Trystan Casey
The cost of electricity varies depending on the source and the method of generation. The levelized cost of electricity (LCOE) is a metric used to compare the costs of electricity generation by assessing the costs of building and maintaining a power plant, as well as the amount of electricity produced over its lifetime. In recent years, there has been a growing interest in transitioning from fossil fuels to emission-free sources such as solar, wind, and nuclear power. This shift is driven by the need to decarbonize and the potential financial viability of these alternative sources. Solar energy, in particular, has been confirmed by the IEA as the cheapest electricity source globally, with costs ranging from $20-40/MWh in China and India to $30-60/MWh in Europe and the US. Onshore wind and utility-scale solar photovoltaic (PV) technologies have also been found to be more cost-effective than combined-cycle natural gas power plants in the US. However, it's important to consider factors such as financing costs, policy incentives, geographical location, and technology maturity when evaluating the costs of different electricity sources.
| Characteristics | Values |
|---|---|
| Source of electricity with the lowest cost | Solar |
| How is the cheapest source determined | Levelized cost of electricity (LCOE) is a metric used to assess the cost of generating electricity from a specific power source over its lifetime. |
| LCOE calculation | Net present value of all costs over the lifetime of the asset divided by an appropriately discounted total of the energy output from the asset over that lifetime |
| Cheapest sources in the US | Onshore wind and utility-scale solar photovoltaic (PV) technologies |
| Cheapest sources in China and India | Utility-scale solar PV and onshore wind |
| Factors influencing LCOE | Financing costs, policy incentives, government subsidies, geographical location, availability and cost of key clean energy metals and materials, maturity of the technologies, scale of deployment, growth in demand, supply chain |
| Levelized cost of storage (LCOS) | Secondary source of electricity dependent on a primary source of generation |
| Levelized avoided cost of energy (LACE) | Avoided costs from other sources divided by the annual energy output of the non-dispatchable source |
| Cheapest source in 2025 | Nuclear |
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What You'll Learn
Solar power is the cheapest electricity in history
The International Energy Agency (IEA) has confirmed that solar power is the cheapest source of electricity in history. This is due to the rapid improvement in solar technology, with solar panels becoming more efficient and a higher percentage of sunlight being converted into electricity. The average cost of solar panels has decreased by 98% over four decades, from around $30 per watt in the early 1980s to less than $0.50 per watt today.
In 2021, solar PV accounted for nearly half of all new capacity installed globally, and the IEA predicts that solar capacity will continue to grow rapidly, especially in China and the European Union. According to Lazard's 2023 analysis, utility-scale solar photovoltaic (PV) technologies are more cost-effective than combined-cycle natural gas power plants.
Solar power is also attractive because it requires no imported hydrocarbons, which is especially beneficial for rural electrification in the Global South. Additionally, as renewable energy, solar power is independent of world fuel markets once the infrastructure is built, and it has no variable fuel costs.
The cost-effectiveness of solar power are further improved by risk-reducing financial policies and revenue support mechanisms such as guaranteed prices. These factors have made solar power 20-50% cheaper than previously thought, and it is expected to become even more affordable in the coming years, with costs projected to fall by up to 60% by 2030.
The transition to solar power and other emission-free sources of electricity is crucial for decarbonization efforts and can be accomplished in a financially viable manner.
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Onshore wind is cost-effective
The levelized cost of electricity (LCOE) is a metric used to assess the cost of generating electricity from a specific power source over its lifetime. It takes into account all the costs associated with building, operating, and maintaining a power plant, as well as the amount of electricity produced over the plant's lifetime. LCOE is a useful tool for comparing the costs of various electricity generation methods.
Onshore wind power is a cost-effective source of electricity. In fact, according to Lazard's 2023 analysis of unsubsidized LCOE in the US, onshore wind power has been more cost-effective than combined-cycle natural gas power plants since 2015. This is due to a variety of factors, including the availability of renewable resources like wind speed, the maturity of the technology, and the overall supply chain.
The cost of electricity generation from onshore wind farms is also competitive with other sources. In Europe, onshore wind power is competitive with gas and new nuclear energy. Additionally, in China and India, onshore wind is one of the least-cost options for electricity generation, along with utility-scale solar PV.
Onshore wind power is particularly attractive in the Global South, where shorter construction periods for small-scale projects can offset higher interest rates. Furthermore, as renewable energy sources, onshore wind farms do not rely on fuel, making their costs independent of world fuel markets once they are built. This can lead to significant cost savings, especially when compared to natural gas and oil-fired power plants, which are susceptible to short-term fluctuations in fuel prices.
While coupling lithium-ion batteries with intermittent energy technologies like wind can increase costs, onshore wind power remains a cost-effective option for electricity generation, especially when compared to fossil fuel alternatives.
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Nuclear power is affordable
Nuclear power is a competitive source of electricity generation, especially when compared to fossil fuels. Nuclear energy is cost-effective based on a simple LCOE (levelized cost of electricity) comparison, which considers the costs of building, operating, and maintaining a power plant, as well as the expected electricity output over its lifetime. Nuclear power has a predictable and reliable supply, and its low-carbon nature improves the relative affordability of nuclear energy when system costs and negative externalities are considered.
Nuclear power plants have high upfront capital costs for building plants, but fuel, operational, and maintenance costs are relatively small in the total cost structure. The long service life and high capacity factor of nuclear power plants allow for sufficient funds for decommissioning and waste storage to be accumulated, with minimal impact on the price per unit of electricity generated. Nuclear energy also internalizes waste management, disposal, and decommissioning costs, minimizing external costs that are typically borne by society.
