EIA Levelized Costs Can be Misleading

The levelized cost of electricity (LCOE) has become a tool used by advocates of wind and solar to mislead the public, with the U.S. Energy Information Administration (EIA) inflating the cost of electricity from coal.

The EIA assigns a cost for CO2 for coal, but not for any other method of generating electricity.

LCOE is supposed to compare the costs of investment, operation and maintenance, for differing types of power generation, and then express the answer as cost per kWh.

It’s possible, though not entirely accurate, to use LCOE to compare projects of the same type, for example PV solar with a second PV solar project, but LCOE cannot accurately compare projects of different systems, such as comparing PV solar and CSP solar, or PV solar and natural gas, etc. – especially if extra costs are added to one, but not the other methods for generating electricity.

The Wall Street Journal, in its recent special report on the wind and solar industries, was slipshod in the way it presented the information.

To fully explain why LCOE is not a valid comparison between different systems, such as CSP and coal, it’s necessary to start with the initial investment.



Investment Cost per Kilowatt

Natural Gas Combined Cycle $1,100 /KW
Traditional Coal $2,000 /KW
Wind, Land-Based $2,000/KW
Solar PV $2,400/KW
Ultra Supercritical Coal $2,800 /KW
Solar Concentrating, without thermal storage $4,500/KW
Nuclear $5,000 /KW
Wind, Off-Shore $5,000/KW
Integrated Gasification Combined Cycle $5,500 /KW
Solar Concentrating, with 6 hours thermal storage $8,000/KW

As can be seen, the initial cost of construction is lowest for natural gas combined cycle (NGCC) power plants and highest for concentrating solar power plants (CSP).

An important distinction between power plants when calculating the LCOE is that the capacity factor varies dramatically between different types of power plants.

Capacity factor measures the amount of electricity actually produced over the period of a year, compared with what could theoretically have been produced based on the nameplate rating of the unit.

The capacity factors for coal and NGCC is approximately 85%.

The capacity factor for nuclear is approximately 90%.

The capacity factor for land-based wind is approximately 30%, while for offshore wind it’s 39%.

The capacity factors for PV solar and CSP solar, without thermal storage, are approximately 16% and 25% respectively. With 6 hours of thermal storage, CSP capacity factor is increased to approximately 45%, according to a report by the CSP industry1.

These affect the LCOE by reducing the amount of electricity produced by each system when calculating the levalized cost of electricity.

The capacity factor explains why wind and solar, that have no fuel costs, cannot compete with coal, natural gas or nuclear.

Another way of viewing the disparity in costs is to adjust the investment cost for the amount of electricity each dollar of investment actually produces.

This can be done by adjusting the cost per KW by the respective capacity factors, as seen in Table 2. It is a shorthand way to see how capacity factor affects the LCOE.



Adjusted Investment Cost per Kilowatt

Natural Gas Combined Cycle $1,300 /KW
Traditional Coal $2,400 /KW
Wind, Land-Based $6,700/KW
Solar PV $15,000/KW
Ultra Supercritical Coal $3,300 /KW
Solar Concentrating, without thermal storage $18,000/KW
Nuclear $6,100 /KW
Wind, Off-Shore $12,800/KW
Integrated Gasification Combined Cycle $5,900 /KW
Solar Concentrating, with 6 hours thermal storage $17,800/KW

The LCOE for wind and solar do not include the cost of installing and maintaining gas turbine backup for when the wind stops blowing or the sun stops shining.

The Energy Information Agency in its calculations of LCOE makes some assumptions and also adds a cost for coal that doesn’t actually exist.

Some of the EIA’s2 assumptions for capacity factors are incorrect. The capacity factor used by the EIA for wind is 34% for both land-based and offshore wind. This is an obvious error as wind speeds offshore are consistently higher than for land-based installations. Table 2 reflects the differences and uses 30% and 39% respectively for land-based and offshore wind.

The most egregious action taken by the EIA is to assign a cost of $15 per ton of CO2 for coal-fired power plants. This inflates the LCOE for coal and allows advocates of wind and solar to claim that wind and solar is competitive with coal.

This is especially egregious since the EIA didn’t assign a similar CO2 cost for NGCC power plants, thereby demonstrating a bias against coal.

In its special report on wind and solar the Wall Street Journal did not explain that the EIA LCOEs were inflated for coal.

LCOE is not a valid method for comparing the cost of electricity produced by different type systems. The fact remains, wind and solar are more costly than electricity produced from fossil fuels and from nuclear.


  1. There are different types of CSP systems. There are tower, parabolic trough and dish concentrating solar power systems. Similarly, with PV solar some systems track the sun, others do not. The above investment cost reflects averages drawn from multiple sources.

