Keyur Rakholiya LACE (Levelized Avoided Cost of Energy) is the value of the generation and capacity costs a new power plant lets the grid avoid, expressed per unit of energy. The US Energy Information Administration uses it in its Annual Energy Outlook, comparing it with LCOE to judge whether a project is economically competitive.
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.
Related Reading
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
3 commonly searched questions about LACE (Levelized Avoided Cost of Energy).
What is the difference between LACE and LCOE?
Why does solar LACE fall as more solar is added?
Who uses LACE?
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