Levelized cost of energy

It is not hard to find claims that the LCOE (levelized cost of energy) such as solar and wind are lower than, say, natural gas. However, that assessment depends upon what is included and what is left out.

The following article notes that:
“The most widely cited source of energy LCOE comparison is Lazard who published a new comparison in April. That analysis finds the unsubsidized cost of new natural gas power is virtually identical to new commercial wind and solar over its lifetime, adjusting for expected future inflation. Taxpayers and ratepayers will pay about the same, on average, using either source of energy. If the cost of natural gas declines in the future or doesn’t increase as quickly as expected, it could end up costing less.”

However, the Lazard data doesn’t include the cost of backup and other costs for renewable energy. These costs fall into four categories: backup costs, balancing costs, grid connection costs and grid reinforcement/extension costs.

A number of years ago the OECD put some number to these costs for six countries (France, Finland, Kores, US, UK and Germany). The cost for battery backup has decreased since then, but the backup cost can be decreased by 90% to compensate.

Here are the US numbers for 30% penetration levels:

        Total grid-level system costs
Nuclear           1.67
Coal              1.03
Nat gas           0.51
Onshore wind     14.31
Offshore wind    22.10
Solar            18.87

               Backup    Balancing     Grid     Grid reinforcement
               costs      costs     connection    & extension
Nuclear         0.00       0.10        1.56         0.00
Coal            0.01       0.00        1.03         0.00
Nat gas         0.00       0.00        0.51         0.00
Onshore wind    0.61       2.00        6.50         2.20
Offshore wind   0.68       2.00       15.24         1.18
Solar           1.04       2.00       10.05         2.77



One factor often left out is the cost of the water required for conventional fossil fuel electricity generation. According the the US geological survey in 2015 roughly 41% of total water withdrawals went to thermoelectric power plants. This includes 34% of total fresh water withdrawals. Takes a lot of water to both produce steam and to keep power plants cool. This doesn’t include the fair bit of water needed to get fossil fuels from stuff like fracking and oil drilling.

Worth noting too is that residential water costs over the past decade have been increasing nationally at a much higher rate than inflation, food, or energy costs. Water, or the lack thereof, will increasingly become the determinative factor for where development can occur.

In short, I suspect that if we are going to start adding “hidden costs” to the energy equation, fossil fuels are not going to benefit.


These numbers are from 2012. Is it safe to assume wind and solar PV costs have remained static since then?


No, but the Lazard report is from 2023. In addition, the balancing/connection/extension costs are big ticket items and may well have increased.


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There is also the concept of Levelized Full System Cost of Electricity (or Energy). Below is a link to one paper (released 2022). Using this LFSCOE analysis, the intermittent renewables such as wind and solar come up as more expensive than traditional energy sources.

This link is evidently a preliminary review version. The final published paper is available, but maybe not for free.

  • Pete
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This paper introduces the Levelized Full System Costs of Electricity (LFSCOE), a novel cost evaluation metric that compares the costs of serving the entire market using just one source plus storage.

It makes about as much sense as the cost of eating only bananas. Unrealistic!

The Captain


If the cost of natural gas increases in the future or increases more quickly than expected, it could end up costing significantly more.

Yes, certainly looks stable to me.

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This analysis from 2012 is outdated and totally ignored by the electrical power generation industry because it stinks. Texas in the last few years is mostly building solar and wind facilities as reported in the following article:

Texas installed 7,352 megawatts of new wind, solar and energy installation projects in 2021, significantly outpacing California, which installed 2,697 megawatts of storage projects. Oklahoma, Florida and New Mexico were the other top producing states.

Texas also surpassed other states in the amount of storage it has under construction or in advanced development, reaching nearly 20,000 megawatts, followed by California at nearly 14,000 megawatts.

Texas is experiencing a rise in renewable energy deployment not necessarily due to concerns over human-caused climate change, but rather because of the low costs of renewable energy sources like solar and wind development.


If I am reading things correctly, the focus of the OECD table was not on fuel costs but rather grid-type costs such as grid stability and connecting to the grid.

For example, looking at their grid connection costs, we see that offshore wind is much more expensive to connect up than onshore wind. That makes sense. Onshore wind is more expensive to connect than nuclear, probably because the wind sources are lower density and more dispersed. Nat gas power plants are the least expensive because they can be closer to population and manufacturing centers.


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Here is another example of a cost that increases with the penetration of variable sources:

UK ‘power dumping’ raises concerns over energy management

National Grid ESO has reportedly paid up to £550/MWh to dump excess power into neighbouring countries…

Mr Hewitt told Energy Live News: “The reason National Grid ESO gave yesterday (Monday 29th May) was that it was an energy action. This means they had too much power and needed to reduce generation and interconnector imports.

