What Is LCOE (Levelized Cost of Electricity)?
Last updated: October 26, 2026
The levelized cost of electricity (LCOE) is the average cost, in dollars per megawatt-hour ($/MWh), of building and running a power plant over its entire lifetime, divided by the total electricity it is expected to generate over that lifetime, with both costs and output discounted back to present value. LCOE lets analysts compare the underlying cost of very different generating technologies — solar, wind, gas, coal, nuclear — on a single metric, which is why it is the standard yardstick cited in reports from Lazard, the IEA and national energy agencies.
Definition and formula
LCOE answers the question: “If a plant’s entire lifetime cost had to be recovered through a flat per-megawatt-hour charge on everything it generates, what would that charge need to be?” In its simplest form:
| Component | What it covers |
|---|---|
| Numerator (lifetime costs) | Capital expenditure (construction), financing cost, fuel, operations and maintenance (O&M), and decommissioning — each discounted to present value |
| Denominator (lifetime output) | Expected megawatt-hours generated over the plant’s life, also discounted to present value, based on an assumed capacity factor |
The result, LCOE = (discounted lifetime costs) ÷ (discounted lifetime electricity output), is expressed in $/MWh (or sometimes $/kWh, €/MWh). Two inputs drive most of the variation between published LCOE estimates: the assumed discount rate (which reflects the cost of capital and project risk) and the assumed capacity factor (how much of the time the plant actually generates at rated output).
Why LCOE matters
Before LCOE became standard, comparing a solar farm to a gas plant meant comparing project costs with different fuel needs, construction timelines, lifespans and output profiles — numbers that are not directly comparable on their own. LCOE converts all of that into one normalized figure, which is why utilities, regulators, investors and journalists use it as shorthand for “how cheap is this technology to build today.” It is the headline number behind claims such as “solar is now cheaper than coal,” and it underpins planning decisions by grid operators and energy ministries comparing technology options for new capacity.
2026 benchmark: Lazard’s LCOE+ report
Lazard, a financial advisory and asset management firm, publishes one of the most widely cited LCOE benchmarks, now in its Version 19.0 (2026 edition) of the Levelized Cost of Energy analysis. Its unsubsidized, US-focused ranges include:
| Technology | Unsubsidized LCOE range ($/MWh, 2026) |
|---|---|
| Onshore wind | ~$37–99 |
| Utility-scale solar PV | ~$40–98 |
| Natural gas combined cycle (CCGT) | ~$51–129 |
| Utility-scale solar + storage | ~$61–156 |
| Coal | ~$72–177 |
| Offshore wind | ~$105–167 |
| Nuclear | ~$175–255 |
| Gas peaking | ~$144–276 |
According to Lazard’s 2026 report, wind and solar costs rose from the prior year’s edition because of higher capital costs, sustained interest rates, tariff pass-through and supply-chain repricing, even though the report still finds unsubsidized renewables to be the most cost-competitive new-build options on an LCOE basis. These figures are drawn from secondary trade-press coverage (pv magazine, Utility Dive) of the Lazard report rather than a direct read of Lazard’s published tables, and should be checked against Lazard’s own release before being used for financial decisions.
What LCOE does not capture
LCOE is a useful but incomplete comparison tool. It generally excludes or understates:
- Grid integration costs — the transmission, balancing and backup capacity a variable source like wind or solar requires to keep the grid stable, which is not borne by the generator itself
- Dispatchability value — a plant that can run whenever needed (gas, nuclear, hydro with storage) provides reliability that an equivalent-LCOE intermittent source cannot, a gap that has led analysts to propose “value-adjusted LCOE” or system-cost comparisons instead
- Subsidies and tax credits — Lazard and most agencies publish both “unsubsidized” and “subsidized” figures separately; policy support can materially change which technology looks cheapest in a given country
- Location-specific factors — fuel transport cost, local labor and permitting timelines, and resource quality (solar irradiance, wind speed) all shift a real project’s cost away from a generic published range
Because of this, LCOE is best used to compare the underlying cost of similar, same-dispatchability technologies (e.g., one solar project against another) or to track how a single technology’s cost is trending over time, rather than as a complete substitute for full system-cost planning.
Related terms
LCOE is the standard metric for comparing the cost of a small modular reactor (SMR) against gas, coal or renewables, and it is distinct from spot fuel benchmarks such as Brent crude or natural gas pricing, which measure a fuel’s market price rather than a power plant’s all-in generation cost. Low-carbon technologies such as green hydrogen and carbon capture and storage (CCS) are also frequently benchmarked on an LCOE or levelized-cost-of-fuel basis against fossil alternatives.
FAQ
What does LCOE stand for?
Levelized cost of electricity (sometimes “levelized cost of energy”), a single $/MWh figure representing a power plant’s average lifetime cost per unit of electricity generated.
Is LCOE the same as the electricity price?
No. LCOE is a modeled cost benchmark used to compare generating technologies, not the retail or wholesale price consumers or utilities actually pay, which also reflects grid costs, taxes, margins and market dynamics.
Why is nuclear LCOE higher than solar or wind?
Nuclear plants have very high upfront capital costs and long construction timelines, which dominate the LCOE calculation, whereas solar and wind have lower capital costs per project (though lower capacity factors) and no fuel cost. Nuclear’s high capacity factor and long operating life partly offset this over decades, but on a pure new-build LCOE basis it has generally priced higher than wind, solar and gas in recent Lazard editions.
Does LCOE include subsidies?
Published LCOE figures usually come in both unsubsidized and subsidized versions. Tax credits and other incentives can lower the effective subsidized LCOE substantially for a given technology in a given country.
What is “value-adjusted LCOE”?
An alternative framing that adjusts plain LCOE for the value of when and how reliably a technology generates, to account for the fact that a dispatchable plant and an intermittent one are not directly comparable on cost alone.
Related The Daily Energy pages
Sources
- Lazard — Levelized Cost of Energy+ Analysis, Version 19.0 (2026)
- pv magazine USA — “U.S. solar LCOE on the rise, Lazard says” (July 2026)
- Utility Dive — coverage of Lazard’s LCOE+ findings
- International Energy Agency (IEA) — Levelized Cost of Electricity Calculator and analysis
Illustrative image. Photo: Ermell, CC BY-SA 4.0, via Wikimedia Commons — source
