# LCOE: comparing the cost of solar, gas and nuclear on the same basis > The levelized cost of energy reduces any generation source to a single figure — the price of one MWh over the whole life of the plant — so that very different technologies can be compared. - Source : https://industryhub.site/en/learn/economics/lcoe - Track : Industrial economics - Level : Practitioner - Reading time : 7 min - Language : English ## Comparing the incomparable How do you compare a solar farm — expensive to build, free to run — with a gas plant — cheaper to build, but burning paid fuel every hour? Their cost structures are **opposite**. The **LCOE** solves this by reducing them to a single figure. ## What the LCOE measures LCOE means *Levelized Cost of Energy*: the average cost of one MWh produced over a plant's **whole life**. You divide the discounted sum of all costs by the discounted sum of all energy produced: $$\mathrm{LCOE} = \frac{\displaystyle\sum_{t=1}^{n} \frac{\mathrm{CAPEX}_t + \mathrm{OPEX}_t}{(1+r)^t}}{\displaystyle\sum_{t=1}^{n} \frac{E_t}{(1+r)^t}}$$ where $r$ is the **discount rate** (the cost of money), $E_t$ the energy produced in year $t$, and $n$ the lifetime. The $(1+r)^t$ term expresses that a euro — and a MWh — in 20 years is worth less than today. The result is a **single price in €/MWh**, comparable across technologies. ## Two opposite cost profiles This opposition has two consequences: - the LCOE of **solar and wind** depends mostly on the **cost of money** (discount rate), since almost everything is paid upfront; - the LCOE of **gas** depends mostly on the **fuel price**, which varies sharply. As an indication (orders of magnitude, very dependent on site and cost of capital): | Source | Indicative LCOE (€/MWh) | |---|---| | Solar PV (utility scale) | 30 – 60 | | Onshore wind | 40 – 80 | | Offshore wind | 70 – 120 | | Gas (combined cycle) | 60 – 110 | | Nuclear (new build) | 110 – 190 | The fall in module costs has made photovoltaics one of the lowest-LCOE sources where the sun is abundant. ## What the LCOE does not say The LCOE is powerful but incomplete: it ignores **when** the energy is produced. A solar MWh at noon, when everyone produces it, is not worth a dispatchable MWh at 7 pm in winter. That is the **value** of the energy, not just its cost. You therefore complement it with the cost of the whole **system** (grid, storage, back-up) and the value of **flexibility**. A source with a very low LCOE but intermittent needs storage or back-up plants — a cost absent from its LCOE. It remains the reference for comparing **production costs**, as long as you remember it does not compare **values delivered to the grid**. ## Key takeaway LCOE is the average levelized cost of one MWh produced over a plant's whole life, CAPEX and OPEX included. It compares sources with opposite cost structures — but ignores when the energy is produced.