The document discusses the cost comparison between renewable energy sources, like solar and wind, and conventional fossil fuels, revealing that utility-scale solar and wind have become competitive with coal and natural gas. It highlights that the levelized cost of wind has fallen significantly and is projected to continue decreasing, while the costs of various technologies are affected by factors such as construction, fuel, and operational expenses. Additionally, the analysis emphasizes the potential long-term advantages of low-carbon technologies when considering external costs such as pollution and climate change.

1. You can’t get too far in a discussion about the
nation’s electric power sector without running into
the question of costs.
9
COMPARING THE
COSTS OF
RENEWABLE AND
CONVENTIONAL
ENERGY SOURCES

2. BIG HISTORY PROJECT COMPARING THE COSTS OF RENEWABLE AND CONVENTIONAL ENERGY SOURCES 2
How do renewable sources, such as solar and wind, stack up against fossil
fuels, such as coal and natural gas?
How much will it cost utilities and ratepayers to build—and operate—a new
power plant?
To illustrate how the various energy technologies compare, we’ve created a
set of interactive dashboards that summarize how much it costs to
generate power. The data show that utility-scale solar and wind
installations are now competitive with conventional coal- and gas-fired
power plants. Moreover, wind and solar costs are projected to steeply
decline in the years ahead.
Before delving into the data, it’s worth noting that the number of dollars it
takes to build and operate a power plant is a somewhat narrow definition
of costs. It doesn’t, for example, include what economists call externalities,
such as the cost of air pollution or climate change impacts. With a broader
definition of costs, low-carbon technologies would perform even better
than fossil fuels.
COMPONENTS OF LEVELIZED COST OF ENERGY
Table 1 present data on what’s known as the levelized cost of energy. In essence, this
analysis offers an apples-to-apples comparison of the costs of financing, building,
operating, and maintaining a power plant. The values are expressed in dollars per
megawatt-hour.
One of the most widely used levelized cost studies is conducted by Lazard, an
international financial advisory and asset management firm. Their latest version of the
study, version 8, was released in late 2014. The graphic below summarizes the cost
components of 16 different energy technologies evaluated by Lazard: 10 of them are
alternative (which includes mainly low-carbon, renewable technologies), and six are
conventional (which includes fossil fuel sources and nuclear).
Onshore wind has the lowest average levelized cost in this analysis at $59 per
megawatt-hour, and utility-scale photovoltaic plants weren’t far behind at $79. By
comparison, the lowest cost conventional technologies were gas combined cycle
technologies, averaging $74 per megawatt-hour, and coal plants, averaging $109.
These numbers are the average of Lazard’s low- and high-end estimates (see their
study for more about their cost calculations).
Looking across the 16 technology types, the 10 alternative technologies cost an
average $147 per megawatt-hour, $18 less than the conventional approaches. “Certain
Alternative Energy generation technologies,” Lazard wrote, “are cost-competitive with
conventional generational technologies under some scenarios.”
By dividing the costs among capital, fuel, and operations and maintenance (O&M), you
can see some dramatic differences among the technologies. Many renewable
technologies, such as wind, solar, and geothermal, may not be cheap to build, but they
have no fuel costs once they’re up and running, and generally have lower O&M costs
as well.
WIND AND SOLAR COSTS FALLING
The levelized cost of some wind and solar technologies has plummeted in recent
years. The graphic below shows that the average cost of onshore wind has fallen from
$135 per megawatt-hour in 2009 to $59 in 2014. That’s a 56 percent drop in five years.
The cost of utility-scale photovoltaic technology has plunged from $359 per megawatt-
hour in 2009 to $79 in 2014, a 78 percent decline. Lazard attributes these falling costs
to “material declines in the pricing of system components (e.g., panels, inverters,
Table 1: Components of levelized cost of energy.

