Determining the cheapest way to produce electricity requires a careful, long-term analysis of a generation facility’s entire economic life cycle, extending far beyond the simple price of fuel. This comparison focuses on utility-scale, new-build power plants that supply electricity to the grid, rather than small-scale residential systems. Understanding the relative affordability of different technologies provides a clear perspective for investors, policymakers, and consumers on the future direction of the energy landscape.
Understanding the Levelized Cost of Energy
The standard metric used globally to compare the costs of different generation technologies is the Levelized Cost of Energy (LCOE). LCOE represents the average revenue per unit of electricity a generator must receive to recover its total costs over its entire lifetime. This calculation allows for a direct comparison of technologies with vastly different cost structures, such as solar farms with high initial costs but no fuel costs, versus gas plants with lower initial costs but high and volatile fuel costs.
The LCOE calculation incorporates several factors, starting with the initial Capital Expenditure (CapEx) for construction and equipment. It also accounts for ongoing Operations and Maintenance (O&M) costs, fuel costs (a major component for fossil fuel plants), and the costs of financing the project over its lifespan. The total lifetime costs are then divided by the total expected electricity output over the same period. This yields a single figure, typically expressed in dollars per megawatt-hour ($/MWh), which serves as a clear financial benchmark for assessing the viability of new power generation projects.
The Lowest-Cost Generation Leaders
Utility-scale onshore wind and solar photovoltaic (PV) technologies have emerged as the global leaders in low-cost electricity generation. Recent international data confirms that these sources consistently deliver the lowest Levelized Cost of Energy for new-build power plants. For example, the global weighted average LCOE for new onshore wind projects stood at approximately $34/MWh in 2024, while new utility-scale solar PV followed closely at around $43/MWh.
The cost reduction in these intermittent renewable sources is largely attributed to technological maturation and industrial scale. Decades of mass production, particularly of solar panels, have created a powerful “learning curve” effect, where manufacturing costs decrease with increased production volume. Innovations in turbine size and panel efficiency allow new projects to generate significantly more power from the same footprint, spreading fixed capital costs over a larger energy output. These factors ensure that wind and solar maintain a substantial cost advantage, often being 41% to 53% cheaper than the lowest-cost new fossil fuel alternatives.
Comparative Costs of Traditional and Baseload Sources
In contrast to the lowest-cost renewable leaders, traditional and baseload sources generally carry a higher Levelized Cost of Energy for new construction. New natural gas combined-cycle (NGCC) plants, which offer reliable and dispatchable power, typically have an LCOE around $76/MWh. While NGCC plants are relatively quick to build and can ramp up generation on demand, their LCOE is heavily influenced by the volatile price of natural gas, which constitutes a significant portion of operating costs.
Nuclear power provides carbon-free, always-on baseload electricity, but its cost profile is dominated by high upfront capital expenditure and long construction times. While the LCOE for new large-scale nuclear is often high, new technologies like Small Modular Reactors (SMRs) are projected to be more cost-competitive. SMRs are estimated to achieve an LCOE in the range of $50 to $75/MWh, a figure that rivals some renewable projects while providing continuous power. New-build coal power is generally considered uneconomical for new construction due to high capital costs and increasing regulatory hurdles, making it a much more expensive option than new gas or nuclear.
Hidden System Costs and Reliability
The standard Levelized Cost of Energy metric, while useful, does not capture the full economic impact of integrating intermittent power sources like wind and solar into the grid. The intermittency of these technologies introduces system integration costs that are not reflected in the raw LCOE figure. These hidden costs become increasingly significant as the share of variable renewable energy on the grid grows.
System integration costs include the need for additional infrastructure to ensure reliability and balance supply with demand. This involves large investments in energy storage, such as utility-scale batteries, and upgrades to transmission lines to move power from remote generation sites. Integration costs also encompass “profile costs,” which refer to the reduced value of renewable electricity when it is abundant, causing market prices to drop. Therefore, the true cost of electricity from intermittent sources requires factoring in the added cost of storage and grid flexibility, an expanded metric sometimes referred to as the System LCOE.