                  35.4                           122.2                        83.5

Combustion Turbine Gas      88.2                           263.0                      141.5


Wind                                    70                              107.4                         73.6

PV Solar                               85                           140.3                        125.3

* This column shows the LCOE of new generation sources at actual 2015 capacity factors and fuel costs.

** This column shows the LCOE of new generation sources at the EIA-assumed capacity factors and fuel costs.

Source                     LCOE-existing (¢/kWh)        LCOE-new (¢/kWh)        

Coal                                      3.8¢                                       9.8¢

Natural Gas                           4.9¢                                       7.3¢

Nuclear                                  3.0¢                                       9.3¢

Hydro                                     3.4¢                                      11.7¢

Wind                                       NA                                        11.3¢

Biomass                                  NA                                        10.3¢

Solar                                       NA                                        13.0¢

All existing power plants have lower costs compared to their most likely replacements. New plants start their life cycle with a full burden of construction debt and equity investment that they have to pay off in their first ten years or so, while existing plants have already paid most of those debts. Once power plants pay off their original debts, they have far lower fixed operating costs and are capable of supplying electricity at lower costs, often at significantly lower costs.  (Forbes, 7/9/2015, Friends of Science Calgary, 8/29/2016)