The shift toward clean energy—primarily utility-scale solar, onshore wind, and geothermal power—is often framed as an environmental imperative. A more immediate question is whether these sources are genuinely more affordable than established fossil fuels. A direct price comparison of energy at the point of sale provides an incomplete answer, as the true economic picture depends heavily on the metric used. A comprehensive analysis must compare the upfront price of new projects against the deeper, long-term costs that traditional energy sources impose on society. For many new power generation projects, the financial advantage of clean energy is now clearly established.
Comparing the Levelized Cost of Energy (LCOE)
The Levelized Cost of Energy (LCOE) is the most direct way to compare the cost of different electricity generation technologies. LCOE calculates the total cost of building and operating a power plant over its entire lifetime, divided by the total energy output. This metric captures all direct capital expenditures, financing costs, and operational expenses, providing a single figure for the minimum price at which the electricity must be sold to break even.
The LCOE for new utility-scale renewable projects has fallen below that of new fossil fuel plants in many global markets. Recent analysis shows that the unsubsidized LCOE for new onshore wind projects ranges from approximately $27/MWh to $73/MWh, while utility-scale solar ranges from $29/MWh to $92/MWh. This contrasts sharply with the costs for new fossil fuel generation, where coal can range from $69/MWh to $169/MWh. Natural gas “peaker” plants, used to meet demand spikes, can climb as high as $228/MWh.
The cost advantage is so substantial that new wind and solar are often cheaper to build and operate than simply continuing to run existing coal-fired power plants. When federal tax incentives are applied, the LCOE for new clean energy can fall even lower, sometimes reaching below $20/MWh. This comparison, based purely on direct capital and operational expenses, shows that clean energy is the most economical choice for new power generation capacity.
The Hidden Costs of Traditional Energy Sources
The LCOE only accounts for the private costs borne by the utility or developer, failing to capture the “externalities” that traditional energy sources offload onto the public. These externalities represent the societal costs of pollution and environmental damage, making the total cost of fossil fuels significantly higher than their market price suggests. Consequently, the market price of coal, oil, and natural gas is artificially low.
A major component of these hidden costs is the impact on human health from air pollutants like fine particulate matter, sulfur dioxide, and nitrogen oxides. Fossil fuel combustion contributes to respiratory and cardiovascular diseases, leading to higher healthcare expenditures and lost productivity. Globally, the annual cost of health impacts from fossil fuel-generated electricity is estimated to be hundreds of billions of dollars.
The economic damage from climate change is another immense externality not reflected in the price of fuel. This includes the massive costs associated with increasingly frequent and severe weather events, such as hurricanes, wildfires, and floods. In the United States alone, the cost of billion-dollar extreme weather disasters reached over $600 billion between 2016 and 2020.
When these externalities are quantified and added to the LCOE, the full price of traditional energy can be several times higher than its direct cost. Studies have estimated the total external costs of fossil fuels—including health impacts, climate change, and environmental degradation—to be in the trillions of dollars globally each year. Internalizing these damages demonstrates that, from a comprehensive economic and societal perspective, clean energy is the cheaper option.
Technological and Market Drivers of Affordability
The continuous decline in clean energy costs is driven by predictable market mechanisms and rapid technological advancement. The primary driver is the “learning curve” effect, which posits that as the cumulative production of a technology doubles, its cost decreases by a predictable percentage. This is a function of “learning-by-doing,” where manufacturers produce, install, and operate the technology at scale more efficiently.
For utility-scale solar photovoltaic (PV) technology, this learning curve has been steep, with its LCOE declining by an average of 24% for every doubling of installed capacity worldwide. Onshore wind has also followed a significant learning curve, with a cost reduction of around 15% per doubling of capacity. These predictable cost reductions are primarily due to economies of scale in manufacturing and constant improvements in material science.
The rapidly falling cost of battery energy storage systems is also important, as it directly addresses the intermittency of solar and wind power. As battery costs drop, the value of clean energy increases by allowing it to provide power even when the sun is not shining or the wind is not blowing. This combination of cheaper generation and cheaper storage capability solidifies the long-term affordability trend for clean energy.
The Impact of Policy and Financial Incentives
While the underlying economics favor clean energy, government policy and financial incentives play an important role in accelerating its deployment and influencing the final market price. In the United States, two major mechanisms, the Investment Tax Credit (ITC) and the Production Tax Credit (PTC), have been instrumental in driving down the final cost for developers. The ITC provides a tax credit based on a percentage of the capital cost of a clean energy project, reducing the initial investment burden.
Conversely, the PTC provides a fixed credit for every kilowatt-hour of electricity generated over the project’s first ten years, directly incentivizing energy output. These incentives reduce the total cost of ownership for renewable projects, making the power they generate competitive in wholesale energy markets. The availability of these credits can lower the LCOE for utility-scale solar projects to the point where they are cheaper than the operating cost of existing natural gas plants.
Market mechanisms designed to internalize the costs of pollution also significantly impact the competitiveness of energy sources. Policies such as a carbon tax or cap-and-trade systems assign a financial price to carbon dioxide emissions, making electricity generated from fossil fuels more expensive. Governments have also provided significant subsidies to the fossil fuel industry, which artificially lowers their market price. The targeted use of policy tools can therefore correct market failures, revealing the economic advantage of clean energy.