Levelized cost of energy (LCOE) is the average revenue per unit of electricity that a plant needs to recover its building and operating costs over an assumed period. It lets analysts compare power sources on a common per-megawatt-hour basis.
The metric is one lens on the wider set of renewable energy sources and their fossil and nuclear alternatives. This guide explains what goes into an LCOE figure, how to read published estimates, and what the number cannot tell you.
What levelized cost of energy measures
In its April 2026 methodology paper, the U.S. Energy Information Administration (EIA) describes levelized cost of electricity as the estimated revenue required to build and operate an electric-generation plant over a specified cost recovery period. The result is stated per unit of electricity, which turns a large up-front investment and many years of running costs into a single rate.
“Levelized” means the costs are spread evenly across the energy a plant is expected to produce, with money spent later counted for less than money spent now. The abbreviation LCOE is used for both “levelized cost of electricity”, the wording EIA uses for generation, and “levelized cost of energy”, the phrasing in the title of this guide.
Because the answer is a rate rather than a total, a small rooftop array and a very large wind farm can be placed on the same scale. The scale is only meaningful when the assumptions behind each figure are known, which is why every credible report states them.
The inputs behind an LCOE figure
EIA writes the calculation in a general form: the annualized capital cost plus fixed operating and maintenance costs, divided by the hours of generation, then plus variable operating costs and fuel, minus any federal tax credits. In plain terms, an LCOE estimate rests on these inputs:
- Capital cost: the price of designing, buying and building the plant.
- Fixed operations and maintenance: costs that continue whether or not the plant runs.
- Variable costs: operating costs that rise with output, plus fuel where a plant burns it.
- Financing: the cost of the money used to build the plant.
- Utilization: how many hours a year the plant is assumed to generate.
- Incentives: tax credits or other support, where the analysis includes them.
The weight of each input differs by technology. EIA’s paper states that for technologies with no fuel costs and relatively small variable costs, such as solar and wind, LCOE changes nearly in proportion to the estimated capital cost. A gas plant is different, because fuel is a running cost that appears every year.
Financing cost and capacity factor move the result
Two assumptions often decide which source looks cheaper. The first is the cost of capital. EIA states that it calculates its levelized costs over a 30-year cost recovery period, using an after-tax weighted average cost of capital, and it notes that a real plant’s recovery period and cost of capital can vary by project and investor. Because the formula multiplies capital cost by a financing factor, a plant whose cost is mostly up-front reacts more strongly to a change in interest rates than one whose cost is mostly fuel.
The second is utilization, usually expressed as capacity factor. A plant that runs for more hours spreads its fixed costs over more electricity. EIA evaluates combustion turbines, which serve peak demand, at a 10% capacity factor and battery storage at the same figure, while other technologies are evaluated near the high end of their likely range, as the same methodology paper explains.
For wind and solar the capacity factor follows the weather rather than an operator’s schedule. EIA adds that curtailed generation, which is output the grid cannot absorb, does not provide value and is deducted from the capacity factors it uses. Output lost to curtailment therefore pushes a plant’s LCOE up.
EIA’s estimates for plants entering service in 2031
EIA publishes a yearly set of estimates for new plants in its Annual Energy Outlook. The April 2026 edition presents average levelized costs for United States plants entering service in 2031, in 2025 dollars per megawatthour, for the AEO2026 Counterfactual Baseline case. EIA states that the stated LCOE values include the levelized tax credit component for eligible technologies, and that the One Big Beautiful Bill Act (OBBBA) of 2025 modifies provisions of the Inflation Reduction Act of 2022 on technology eligibility for the production and investment tax credits. EIA says it included only laws and regulations effective as of December 2025. The table below shows a selection.
| Technology | EIA category | Average LCOE, 2025 dollars per megawatthour, tax credits included |
|---|---|---|
| Geothermal | Dispatchable | $40.38 |
| Onshore wind | Resource-constrained | $56.75 |
| Solar PV | Resource-constrained | $58.33 |
| Combined-cycle gas | Dispatchable | $77.46 |
| Advanced nuclear | Dispatchable | $87.81 |
| Offshore wind | Resource-constrained | $118.79 |
Figures are from the U.S. Energy Information Administration’s Levelized Costs of New Generation Resources in the Annual Energy Outlook 2026, April 2026, AEO2026 Counterfactual Baseline case, plants entering service in 2031, United States, power-sector plants only, with tax-credit effects included as EIA states.
The two category labels matter. EIA lists dispatchable and resource-constrained technologies separately because they are built to provide different services to the grid, and it says direct comparisons of cost between the two groups may not be meaningful in most contexts. Readers who want a closer look at one dispatchable option can read the guide to geothermal energy.
