Levelised cost of electricity (LCOE)

The levelised cost of electricity (LCOE) is the average cost of producing one unit of electricity from a power plant over its whole lifetime. It is usually given in pounds per megawatt-hour (£/MWh) and lets technologies with very different cost patterns be compared on a single number.

How it is calculated

LCOE = present value of all lifetime costs ÷ present value of all electricity generated

The costs include planning and development, construction, connection, operation and maintenance, fuel, carbon costs and decommissioning. Future costs and output are discounted, so money spent or electricity produced later counts for less. The discount rate, known as the hurdle rate, has a large effect on the result for capital-heavy technologies such as offshore wind and nuclear. The expected capacity factor matters too: the more a plant generates, the lower its cost per MWh.

UK estimates

The Department for Energy Security and Net Zero publishes LCOE estimates in its Electricity Generation Costs reports. The 2025 edition, first published in January 2026, gives these central estimates for projects starting operation in 2035, in 2024 prices:

The report also gives low and high ranges, which reflect uncertainty in capital costs and financing.

What LCOE leaves out

LCOE covers only the costs a developer faces. It excludes revenues, subsidies and wider system costs. DESNZ notes that a plant far from where power is used adds transmission costs, while a plant that can raise or lower output quickly helps balance the grid at peak times. Neither effect shows up in LCOE. Comparing a variable source such as wind with one that can generate on demand therefore needs whole-system modelling, not LCOE alone.

LCOE is also different from a Contract for Difference strike price, which is a contract price set in an auction rather than a cost estimate.

Read more: Solar energy vs fossil fuels: cost, emissions and reliability compared.