3. BIG HISTORY PROJECT COMPARING THE COSTS OF RENEWABLE AND CONVENTIONAL ENERGY SOURCES 3
racking, turbines, etc.), and dramatic improvements in efficiency, among other
factors.”
Solar and wind costs have been dropping
Other forms of solar power are expected to get even cheaper in the next few years.
The graphic below shows that rooftop residential solar costs are expected to decline
42 percent between 2014 and 2017; for commercial and industrial photovoltaic
installations, Lazard forecasts the levelized cost will drop 28 percent over the same
period. “More efficient installation techniques, lower costs of capital and improved
supply chains” are the driving forces behind these projected cost reductions.
Cost of rooftop solar projected to fall further
COMPARING THE TECHNOLOGIES
A variety of considerations—aside from cost—determine when, where, or how a
technology is used. Although wind and solar are now cost-competitive and offer many
health and environmental advantages over fossil fuels, these are still considered
intermittent sources because the sun isn’t always shining and the wind isn’t always
blowing). As a result, wind and solar are unable to entirely replace the services that
certain conventional “baseload’” sources provide to the system. That said, utilities and
power operators are discovering a multitude of new ways that low-carbon
technologies can offer more value to the power grid across the board.
Transmission is another important issue, especially for power sources that are limited
to certain areas, but it can also allow power plants to serve faraway customers.
Table 2: Levelized cost of energy: wind power.
Table 3: Levelized cost of energy: utility-scale solar photovoltaic.
Table 4: Levelized cost of rooftop residential solar photovoltaic.
Table 5: Levelized cost of commercial and industrial solar photovoltaic.

4. BIG HISTORY PROJECT COMPARING THE COSTS OF RENEWABLE AND CONVENTIONAL ENERGY SOURCES 4
OTHER RESOURCES
There are many other resources on the web for analyzing energy costs:
• The U.S. Energy Information Administration’s Annual Energy Outlook 2014
provides a different set of levelized cost figures for a variety of technologies.
• The National Renewable Energy Laboratory also offers an online calculator
that lets you plug in variables, such as capital and fuel costs, to generate
LCOE estimates.
• The Department of Energy’s OpenEI offers a Transparent Cost Database that
compares the results from dozens of cost studies.
To learn more about Energy Innovation’s work on clean energy, visit our power sector
transformation and smart energy policy pages.

5. BIG HISTORY PROJECT COMPARING THE COSTS OF RENEWABLE AND CONVENTIONAL ENERGY SOURCES 5
Source
Comparing the costs of renewable and
conventional energy sources http://
energyinnovation.org/2015/02/07/
levelized-cost-of-energy/
The first three units of Solnova in the
foreground, with the two towers of the
PS10 and PS20 solar power stations in
the background. Spain. Credit: Abengoa
Solar. CC BY 1.0. https://commons.
wikimedia.org/w/index.
php?curid=12030638
Azura at the US Navy’s Wave Energy
Test Site (WETS) on Oahu. Credit: US
Department of Energy. Public Domain.
https://commons.wikimedia.org/w/
index.php?curid=40872173
A nuclear power station
(Grafenrheinfeld Nuclear Power Plant,
Grafenrheinfeld, Bavaria, Germany).
The nuclear reactor is contained inside
the spherical containment building in
the center – left and right are cooling
towers which are common cooling
devices used in all thermal power
stations, and likewise, emit water vapor
from the non-radioactive steam turbine
section of the power plant. Credit: Avda
- Own work. CC BY-SA 3.0. https://
commons.wikimedia.org/w/index.
php?curid=26894741
This is a picture of Mojave Generating
Station, a 1,580 MW coal plant. Credit:
Kjkolb - Own work. CC BY 2.5. https://
commons.wikimedia.org/w/index.
php?curid=767962
Rønland Windpark in Denmark. Credit:
Fanny Schertzer - Own work. CC BY-
SA 3.0. https://commons.wikimedia.
org/w/index.php?curid=11183805
The Three Gorges Dam on the Yangtze
River, China. Credit: Le Grand
PortageDerivative work: Rehman. CC
BY 2.0. https://commons.wikimedia.
org/w/index.php?curid=11425004
Data source for all graphs: Lazard’s
Levelized Cost of Energy Analysis--
Version 8.0, September 2014 https://
www.lazard.com/media/1777/levelized_
cost_of_energy_-_version_80.pdf