   A report published by advocates of CSP contains information on various solar systems and is available here,

2. The EIA report on LCOE is available at http://www.eia.gov/oiaf/aeo/electricity_generation.html

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0 thoughts on “EIA Levelized Costs Can be Misleading

  1. Donn,

    Thanks for letting us know about the new eia forecasts/reports! I noticed that the range of Levelized costs for PV was rather large on the web link you provided. I concur with your assessment that levelized costs can be misleading. Sooner or later the accountants and regulating bodies will agree to some formula to assign an economic value to levelized costs for Dispatchability (or the lack of it) and how to capture the costs of having back up power source investments available to address the intermittency issues associated with most forms of RE. We, as in CA, already have come up with Time of Delivery (TOD) factors for RE projects so a precedence has been set. Understanding why SCE’s super peak time factor in the summer is 40%+/- greater then PG&E’s is a cost/valuation question I have not looked into yet….. (i.e. specifics matter).

    I am reminded of how it took me a few years to get an understanding of how return goods cost allocation is accomplished. For all intense and purposes they should be viewed as rolling up into the standard of COGS. Actually I kind of liked loading/allocating these costs onto marketing’s expenses on paper once in order to get marketing and sales folks to understand how big a part of Total system costs are tied to system design: reliable robust processes and products can effect the $ available for other activities. As you call likely tell in spent much of my youth in the area of product and process development.

    So some years from now I envision an additional line item will be included in “Total System Levelized Costs”

    1) Grid Stability/Reliability Factor-
    1.a) Dispatchability Factor-
    1.b) Energy Storage Factor

    And just like the regional differences on used by the eia the Specifics of a Grid Stability/Reliability factor has to site specific- just like the TOD factors are specific for each ISO in CA.

    In any case, I think its past time to include a line item in Total System Costs (that should NEVER be reported without some range of SD around the average costs) for the costs that have to be incurred to ensure you can have power to run your lights, or well in my case, when you turn on the switch. And speaking of costs I did notice this reference in the link you provided-
    “Following the recent rapid decline of natural gas prices, real average delivered electricity prices in the AEO2013 Reference case fall from 9.9 cents per kilowatthour in 2011 to as low as 9.2 cents per kilowatthour in 2015, as natural gas prices remain relatively low..”

    Unfortunately, the small commercial customers of PG&E aren’t going to see a drop in prices as PG&E’s recent GRC is requesting a 7.5% increase in delivered electricity which will increase their cost to $.199 kwh.


  2. Great comment.
    Not sure what will eventually be included in LCOE calculations. The main point, I think, is for people to understand what is and what is not included, and how these items affect decision making.
    Too many people,accept what’s printed in the newspapers without fully understanding the various issues.

    • WOW…like solar total investment being used as that first yearly expendature as the line for investment cost, government coal subsidies outwaying solar and total impact of coal generation not included which if calculated would be an insult to Americans, Here a list of catagories not calculated in most fossil fuel generation,

      increased illness and mortality due to mining pollution
      climate change from greenhouse gas emissions
      particulates causing air pollution
      loss of biodiversity
      cost to taxpayers of environmental monitoring and cleanup
      decreased property values
      infrastructure damages from mudslides resulting from mountaintop removal
      infrastructure damage from mine blasting
      impacts of acid rain resulting from coal combustion byproducts
      water pollution

      of these catagories, solar generation, might not even be brought up.
      Ohhh. wait. i can hear the argument. The process to make PV panels have chemicals that are dangerous. Its a seperate industry. Make them, install them, 30 years of collecting photons. clean them here and there.

      That argument only leads to more arguments against fossil fuel generation and opponents of that feild could say. The tires used at the mines have chemical processes, or the chemicals in the explosives leave chemical residue.

      Solar has a cost to make PV panels and cost to install them. Little upkeep comparitively. So who is using partial indexes to be deceitful. Not a single generation emission from solar.

      ohh ya…solar companies and this market have a taxable income where depending on who owns that coal generation plant might not pay any taxes…

      My LCOE catagories would fricking make fossil fuel industry look rediculous. So if you think the that the way its set up, totally designed to enhance fossil fuel generation market, is helping renewable energy market, think again.

      the fat lady is off stage clearing her throat …lmao

      • LCOE is an economic measurement. Externalities are meaningless, emotional items where the economic value cannot be established. They may be established in your imagination, but that isn’t the way economics works.
        Besides, some of your litany has been disproven or is merely your opinion. You may need to do some research before making these broad statements.
        You also omit the many benefits that have been developed because of fossil fuels. You also omit that only fossil fuels can get the millions of people who are living in abject poverty around the world an opportunity to have electricity and live longer lives.

    • Morning Donn and NuNya,

      I had forgotten that I commented to this post back in 2012- Thanks to the wonders of the internet I received an update via WordPress on your comments.

      Our little PV system- installed in 2006- has had no tail pipe emissions during the times it has generated electricity. It has meet it’s technical (kWh’s) objectives rather well over the years- maintaining it’s original yearly 20% capacity factor. As expected the seasons effected the intensity of the sun hitting my system hence my actual monthly capacity factor varied between 8% and 28%. I used grid electricity almost every winter to try to clear snow off my panels. Rinsing off my panels worked OK when I had up to about 3”of snow. Three inches of ice on the other hand required waiting for the sun to do it’s work and slowly (up to 3 days) melt the ice before I could get any output from the system.

