Calculate the levelized cost of energy (LCOE) in $/MWh and ¢/kWh from capital cost, O&M, fuel, and generation, or the max capital budget for a target LCOE.
Levelized Cost of Energy (LCOE) Formula
The levelized cost of energy is the lifetime cost of building and running a generating asset divided by the lifetime energy it delivers, with both sides discounted back to present value:
LCOE = (I + SUM(At / (1+r)^t)) / SUM(Et / (1+r)^t)
When yearly costs and output are roughly constant, the same answer comes from annualizing the upfront investment with a capital recovery factor. The per-kW mode of the calculator uses this simplified form, which returns dollars per MWh:
sLCOE = 1000 * (CC * CRF + FOM) / (8760 * CF) + VOM + (FP * HR) / 1000
CRF = r * (1+r)^n / ((1+r)^n - 1); at r = 0, CRF = 1/n
Variables:
- I is the upfront investment ($)
- At is the total cost in year t, meaning operations and maintenance plus fuel ($/yr)
- Et is the energy delivered in year t (MWh)
- r is the discount rate as a decimal and n is the project lifetime in years
- CC is the installed capital cost ($/kW)
- CRF is the capital recovery factor, the fraction of the investment that must be recovered each year
- FOM is fixed O&M ($/kW-yr) and VOM is variable O&M ($/MWh)
- CF is the capacity factor as a decimal
- FP is the fuel price ($/MMBtu) and HR is the heat rate (Btu/kWh), used only for fuel-burning plants
The three solve-for modes map directly onto these formulas. The per-kW mode applies the sLCOE equation to plant specs, so you can price a design without knowing the project size. The project totals mode applies the discounted-sum definition to a real budget: upfront investment, annual operating cost, and annual energy. The capital budget mode runs that formula in reverse. Give it a target LCOE, such as a PPA price you need to beat, and it returns the most you can spend upfront while still hitting the target:
Imax = (LCOEt * E - A) * PA, PA = (1 - (1+r)^-n) / r
where LCOEt is the target ($/MWh), E is annual energy (MWh), A is annual operating cost ($/yr), and PA is the present value annuity factor. At r = 0, PA = n. Zero margin gives a zero capital budget; negative margin means no nonnegative capital budget can meet the target.
2025 Benchmark LCOE Ranges and CRF Reference
The table below gives illustrative historical ranges from Lazard’s June 2025 LCOE+ analysis, pages 8 and 19. These are study assumptions, not current forecasts or pass/fail bands; actual projects can fall outside them. Standalone battery LCOS includes charging costs and uses different financing assumptions, so it is not directly interchangeable with generation LCOE.
| Technology | Unsubsidized LCOE or LCOS ($/MWh) |
|---|---|
| Onshore wind | $37 to $86 |
| Utility-scale solar PV | $38 to $78 |
| Gas combined cycle | $48 to $109 |
| Coal | $71 to $173 |
| Offshore wind | $70 to $157 |
| Nuclear (new build) | $141 to $220 |
| Standalone utility battery (100 MW, 4-hour, LCOS) | $115 to $254 |
| Gas peaking | $149 to $251 |
The second table is a capital recovery factor reference. Multiply your installed cost by the CRF for your discount rate and lifetime to get the annualized capital cost the formula needs. It also works as a quick sanity check: at 7% over 25 years, every $1,000/kW of capital adds about $85.80 per kW-year, which is roughly $39/MWh at a 25% capacity factor.
| Project lifetime | CRF at 5% | CRF at 7% | CRF at 10% |
|---|---|---|---|
| 20 years | 0.0802 | 0.0944 | 0.1175 |
| 25 years | 0.0710 | 0.0858 | 0.1102 |
| 30 years | 0.0651 | 0.0806 | 0.1061 |
Example Problems
Example 1: LCOE of a utility solar project from plant specs
A solar farm costs $1,200 per kW to build, runs at a 25% capacity factor, and carries $15/kW-yr in fixed O&M with no variable O&M and no fuel. Use a 7% discount rate and a 25-year life.
First, find the capital recovery factor. From the table above, CRF at 7% and 25 years is 0.0858. Next, find annual generation per kW: 8760 x 0.25 = 2,190 kWh/kW-yr. The capital component is 1000 x (1200 x 0.0858) / 2190 = $47.02/MWh, and the fixed O&M component is 1000 x 15 / 2190 = $6.85/MWh. Adding them gives an LCOE of $53.87/MWh, or about 5.39 cents per kWh. This can be compared with the historical solar range only after accounting for differences in assumptions.
Example 2: LCOE from project totals
A small project costs $4,500,000 upfront, spends $60,000 per year on O&M with no fuel, and delivers 3,000 MWh per year. Use a 6% discount rate and a 25-year life.
The present value annuity factor is (1 - 1.06^-25) / 0.06 = 12.7834. Discounted lifetime cost is 4,500,000 + 60,000 x 12.7834 = $5,267,001. Discounted lifetime energy is 3,000 x 12.7834 = 38,350 MWh. Dividing gives an LCOE of $137.34/MWh, or about 13.73 cents per kWh. The same inputs in the capital budget mode show the flip side: to hit a $60/MWh target instead, the upfront spend would have to come in under about $1,534,000.
FAQ
What discount rate should you use in an LCOE calculation?
Choose a rate consistent with your analysis and price basis, such as an appropriately estimated cost of capital. Keep real rates with constant-price costs or nominal rates with matching nominal cash flows. This simple calculator holds yearly cost and generation constant; increasing the rate increases the annualized upfront-capital component, while the constant annual operating component per MWh is unchanged.
Why is LCOE lower than the price on your electricity bill?
This model measures generation cost under its stated assumptions. Retail bills can also include network charges, taxes and other services. A $50/MWh LCOE equals 5 US cents/kWh. A wholesale or PPA comparison also needs consistent delivery, timing, risk and contract terms; LCOE alone does not establish value or profitability.
Does LCOE include subsidies like tax credits?
The historical benchmark rows are unsubsidized. This simple calculator does not model tax eligibility, timing or time-varying production credits. An appropriately valued upfront grant can reduce net capital cost, which must remain nonnegative. Annual cost inputs must also be nonnegative. Use a full cash-flow model for detailed incentives or taxes, and keep comparison assumptions consistent.