Lazard and IRENA: different scopes, different numbers
Other organizations publish LCOE series with their own methods. Lazard released the 19th edition of its Levelized Cost of Energy+ report on July 13, 2026. Lazard’s 2026 LCOE+ report, as summarised by pv magazine USA on July 13, 2026, puts the unsubsidized LCOE for utility-scale solar PV at approximately $40/MWh to $98/MWh, compared with $38/MWh to $78/MWh in 2025. The same pv magazine USA summary gives approximately $37/MWh to $99/MWh for onshore wind and approximately $51/MWh to $129/MWh for gas-fired combined-cycle generation. pv magazine states that the analysis excludes US federal tax subsidies, carbon pricing and other policy incentives, so these are United States figures in US dollars on an unsubsidized basis.
Lazard’s own release says renewables remain the most cost-competitive form of new-build generation on an unsubsidized basis. It adds that announced new-build gas generation has increased sharply despite a 15-year high LCOE for gas, which the release says is expected to continue to rise.
The International Renewable Energy Agency (IRENA) publishes an annual report on renewable power generation costs. Its July 2026 report on 2025 costs states that more than 90% of utility-scale renewable projects commissioned in 2025 delivered power below the cost of the cheapest new fossil-fuel plant built in their market. IRENA reports that solar PV remained at its 2024 level of USD 44/MWh in 2025, while onshore wind fell to USD 33/MWh and offshore wind to USD 78/MWh. In contrast, most dispatchable renewable technologies recorded higher costs, with geothermal rising to USD 89/MWh.
Since the EIA, Lazard and IRENA numbers differ in region, year, subsidy treatment and plant type, they should be read as separate datasets, not as competing answers to the same question.
What LCOE leaves out
EIA is direct about the limits of the metric. Its paper says LCOE and LCOS by themselves do not capture all of the factors that contribute to actual investment decisions, which makes direct comparisons across technologies problematic and misleading as a method to assess economic competitiveness. A plant that generates when demand is high is worth more to a grid than one that generates when supply is already ample, yet both can show the same LCOE.
To address this, EIA pairs LCOE with levelized avoided cost of electricity, or LACE, defined as the revenue available to a plant owner over the same period. The ratio of LACE to LCOE is the value-cost ratio. A ratio greater than one means the marginal new unit brings in more value than its cost by displacing more expensive generation and capacity, according to the EIA methodology paper.
Other gaps follow from the design of the metric:
- Grid integration: firming, transmission and balancing costs are not part of a plant’s own LCOE. Lazard’s July 2026 release cites rising power demand and intensifying reliability considerations, including sophisticated capacity accreditation methodologies, as pressures on the industry.
- Policy: tax credits can substantially reduce realized cost, so figures reported with and without incentives can differ widely. EIA adds that LCOE can rise when federal tax credits expire or fuel prices rise.
- Scope: EIA states that its estimates are not for systems in the residential or commercial sectors, so utility-scale results do not translate directly to a household array.
- Non-cost qualities: land use, output variability and local resource quality sit outside the number. A comparison of solar vs wind energy covers those practical differences.
Reading an LCOE number sensibly
A published LCOE is only as useful as the context around it. Before comparing two figures, check these points:
- Which country or region the figure covers, and in what currency and price year it is stated.
- Whether subsidies or tax credits are included.
- Which plant type and size the analysis assumes, such as utility-scale or distributed.
- The capacity factor, the cost recovery period and the cost of capital used.
- The publication date, because costs for fuel, equipment and financing change from year to year.
Individual household decisions depend on local electricity tariffs, installation quotes and local rules, which an average cost for a power plant does not capture. The sources cited here are better read as a way to understand the economics of power generation than as a basis for a purchase.
Frequently asked questions
What does LCOE stand for?
LCOE stands for levelized cost of electricity, also written levelized cost of energy. It expresses the lifetime cost of a power source per unit of electricity it generates.
Is a lower LCOE always better?
No. A low figure shows a low cost to build and run the plant, but it says nothing about when the electricity is produced or what the grid needs at that moment. Analysts therefore read it alongside measures of value, such as LACE.
Do published LCOE figures include subsidies?
It depends on the report. EIA shows figures that include the tax credits it assumes are available, while the Lazard figures summarised above exclude US federal tax subsidies. Always check which basis a number uses.
Can LCOE be used to judge solar panels on a home?
The agencies cited here build their estimates for power-sector plants, not for household systems. Home systems face different costs, tariffs and local rules, so the utility-scale numbers are a background reference rather than a household estimate.