      Rereading my original post and the comments sent me off to see what has actually happened to the retail costs for a kWh of electrical energy over the years- vs the expected allocation of costs that I referenced above. As NuNya likely already knows the state of CA has adapted a series of polices to address the social costs of carbon dioxide. It takes a long time to work out the financial and regulatory details of utility scale RE projects and then build the projects. As noted in my previous post the long time lines to get from design to finalizing the building were acknowledged in the General Rate case for PG&E. Many of the utility scale RE projects, which in most cases required new transmission infrastructure, are now completed and the state is going to meet its RES goals.

      The EIA recently published an update http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_6_a that indicates that the kWh costs for the state of CA (which no one actually pays as ones electrical service is not provided directly by the state, but via different public (ie LADWP, SMUD), or private (PG&E, SCE, etc.) service providers) indicates that commercial electrical rates increased year over year (December 2013 vs December 2014) by an average of 15.2%. PG&E’s GRC indicated that costs were going to be going up so this makes sense from a state wide perspective. Using the same EIA data we can calculate that the AVG state residential cost for a kWh increased 5.96% and the costs for industrial end users increased 12.17%.

      The electrical rate design in CA has changed a lot since 2012 for the three private electrical service providers. I should of keep a better eye on how costs were going to be allocated by PG&E as I failed to anticipate the magnitude of the changes for my, in their 80’s, in-laws specific Time of Use rate schedule. I recommended that they plan for 5 to 10% increases per year in their electrical energy costs on a kWh basis back in 2012. Boy did I botch that estimate for their actual December, 2014 costs, which I based on what I thought would happen with the more traditional E-1 rate schedule over time. My in-laws experienced a 26% increase in their December 2014 bill (based on the same daily kWh use for both years) compared to their December 2013 bill. This was a bit of unwelcome Christmas surprise.

      A bit earlier in the year they did get their first California Climate Credit on their October 2014 bill (of $29.52) from PG&E. I really should of checked the bill inserts why back when to see when their older electrical bills started allocating costs to them for their portion of the RES and cap and trade program. Too late now for planning purposes as far as their electric energy bill/costs go. I did notice that PG&E requested a rate increase to cover their cap and trade costs for their natural gas end users. I never bothered looking at the “Notice of PG&E application to recover costs associated with Ca’s greenhouse gas emissions reduction program for end-users of natural gas (A.13-09-015)” before as neither my folks nor I have natural gas service from PG&E. I will let my uncle-in-law, who does have PG&E natural gas service, that his bills for 2015 includes an allocation for the “greenhouse gas reduction” efforts by PG&E. The bill insert requested a 1.6% increase to cover PG&E’s costs associated with the program for his residential use of natural gas.

      Thanks for the posts as they had me check a few of my previous assumptions on costs and their allocations. Someday I should see how cost effective my efforts (say our PV system, or some of our energy efficiency efforts) have been at reducing our carbon footprint. I recall a CARB meeting that indicated the utility scale carbon reduction efforts were estimated to cost about $200.00 to remove a ton of CO2 from the process of getting electrical energy to end users.

  3. Pingback: Weekly Climate and Energy News Roundup | Watts Up With That?

  4. It’s very inappropriate to divide the installed cost by the capacity factor. Just use a spreadsheet and actually run the numbers.

    LCOEs are more comparable than you’re making things out. The leveling costs of wind are currently around 15 $/MWh. The leveling costs for solar should come to a fraction of this but it’s way too early to tell.

  5. You need to explain why it’s inappropriate to use capacity factor to reflect the actual capital cost for generating electricity.
    If you want, you can email me the spread sheet you are using for the LCOE of wind at ddears@powerforusa.com
    I think you misspoke when saying the LCOE for solar would be a fraction of that for wind, and of course, are you referring to PV or Concentrating Solar?

  6. LCOE does account for capacity factor, it is one of the best indicators in order to evaluate actual cost of energy, and includes investment, FUEL COST and other O&M, cost of capital, etc. For this reason, higher irradiation or wind pattern yields lower LCOE (with the same system), and higher cost of gas, high LCOE in combine cycles. If you compare only investment and capacity factor, you are forgetting the cost of fuel, very important for combined cycle, and not so important for nuclear), so it is a very bad indicator.

    Best regards,

  7. Yes, LCOE does account for capacity factor. The above is an attempt to allow people to understand the effect of capacity factor when most people aren’t familiar with the intricacies of LCOE. LCOE has some serious shortcomings when trying to compare different systems, e.g., wind vs. coal.
    The choice of life of the installation, depreciation rates or cost of money all affect the calculation. Again using coal and wind as the example: Coal plants last for 40 years or so, while wind turbines are supposed to last 20 years. Using 30 years for coal or 15 for wind affect the LCOE. It is turning out that wind turbines in Europe seem to be having a life span of only 15 years rather than the 20 usually used in an LCOE calculation.
    As noted earlier the EIA adds a charge for CO2 emissions to their calculation for coal which distorts any comparison.
    The only way to use LCOE effectively is to display all the variables so that there is an understanding of what’s included in the calculation.
    Thanks for your comment.

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