Ranked: The Cheapest Sources of Electricity in the U.S.

In 2022, the U.S. electricity sector’s reliance on fossil fuels resulted in a staggering 1,539 million tonnes of CO₂ emissions.

With the urgent need to decarbonize, however, the question remains: can the transition from fossil fuels to emission-free electricity sources, such as solar, wind, and nuclear power, be accomplished in a financially viable manner?

In this graphic sponsored by the National Public Utilities Council, we seek answers to that question by visualizing the 2023 levelized costs of electricity of various technologies in the U.S., as calculated by Lazard.

Understanding Levelized Cost of Electricity

Levelized cost of electricity (LCOE) is a metric used to assess the cost of generating electricity from a specific power source over its lifetime.

The measure takes into account all of the costs associated with building, operating, and maintaining a power plant, as well as the amount of electricity the plant is expected to produce over its lifetime.

LCOE is a comprehensive way to compare the costs of various electricity generation technologies. It’s also worth mentioning, however, that there is a substantial amount of tax subsidies available for clean electricity generation in the U.S., including the $161 billion in clean electricity tax credits in the Inflation Reduction Act (IRA).

By leveraging these funding opportunities, the LCOE of renewables, nuclear power and energy storage systems has the potential to fall even further, bolstering their competitive edge in the market.

Ranking the Cheapest Sources of Electricity

According to Lazard’s 2023 analysis of unsubsidized LCOE in the U.S., both onshore wind and utility-scale solar photovoltaic (PV) technologies are more cost-effective than combined cycle natural gas power plants.

In the case of onshore wind, this has been true since 2015.

*2022 LCOE adjusted for inflation.

Overall, the data shows us that most emission-free sources are cheaper than fossil fuels. There are, however, some other things to consider:

• Coupling lithium-ion batteries with intermittent energy technologies, such as wind and solar, raises costs by $6-$39/MWh. As new storage technologies, such as electrochemical batteries, mature, however, Lazard expects them to offer cost advantages to lithium-ion ones in as little as two years, especially at longer durations (6+ hours).
• While the LCOE of nuclear seems to be high, license renewals can significantly lower the marginal cost of electricity in these power plants. 88 of the 92 U.S. nuclear reactors have received such renewals in the past.
• The efficiency of generation technologies plays a big role in LCOE. This is especially evident in the high cost of gas peaking power plants.

LCOE Trends for Clean Electricity

There are various factors that can influence the LCOE of clean electricity technologies. These include:

• Financing costs, policy incentives, and government subsidies
• Geographical location, which can influence the availability of renewable resources like sunlight and wind speed
• The availability and cost of key clean energy metals and materials, such as copper, silicon, nickel, zinc and chromium
• The maturity of the technologies, the scale of deployment and the growth in demand
• The overall supply chain, including where most of these technologies are primarily manufactured (China), shipping costs, and disruptions due to global events, such as wars

As seen below, the combination of these factors has dramatically pulled down the LCOE of onshore wind and solar PV since 2009, with the exception of 2022-2023.

Source: Lazard

According to the International Energy Agency (IEA), however, most of these cost pressures related to inflation and supply chain challenges are easing in 2023, allowing these technologies to remain cost-competitive in today’s volatile fuel-price environment.

Learn more about how electric utilities and the power sector can lead on the path toward decarbonization.

Animated: 70 Years of U.S. Electricity Generation by Source

Electricity generation in the U.S. has grown exponentially since 1950, going from 2.96 billion kilowatt-hours (kWh) in 1949 to 4.11 trillion kWh in 2021.

With the growth in electricity generation, the U.S. electricity mix has also evolved, especially as clean electricity sources such as nuclear, wind, and solar power grew in use.

In the animated chart by the National Public Utilities Council above, we explore the past 70 years of U.S. electricity generation, following along with the country’s dynamic electricity mix over the decades.

Trends in U.S. Power Generation Since 1950

The U.S. generated 1,200% more electricity in 2021 compared to 1950.

Here’s how the share of each source in the electricity mix changed over that period.

While coal and hydropower led as the largest sources of electricity in the 1950s, the growth in U.S. electricity demand is met primarily by natural gas today, followed by coal, nuclear, and wind power.

Despite coal’s heavy share in the U.S. electricity mix since 1949, its use has declined in recent years, peaking in 2007 in terms of total electricity generated.

With the low cost of natural gas and the advancement of decarbonization efforts, 80+ coal plants have retired or are set to retire in the next three decades in the United States. Despite this, coal remains the largest contributor to power sector emissions, accounting for 58% in 2021.

Besides the rise and fall of coal use, the animation highlights other interesting trends in the country’s power generation over the last 70 years, including:

• Nuclear energy slowly starts contributing to the electricity mix in 1957 as the Shippingport Atomic Power Station comes on in Pennsylvania. By 2020, nuclear power accounts for nearly 20% of total electricity generation.
• Solar and wind power start contributing to the mix in 1983-84, with wind accelerating faster than solar power to account for 1% of total electricity generated by 2008 and 9% by 2021.
• Electricity sourced from natural gas surpasses that from coal in 2016 and continues to absorb most of the decline in coal use through the present day.
• Hydropower’s share in the electricity mix remains stable since 2000, making up 5 to 6% of total electricity generated each year.

The Road to Net-zero

While the decline in coal use for electricity aids in lowering emissions, the U.S. power sector has a long way to go in decarbonizing. In 2021, the use of fossil fuels for power generation contributed 1,537 million tonnes of carbon dioxide emissions in the country.

Therefore, accelerating the deployment of carbon-free energy sources is critical for the road to a decarbonized power sector.

The chart below shows how U.S. electricity generation needs to change to achieve net-zero emissions by 2050.

In the net-zero scenario, Energy Innovation’s policy simulator counts on a complete phase-out of coal-fired electricity by 2034, along with a 36-fold increase in solar power generation and a 10-fold increase in wind power generation by 2050 (compared to 2020 levels.)

The rapid transition from fossil fuels to clean-energy sources, coupled with adequate transmission expansion and investment in battery storage, is integral for a carbon-free power sector. With prompt action, the next 30 years of U.S. electricity generation has the power to look a lot like the projected graph above, giving way to lower emissions for all other sectors that use electricity.

Click here to learn more about how electric utilities and the power sector can lead on the path toward decarbonization.