LACE Levelized Avoided Cost of Energy: Project Economic Comparison

Q: What is LACE?

LACE (Levelized Avoided Cost of Energy) is the value of the energy that a new generation project avoids buying or generating elsewhere — typically the marginal cost of the energy and capacity it displaces from the grid. It is the 'value' counterpart to LCOE's 'cost.'

Q: What does LCOE < LACE mean?

If a project's LCOE (what it costs to generate the energy) is lower than its LACE (what that energy is worth by avoiding alternative generation), the project is economic — it delivers more value than it costs, relative to the grid alternatives it displaces.

Q: How is LACE different from LCOE?

LCOE measures the cost side: the levelized per-kWh cost of building and running a generation asset. LACE measures the value side: the cost the grid avoids by not having to generate or procure that energy some other way. Comparing the two tells you whether a project is worth building.

Q: Who uses LACE?

LACE is used mainly in utility integrated resource planning (IRP), regulatory filings, and policy analysis to compare candidate generation technologies on a like-for-like economic basis, rather than on cost alone.

Q: Does the EIA publish LACE benchmarks?

Yes. The U.S. Energy Information Administration (EIA) publishes LCOE and LACE benchmarks annually, by technology and region, in its Annual Energy Outlook, so planners can compare projected costs against projected avoided-cost value.

Q: Why does LACE matter for solar project economics?

LACE captures value that pure LCOE comparisons miss, such as when a technology's output lines up with periods of high grid value (e.g., solar generation avoiding expensive peaking capacity). A technology with a higher LCOE than another can still be more economic if its LACE is high enough.

Definition

LACE (Levelized Avoided Cost of Energy) is the value of energy avoided by deploying new generation — typically the marginal cost of energy displaced from the system. LCOE < LACE means the project is economic vs. grid alternatives.

Key Takeaways

LACE = value of energy avoided by new generation.
LCOE < LACE → project economic.
Used in policy and integrated resource planning.
EIA publishes LCOE and LACE benchmarks annually.
Different from LCOE (cost) — LACE measures value.

LACE Explained Simply

LCOE answers “what does this energy cost to produce?” LACE answers the other half of the question: “what is that energy worth, because of what it lets the grid avoid?” A new solar project avoids some combination of fuel purchases, capacity that would otherwise need to be built, and transmission losses. LACE puts a levelized per-kWh price tag on all of that avoided cost, so it can be compared directly against LCOE.

The two metrics only make sense together. A technology can have a low LCOE and still be a poor fit if its output doesn’t line up with when the grid needs it (low LACE). Conversely, a technology with a higher LCOE can still be economic if it reliably displaces expensive peaking generation or capacity additions (high LACE). This is why utility integrated resource plans and regulatory filings report LCOE and LACE side by side rather than ranking technologies on cost alone.

Illustrative Example

Suppose a utility is evaluating a new solar project with an LCOE of $30/MWh. The energy and capacity that project displaces — accounting for the marginal generation it avoids and its capacity value at peak — works out to a LACE of $42/MWh. Since LCOE ($30) < LACE ($42), the project is economic: it delivers more value to the system than it costs to build and run. If the same project’s LCOE had come in above its LACE, the numbers would say the opposite — the project costs more than the value it avoids, even before financing returns are considered.

LACE sits alongside LCOE as one half of a project economics comparison, and the same avoided-cost logic underpins how utilities and DISCOMs price exported solar energy under net metering and net billing regimes — see the DISCOM net metering process guide for how that plays out state by state in India. Bid-level tariff economics move on similarly small cost deltas, as explored in SECI tariff math and how engineering inputs shift bids by paise per kWh. Project teams weighing LCOE-versus-LACE tradeoffs on a real portfolio often lean on structured reports to document the comparison for lenders and regulators.

Frequently Asked Questions

6 commonly searched questions about LACE (Levelized Avoided Cost of Energy).

What is LACE?

LACE (Levelized Avoided Cost of Energy) is the value of the energy that a new generation project avoids buying or generating elsewhere — typically the marginal cost of the energy and capacity it displaces from the grid. It is the 'value' counterpart to LCOE's 'cost.'

What does LCOE < LACE mean?

If a project's LCOE (what it costs to generate the energy) is lower than its LACE (what that energy is worth by avoiding alternative generation), the project is economic — it delivers more value than it costs, relative to the grid alternatives it displaces.

How is LACE different from LCOE?

LCOE measures the cost side: the levelized per-kWh cost of building and running a generation asset. LACE measures the value side: the cost the grid avoids by not having to generate or procure that energy some other way. Comparing the two tells you whether a project is worth building.

Who uses LACE?

LACE is used mainly in utility integrated resource planning (IRP), regulatory filings, and policy analysis to compare candidate generation technologies on a like-for-like economic basis, rather than on cost alone.

Does the EIA publish LACE benchmarks?

Yes. The U.S. Energy Information Administration (EIA) publishes LCOE and LACE benchmarks annually, by technology and region, in its Annual Energy Outlook, so planners can compare projected costs against projected avoided-cost value.

Why does LACE matter for solar project economics?

LACE captures value that pure LCOE comparisons miss, such as when a technology's output lines up with periods of high grid value (e.g., solar generation avoiding expensive peaking capacity). A technology with a higher LCOE than another can still be more economic if its LACE is high enough.