Why LCOE Is Only Part of the Picture
The Levelized Cost of Energy (LCOE) is a widely used metric that averages the cost of building and operating a power plant over its lifetime, expressed in $/MWh. It includes capital, operating, and fuel costs, but excludes:
- Storage for intermittent renewables
- Grid balancing (frequency, voltage control)
- Transmission and distribution (T&D) upgrades
- Curtailment losses (wasted generation)
- Spinning reserve or backup capacity
- Overbuild costs in high-renewables systems
- Indirect costs (externalities, system resilience)
True lifecycle cost must incorporate all these factors for a realistic comparison.
Storage: Matching Energy to Demand
Short-Duration Storage (SDS)
- Purpose: Shifts solar/wind to evening peaks, covers brief gaps.
- Technology: 4-hour lithium-ion batteries (most common in 2025).
- Cost Impact: Adding SDS to solar or wind roughly doubles delivered cost.
- Limitation: SDS does not provide resilience for multi-day events or seasonal lulls.
Long-Duration Storage (LDS)
- Purpose: Balances renewables over days/weeks.
- Technologies: Pumped hydro (mature, site-limited), hydrogen (low round-trip efficiency), flow batteries (early-stage, expensive).
- Cost Impact: LDS adds $100-300/MWh or more; round-trip efficiency losses 30-50%.
- Scale Gap: To back up one week of U.S. demand (~7,000 TWh/year), ~135 TWh of storage would be needed. Installed global battery capacity is <0.1 TWh as of 2025.
System Type | Levelized Cost with 4-Hour Battery (2025, $/MWh) |
Solar PV + SDS | $90-130 |
Onshore Wind + SDS | $100-140 |
Natural Gas (peaker) | $90-130 |
Nuclear (no storage) | $80-160 |
Integration Costs: Infrastructure, Overbuild, Curtailment
Transmission and Distribution (T&D)
- Trend: Renewables are often remote from demand centers, requiring major T&D investments.
- U.S. Data: Interconnection waitlist exceeds 2,500 GW (mostly solar/wind); T&D upgrades can add $15-30/MWh to delivered cost.
- Urban/congested grids: Costs are higher for reliability.
Overbuild and curtailment
- Overbuild: High-renewables grids must install 2-5x average load to ensure supply during low-yield periods.
- Curtailment: Surplus energy is dumped when supply exceeds demand.
- California, Germany: Curtailment exceeds 6-10% of annual solar/wind output and is rising.
- Example: A solar-only grid may need 5 GW installed to deliver 1 GW reliably at night.
Backup firm capacity
- Even at 80-90% renewables, fossil/nuclear backup is required.
- Gas peakers: Still needed for winter nights, multi-day wind lulls.
- Capacity payments: Gas/battery operators are paid to remain available, adding indirect cost to renewables.
Lifecycle Cost Ranges (2025, All-In, $/MWh):
Technology | System-Level Cost ($/MWh) |
Coal (with scrubbers) | $80-140 |
Natural Gas (CCGT, firmed) | $75-130 |
Natural Gas + CCS | $100-160 |
Nuclear (modern build) | $90-160 |
Onshore Wind (+storage) | $100-140 |
Solar PV (+storage) | $90-130 |
Offshore Wind (+firming) | $120-180 |
Solar + Hydrogen Backup | $200-300 |
Marginal vs. system cost: Renewables have low marginal cost (no fuel), but high system cost due to integration, storage, and land intensity. Fossil fuels have high marginal cost (fuel), but low system overhead.
Real-World Grid Examples
California
- 35% solar/wind; curtailment 5-8% (spring/autumn)
- Ratepayer price: >$0.28/kWh (2025)
- Still relies on gas peakers for evening ramp (5-7 GW daily)
Germany
- ~50% renewables; household price: >$0.39/kWh
- Carbon intensity: >300 gCO₂/kWh (above EU average)
- Overbuilt grid still depends on coal/gas backup
Texas (ERCOT)
- High renewables, minimal regulation
- Blackouts during cold snaps (2021) exposed lack of storage/firm capacity
- Fossil/nuclear delivered >80% of power during crisis