Calculate the levelized cost of energy (LCOE) in $/MWh and ¢/kWh from capital cost, O&M, fuel, and generation, or the max capital budget for a target LCOE.
Levelized Cost of Energy (LCOE) Formula
The levelized cost of energy is the lifetime cost of building and running a generating asset divided by the lifetime energy it delivers, with both sides discounted back to present value:
LCOE = (I + SUM(At / (1+r)^t)) / SUM(Et / (1+r)^t)
When yearly costs and output are roughly constant, the same answer comes from annualizing the upfront investment with a capital recovery factor. The per-kW mode of the calculator uses this simplified form, which returns dollars per MWh:
sLCOE = 1000 * (CC * CRF + FOM) / (8760 * CF) + VOM + (FP * HR) / 1000
CRF = r * (1+r)^n / ((1+r)^n - 1)
Variables:
- I is the upfront investment ($)
- 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 ($/yr), and PA is the present value annuity factor.
2025 Benchmark LCOE Ranges and CRF Reference
The table below lists unsubsidized LCOE ranges by technology from Lazard’s June 2025 Levelized Cost of Energy+ analysis, the benchmark most often cited for comparing generation costs in the United States. Compare your result to the matching row. A value inside the band is typical, a value below the low end is very competitive, and a value above the high end usually traces back to a low capacity factor, a high capital cost, or expensive fuel.
| Technology | Unsubsidized LCOE ($/MWh) |
|---|---|
| Onshore wind | $37 to $86 |
| Utility-scale solar | $38 to $217 |
| Gas combined cycle | $48 to $109 |
| Coal | $71 to $173 |
| Offshore wind | $72 to $140 |
| Nuclear (new build) | $141 to $220 |
| Utility battery storage (4-hour, LCOS) | $145 to $319 |
| 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. That lands near the low end of the utility solar band in the benchmark table, which is what you would expect for a low-cost build at a solid capacity factor.
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?
Use the rate that reflects your cost of capital. Utility-scale projects financed with a mix of debt and equity typically use their weighted average cost of capital, which in recent years has landed between about 5% and 10%. A homeowner comparing rooftop solar to grid power might use a loan rate or the return their savings could earn instead. The choice matters most for capital-heavy technologies like solar, wind, and nuclear, because most of their cost is paid upfront while the energy arrives over decades. Raising the rate from 5% to 10% can add 30% or more to their LCOE, while a fuel-heavy gas plant barely moves.
Why is LCOE lower than the price on your electricity bill?
LCOE measures the cost of generating electricity at the plant. Your retail rate also pays for transmission lines, local distribution, utility overhead, and taxes, which together often double the generation cost or more. A $50/MWh LCOE equals 5 cents per kWh, while typical US residential rates run well above that. Comparing your LCOE result to wholesale power prices or PPA prices is the fair comparison, and the target mode of the calculator is built for exactly that check.
Does LCOE include subsidies like tax credits?
Only if you build them into the inputs. The benchmark figures in the table above are unsubsidized, which is the standard convention for comparing technologies on their own merits. To model a subsidized project, reduce the capital cost input by the value of an investment tax credit or grant, or subtract a production incentive from the operating costs. Keep the treatment consistent when comparing two options, since mixing a subsidized number with an unsubsidized one will point you at the wrong project.