“They couldn’t turn off power stations because they needed them on to provide inertia to the system so this left the interconnectors as their only option. To change the output of interconnectors, they trade with counterparties that have access to the intraday markets on the other side of the interconnector. These traders quote prices that National Grid ESO then accepts to change the output of the interconnectors…

“Electricity system operators in these countries need to investigate how to create curtailment products to encourage consumers to stop generation during these periods, otherwise the SOs will be spending a lot of money on balancing the markets on these kind of days. Yesterday (Monday 29th May), National Grid ESO spent £9.4 million on balancing the system by trading and using the balancing mechanism.”


Of course, there’s one other factor we need to take into account when looking at natural gas (brilliant marketing - it’s natural! Then again, cyanide is natural, too.) versus solar and wind power.

Something to do with survival of the species as I recall.

But think of the money we’ll save on the way out the door!


IIRC, the cost of carbon is included in the ‘basic’ LCOE. Yup, right on page one of the '23 Lazard report:
“Comparative LCOE analysis for various generation technologies on a $/MWh basis, including sensitivities for U.S. federal tax subsidies, fuel prices, carbon pricing and cost of capital.”

At any rate the grid costs discussed in the OECD table are in addition to the carbon dioxide emission costs, fuel prices, etc.


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Maybe solar and wind industries need to rebrand their energy sources. Are they really actually renewable or just recurring?
After all solar is not really renewable…once a photon hits a panel it is used up and does not get renewed. :slight_smile: So maybe it needs to be called “natural light power.” And maybe wind should be called “nature’s breeze.”



That’s what happens after eating at Taco Bell.


I wont know.

:rofl: :rofl: :rofl:

LOL! The basic job description for SOs is to balance the system (grid) by trading and using balancing mechanisms.

Around the beginning of the 20th century, there were over 4,000 individual electric utilities, each operating in isolation. These local utilities operated low-voltage power plants that served local customers through short distribution lines.

As the demand for electricity grew, particularly in the post-World War II era, electric utilities found that it was more efficient to interconnect their transmission systems. In this way, they could share the benefits of building larger and jointly-owned generators to serve their combined electricity demand at the lowest possible cost, while avoiding duplicative power plants. Interconnection also reduced the amount of extra capacity that each utility had to hold to ensure reliable service. With growing demand and the accompanying need for new power plants came an ever-increasing need for higher voltage interconnections to transport the additional power longer distances4.

The electrical grid is one of the most complex and outdated breakthroughs in the world. Currently, research is being done to determine how to optimize its performance for effectiveness. The most interesting example is the recently developed ‘smart grid’. The smart grid is simply the electrical grid enhanced by information technology, which turns the electrical grid into an intelligent network.

It costs money to trade electricity and balance the grid!!


That is true, and the cost to do so increase with rising renewable penetration. From the OECD report here are the balancing cost estimates for 30% penetration:

Offshore wind   $2.00/MWh
Onshore wind     2.00
Solar            2.00
Nuclear          0.10
Coal             0.00
Nat gas          0.00

If you have a more recent table it would be useful to share.


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At the household level, Autobidder only sells at a profit. No profit? Disconnect the solar panels once your storage batteries are fully charged.

I don’t understand where the problem lies. Maybe you can’t shut off nuclear or hydro but what’s the problem with disconnecting solar panels and wind mills?

The Captain

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Looking at the OECD table, the largest grid expenses come from grid connections, increased grid instability and balancing fluctuating sources.

A couple of examples:

– Schmietendorf et al. write that “Feed-in fluctuations induced by renewables are one of the key challenges to the stability and quality of electrical power grids…the intermittent nature of wind power has significant consequences on power quality: intermittency is directly transferred into frequency and voltage fluctuations…”

– From Australia, the AEMO (Australia Energy Market Operator) writes that
"AEMO is trying to manage two major risks to power system security with this initiative:

  1. Vulnerability to the power system caused by rooftop solar PV inverters disconnecting along with a large power station following a disturbance on the network, causing a major supply-demand imbalance; and
  2. Minimum system load, where energy demand is low, but rooftop solar PV continues to push electricity into the network, displacing large synchronous generating units (coal, gas and hydro) that are required to be on to provide essential system services.

– Reactive power management is more difficult with renewables. Sarkar et al. write that “With the high renewable power penetration levels, one of the key power system parameters, namely reactive power, is affected, provoking steady-state voltage and dynamic/transient stability issues.”


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Thanks! I guess it’s kind of complicated! On the boat it’s all DC so that problem did not exist. Qaz and engineers get to work!

I wonder if more storage to take up the slacks and overloads would help solve the problems.

The Captain
not an engineer

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