The True Cost of Power

Natural Gas vs. Renewables: An LCOE Deep Dive

Understanding LCOE

The Levelized Cost of Energy (LCOE) is a crucial metric for comparing the lifetime costs of different electricity generation technologies. It represents the average revenue per unit of electricity (e.g., per Megawatt-hour, MWh) needed to recover both the initial investment and ongoing operational costs over a plant's lifespan.

Key Components of LCOE:

  • Capital Expenditures (CAPEX): Upfront costs for design, equipment, and construction.
  • Operating Expenditures (OPEX): Ongoing costs for fuel, maintenance, labor, and insurance.
    • Fixed O&M: Costs regardless of generation (e.g., salaries, rent).
    • Variable O&M: Costs that change with output (e.g., fuel, consumables).
  • Fuel Costs: A major factor for fossil fuel plants, zero for most renewables.
  • Capacity Factor: Actual energy produced vs. maximum possible output.
  • Discount Rate: Reflects the time value of money and investment risk.
  • Economic Lifespan: The period over which costs are "levelized".
  • Taxes & Subsidies: Can significantly impact the final LCOE.
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LCOE helps compare technologies on an "apples-to-apples" cost basis for new projects.

However, it doesn't capture all system value aspects or externalities like environmental impact.

Natural Gas: The Conventional Baseline

Natural Gas Combined Cycle (NGCC) plants are a common generation source. Their LCOE is highly sensitive to fuel prices and how often they operate (capacity factor).

NGCC LCOE (Unsubsidized, New Build)

(Lazard 2024)

Range primarily reflects 30% (peaking) to 90% (baseload) capacity factor.

Key Cost Drivers & Assumptions

CAPEX (Lazard): $850 - $1,300 /kW
Fixed O&M (Lazard): $10 - $25.5 /kW-yr
Variable O&M (ex-fuel, Lazard): $2.75 - $5.00 /MWh
Assumed Fuel Price (Lazard 2024): $3.45 /MMBtu
Lifespan for LCOE (Lazard): 20 years

EIA AEO2023 projects an average NGCC LCOE of $89.33/MWh (for 2028, including any tax credits).

Renewables Rising: A Cost Dive

Renewable energy technologies have seen significant cost declines, though recent macroeconomic pressures have caused some stabilization or slight increases. U.S. federal subsidies (ITC/PTC) play a major role in their competitiveness.

Utility-Scale Solar PV

(Lazard 2024, U.S. Data)

Subsidized typically $19-$34/MWh with full credit value.

Global Avg. LCOE (IRENA 2023): $44/MWh

CAPEX (Lazard): $850 - $1,400 /kW
Fixed O&M (Lazard): $11 - $14 /kW-yr
Capacity Factor (Lazard): 15% - 30%
Lifespan (Lazard): 35 years

Onshore Wind

(Lazard 2024, U.S. Data)

Global Avg. LCOE (IRENA 2023): $33/MWh

CAPEX (Lazard): $1,300 - $1,900 /kW
Fixed O&M (Lazard): $24.5 - $40 /kW-yr
Capacity Factor (Lazard): 30% - 55%
Lifespan (Lazard): 30 years

Offshore Wind (Fixed-Bottom)

(Lazard 2024, U.S. Data)

Global Avg. LCOE (IRENA 2023): $75/MWh

CAPEX (Lazard): $3.75k - $5.75k /kW
Fixed O&M (Lazard): $60 - $91.5 /kW-yr
Capacity Factor (Lazard): 45% - 55%
Lifespan (Lazard): 30 years

Hydropower (New Projects)

EIA AEO2023 Avg. LCOE (2028, w/credits): $57.12/MWh

Global Avg. LCOE (IRENA 2023): $57/MWh

CAPEX is highly site-specific and can be very high for new developments (NPD/NSD).

NREL ATB Lifespan: 100 years

Long lifespan helps amortize high initial costs.

LCOE Showdown: Head-to-Head

Let's compare the LCOE ranges directly. Data below is from Lazard 2024 (U.S.) and shows the minimum and maximum of the LCOE ranges.

Unsubsidized LCOE Comparison

Shows full LCOE range ($/MWh).

Subsidized Renewables vs. NGCC

NGCC is unsubsidized. Renewables show subsidized LCOE range ($/MWh).

Emerging Factor: Solar PV + Storage

Combining solar with battery storage enhances grid value by addressing intermittency. However, it comes at a higher cost:

$60 - $210 /MWh

(Unsubsidized LCOE for Solar PV + Storage, Lazard 2024)

Beyond the Bill: The Bigger Picture

LCOE is just one piece of the puzzle. Environmental and social impacts (externalities) and opportunity costs are also critical.

Lifecycle GHG Emissions

Includes manufacturing, construction, operation, and decommissioning (g CO₂eq/kWh, NREL LCA Harmonization).

Land Use Intensity

Lifecycle land use, including fuel extraction (km²/TWh/year, McDonald et al. via EIRP).

Operational Water Consumption

Gallons per MWh. NGCC is withdrawal; Hydro is reservoir evaporation (EIA, NREL).

Health & Ecosystem Impacts

Natural gas combustion releases pollutants (NOx, SO2, PM2.5) linked to health issues. Renewables displace these, offering significant benefits.

$10 - $100 /MWh

Estimated health & environmental benefits from wind/solar displacing conventional generation (PNAS study).

Natural Gas: Habitat fragmentation from infrastructure, pollution risks.

Solar/Wind: Land use for farms, potential bird/bat impacts (wind), manufacturing footprint.

Hydropower: Significant river ecosystem alteration, fish migration blockage.

All energy projects have some habitat impact, requiring careful siting and mitigation.

The Bottom Line: It's Complicated

The "cheapest" energy source depends on what metrics are prioritized, location, policies, and how we value broader impacts.

Key LCOE Takeaways (U.S. Focus):

  • With Subsidies: New utility-scale solar PV and onshore wind are often the lowest-cost options for new generation (Lazard: Solar as low as $6/MWh, Wind as low as $0/MWh).
  • Unsubsidized: Solar and onshore wind are still highly competitive with, and often cheaper than, new NGCC ($45-$108/MWh).
  • Natural Gas: LCOE highly sensitive to volatile fuel prices and capacity factor.
  • Offshore Wind & New Hydro: Generally higher LCOEs but offer benefits like high capacity factors (offshore) or very long lifespans (hydro).
  • Recent Trends: Macroeconomic pressures (inflation, interest rates) have caused some recent cost increases for new renewable projects after years of decline.

Addressing Different Perspectives:

For the Data-Driven Skeptic of Solar:

LCOE ranges show variability. Integrating variable renewables (like solar) has system costs (e.g., storage, grid upgrades) not fully in standalone LCOE. Solar + Storage LCOE is higher ($60-$210/MWh unsubsidized).

For the Fossil Fuel Proponent:

NGCC offers power density and dispatchability. Its LCOE can be competitive at high capacity factors and low fuel prices. Externalities are a key discussion point presented factually.

For the Clean Energy Advocate:

Solar and wind show significantly lower lifecycle GHG emissions, minimal operational water use, and major public health benefits by displacing fossil fuels. Land use and materials are areas for responsible development.

Ultimately, a diverse energy portfolio, leveraging multiple technologies while mitigating their impacts, alongside supportive policies, is key for a cost-effective, reliable, and sustainable energy future.