Nuclear power is the most cost-effective non-CO2 emitting energy source. The cost of nuclear energy can be broken down into raw materials, labor, fuel, and maintenance, with fuel costs making up only 20% of operating expenses, compared to 70% for coal plants. Nuclear power is particularly competitive in regions without direct access to low-cost fossil fuels.
However, it is important to note that the economics of nuclear power can vary across different regions and time periods. Construction costs for nuclear power plants have fluctuated, with significant increases in the 1970s, especially in the United States. More recently, construction costs in countries like Japan and Korea have shown periods of stability and even decline.
Additionally, the availability of tax subsidies and incentives for clean electricity generation can significantly impact the competitiveness of nuclear power. For example, the Inflation Reduction Act in the United States provides $161 billion in clean electricity tax credits, enhancing the market position of nuclear power.
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Fossil fuels are expensive
Secondly, the burning of fossil fuels is unsustainable and dangerous. Fossil fuels are responsible for 87% of the world's CO2 emissions, and air pollution from burning fossil fuels kills approximately 3.6 million people worldwide annually. This is a significant number, especially when compared to the annual death toll from murders, war deaths, and terrorist attacks combined, which is six times lower. Fossil fuel emissions are linked to climate change, increasing the frequency of extreme weather events such as wildfires, droughts, and flooding. The health risks of air pollution are severe, including respiratory issues, increased risk of cardiovascular and pulmonary diseases, and cancer. The economic cost of air pollution in sectors regulated under the Clean Air Act was estimated at $9 trillion between 1970 and 2000, with costs resulting from early mortality, illness, healthcare expenses, and lost productivity.
Additionally, the cost of fossil fuels is projected to increase. Fossil fuel expenditures in the United States are expected to surpass $1 trillion by 2011, and by 2030, spending on fossil fuels will be $750 billion more per year than in 2006. Oil prices are a significant contributor to higher expenditures, and if oil prices reach $200 per barrel by 2030, the United States will spend $1.3 trillion out of $1.6 trillion in total fossil fuel costs on oil alone. The production and transportation of fossil fuels also carry the risk of catastrophic accidents, which can result in substantial cleanup and compensation costs. For example, the 2008 collapse of a coal ash pond outside a Tennessee Valley Authority power plant is estimated to cost $825 million in cleanup expenses.
In conclusion, the costs of fossil fuels are not limited to their market price but also include significant environmental, health, and economic externalities. The price of fossil fuels is expected to rise, and their use has detrimental consequences for the planet and human health. Therefore, transitioning to renewable energy sources is crucial to mitigate these costs and create a more sustainable future.
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Renewable energy is land-intensive
The cheapest sources of electricity are those with the lowest levelized cost of electricity (LCOE). LCOE is a metric used to assess the cost of generating electricity from a specific power source over its lifetime, taking into account all costs associated with building, operating, and maintaining a power plant, as well as the amount of electricity produced over its lifetime.
Renewable energy sources, such as solar and wind power, have gained popularity as alternatives to fossil fuels due to their environmental benefits and decreasing costs. However, one concern surrounding the transition to renewable energy is the potential increase in land-intensity.
The power density of renewable energy sources is significantly lower than that of fossil fuels. This means that more land is required to generate the same amount of energy. For example, solar energy may occupy 0.5-5% of total land in regions with 25-80% solar electricity penetration by 2050. This increased land competition can have environmental impacts, such as intensifying biodiversity loss, increasing water use, and contributing to indirect land use change emissions.
However, it is important to note that the land-intensity of renewable energy systems may not necessarily be higher than that of the current fossil fuel-based energy system. Studies suggest that a zero-carbon energy system could take up less land, especially if reliance on biofuels is reduced. Additionally, renewable energy sources can support multiple land uses, such as agricultural practices, and there are opportunities to reduce the footprint of renewable energy systems through distributed generation and improved energy efficiency.
Furthermore, the land-intensity of renewable energy systems can be mitigated by considering various factors. These include financing costs, policy incentives, geographical location, availability of resources and materials, technological maturity, and supply chain considerations. By leveraging tax subsidies and improving technology, the LCOE of renewables can become more competitive, as seen in the case of onshore wind and utility-scale solar photovoltaic (PV) technologies becoming more cost-effective than combined-cycle natural gas power plants.
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Frequently asked questions
Solar energy is the cheapest source of electricity, according to the International Energy Agency (IEA). The cost of capital for solar energy is much lower than for other energy sources, and solar can now generate electricity at or below $20 per megawatt-hour (MWh).
The levelized cost of electricity (LCOE) takes into account the costs of building, operating, and maintaining a power plant, as well as the amount of electricity produced over its lifetime. Financing costs, policy incentives, geographical location, and the availability of resources can all impact the LCOE.
In most cases, renewable energy sources such as wind, solar, and nuclear power are cheaper than fossil fuels. However, there are additional costs associated with renewable energy, such as the need for lithium-ion batteries, which can increase the overall cost.
Wholesale costs include initial capital, operations, maintenance, transmission, and decommissioning expenses. These costs are typically passed on to consumers as retail costs. External costs, such as the environmental impact of energy production, can also affect the overall price of electricity.
The value-cost ratio compares the levelized avoided cost of energy (LACE) to the LCOE. When the LACE is greater than the LCOE, the value-cost ratio is greater than 1, indicating that the project is economically feasible. This metric helps determine the most cost-effective energy sources.
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