Yes, Virginia, LCOE is a misleading metric. But we fixed it with the Always On LCOE.
For too long, the Levelized Cost of Energy (LCOE) has been the darling metric for policymakers, influencers, and bureaucrats. Yet, as Energy Secretary Chris Wright powerfully articulated during his recent confirmation hearing—”Would you take an Uber that was 10 percent cheaper if you didn’t know when it would pick you up or where it would drop you off?”—this simplistic metric leaves out critical variables that determine whether energy is reliably available when we need it. And…you had to pay for a backup vehicle just in case your primary vehicle never showed. Suddenly, your “cheaper” ride is now double, maybe even triple the original cost. That’s the real LCOE.
LCOE supposedly paints a tidy picture of cost competitiveness by averaging the expenses of building and operating power plants over their lifespans. But in doing so, it omits a slew of other costs that affect real-world performance: distribution, transmission, property taxes, and the inherent variability of renewable energy sources. When lawmakers base policies on this incomplete metric, they enact decisions that lead to higher costs and lower reliability for consumers.
We’re seeing this play out in states nationwide and abroad.
In California, state legislators and energy commissions have championed renewable targets based on LCOE figures that falsely claim wind and solar are cheaper compared to fossil fuels. The result is some of the highest electric rates in the country.
In Minnesota, Governor Tim Walz’s signing of legislation establishing a 100 percent carbon-free electricity standard by 2040 was bolstered by analyses that focused on the declining LCOE of renewable technologies—even as critics warned that such figures ignored the complexities of real-world energy supply.
Similarly, Colorado’s roadmap for achieving 100 percent renewable electricity by 2040, unveiled by Governor Jared Polis and reported by sources such as Utility Dive and confirmed by studies from the Colorado Energy Office, reflects an overreliance on LCOE-like metrics that mask the higher total system costs of wind, solar, and battery storage solutions.
Even Germany’s ambitious Energiewende—its comprehensive policy for transitioning to renewable energy—has leaned on LCOE analyses to underscore the economic viability of renewables despite the metric’s failure to account for system-wide costs to Germany’s economic detriment.
It is against this backdrop that Always On Energy Research (AOER) developed the “Always On LCOE”—a proprietary model that offers a complete system cost analysis. Unlike the conventional LCOE, our proprietary model factors in distribution, transmission, property taxes, and other ancillary costs that collectively determine the true price of power generation. For instance, our model used in a study The Staggering Cost of New England’s Green Energy Policies reveals that offshore wind is the most expensive way to provide power once these additional costs are considered.
Likewise, detailed analyses in Colorado have shown that when wind, solar, and battery storage are fully costed, they become far less competitive than traditional baseload sources—a finding later validated by the Colorado Energy Office in an independent study.
Lawmakers and consumers must demand a full accounting of all costs. The Always On LCOE model offers a far more transparent and comprehensive evaluation of our energy options, ensuring that decisions are made based on the true economic impact rather than on an oversimplified, meaningless metric designed only to prop up weather-dependent wind and solar. In a world where the reliability and availability of power are as crucial as the sticker price, embracing total system cost is not just a technical improvement—it is a necessity for responsible governance.
Policymakers must move beyond the allure of misleading low cost LCOW figures and instead demand comprehensive analyses that capture every dollar spent, from generation to delivery. Only then can we craft energy policies that are both economically sound and capable of sustaining our modern way of life.