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Levelized Cost of Electricity (LCOE): How to Compare Energy Sources Fairly

LCOE spreads all costs of an energy source over the energy it produces. A clear look at why solar keeps getting cheaper relative to fossil fuels.

WaterFuelAndSolarEnergy.com Editorial Team Updated November 2024 7 min read

Levelized cost of electricity (LCOE) is the all-in cost of generating one kWh from a given technology over its life — capital, fuel, operating costs and expected output all rolled into a single number. It’s how analysts compare solar, wind, gas and coal fairly.

  • It includes upfront construction spread over years of output
  • Fuel-based plants pay for fuel every year; solar/wind pay none
  • It ignores time-of-day value — that’s a separate analysis
  • Lower LCOE doesn’t always mean “best” for the grid, but it matters
Is solar always cheapest?
On LCOE in sunny regions, often yes. But LCOE doesn’t capture when power is produced — that’s why storage is added, and why system value analysis matters beyond the simple cost per kWh.