Energy Systems & Transitions: What a Kilowatt-Hour Really Costs

In 2025 the world made more solar electricity than ever: about 2,780 terawatt-hours, 30% more than the year before. In the same year it burned more coal, oil and gas than ever too. The Energy Institute's 2026 Statistical Review (published 30 June 2026) found that total energy supply passed 600 exajoules, up 1.7%, with fossil fuels still supplying about 86% of it, and renewables the biggest source of growth.

Both headlines are true. A transition is not a switch that replaces one thing with another; so far it has been a pile that keeps growing. An energy-systems course teaches you to hold both facts, and to ask of any proposal: how much energy, at what cost, delivered when, and built by when. The climate reason for caring (the carbon budget) is in Climate Science (36/14). The physics is in Energy: The One Currency of the Universe (13/02), How a Nuclear Reactor Works (13/14) and Thermodynamics (34/14).

Where energy comes from, and how it is counted

The Energy Institute's 2026 review, covering 2025, gives the mix. Of world primary energy (the fuel and flows going into the system), fossil fuels supplied about 86%, nuclear 5.2%, hydro 2.7%, and other renewables (wind, solar, biofuels, geothermal) 5.9%, of which solar was 1.7% and wind 1.6%. Electricity is a different slice, because it is only part of final energy use, which also includes oil for transport and gas for heat. In electricity, renewables passed one-third of world generation for the first time in 2025 (33.8%), overtaking coal (33.0%), according to Ember's 2026 review. Solar reached 8.7% of power, passing wind at 8.4%; nuclear was 8.8% (Energy Institute).

Drag the counting slider. Primary-energy tables count fuel burned, and a typical fossil plant wastes more than half the heat. If wind and solar electricity is counted at face value, it is about 3.3% of the world's primary energy. If instead it is credited with the fuel a 40%-efficient fossil plant would have burned to make the same electricity (the "substitution" convention), the same wind and solar become about 8.0%. Neither is wrong; they answer different questions. When you read a share, ask which convention and which slice.

Who emits and who uses it matters as much as the global total. In 2025, fossil-fuel generation fell in China (down 0.9%, its first fall since 2015) and in India (down 3.3%) as record wind and solar came online, while coal use in the United States rose about 10% (Energy Institute and Ember). Hundreds of millions of people, mostly in sub-Saharan Africa, still have no electricity at all, so "the world's energy problem" also includes adding supply, not only changing it.

What a kilowatt-hour costs: LCOE and its limits

The standard way to compare power plants is the levelised cost of electricity (LCOE): all the costs of building and running a plant over its life, divided by all the electricity it will produce, both discounted to the present. The spreadsheet version is short.

Three things dominate. Capital cost is almost everything for solar, wind and nuclear, which have no fuel bill. Capacity factor is how much of the year the plant produces: roughly a quarter for solar, a third to 40% or more for wind, and above 90% for a well-run nuclear plant. And the discount rate (the cost of money) matters because capital-heavy plants must borrow for years before they earn anything.

Two data points help calibrate. In the United States, Lazard's 2026 analysis puts unsubsidized new utility-scale solar at $40 to $98 per MWh, onshore wind $37 to $99, gas combined-cycle $51 to $129, offshore wind $105 to $167 and new nuclear $175 to $255; it noted that costs rose across technologies and that the cost of gas generation was at a 15-year high. Globally, IRENA's Renewable Power Generation Costs in 2024 found weighted-average costs of $43 per MWh for utility-scale solar and $34 for onshore wind, with China's solar at $33, and reported that 91% of newly commissioned utility-scale renewables were cheaper than the cheapest new fossil alternative. Costs differ by country mostly because capital is cheaper in some places and sun and wind are better in others.

Now the limits of LCOE, which analysts of every view accept in some form. It treats a megawatt-hour at noon on a sunny day the same as one in a still January dusk. It leaves out the cost of the grid, backup and storage a variable source needs, and it leaves out what a firm source saves the grid. Supporters of wind and solar point out that LCOE already favours them and that the system cost is falling fast; supporters of nuclear and firm power respond that the true comparison is cost of a reliable system, where LCOE is the wrong yardstick. Both sides are describing real costs. The next section is the part LCOE leaves out.

Balancing a grid, hour by hour

Electricity cannot be stored for free, so supply must match demand every second, and demand has a daily shape: a trough at night, a morning rise, and an evening peak. Solar produces only in daylight and peaks at midday, when demand is middling; the gap in the evening, as the sun sets and people come home, is the "duck curve" that grid operators describe. Wind has its own rhythm. And weather can take both away at once: a windless, overcast spell in winter, which Germans call a Dunkelflaute ("dark doldrums"), can last days.

Try it. With 30% solar, 20% wind and 10% firm power and no battery, about 5.7% of wind and solar is wasted at midday and gas supplies about 43% of the day, with its output swinging between low and high. Add four hours of battery and the waste vanishes and the evening peak is shaved (gas falls only to about 40%). Then switch to a calm, cloudy day: gas jumps to about 80%, and four hours of battery barely moves it. That is the core system lesson: batteries solve the daily problem, not the weekly one. Averaged over a year, cheap wind and solar can supply a lot; the hard cases are the few days when they supply little.

Storing energy: batteries, water and molecules

Storage comes in a few forms, each with a niche. Lithium-ion batteries are the fast-falling-cost option: BloombergNEF's December 2025 survey put the average pack price at $108 per kWh, down 93% in real terms since 2010; stationary-storage packs averaged $70 per kWh (LFP chemistry about $81). Pumped hydro (pump water uphill with spare electricity, run it back down later) has historically been the large majority of grid storage, returning roughly 70 to 85% of the energy and lasting decades. Hydrogen and other chemical fuels can store energy for weeks or seasons, but make-and-burn round trips return only roughly a third to a half. And flexibility without storage, such as moving demand (charging cars at midday, running industrial loads when power is cheap), long transmission lines that link different weather, and spare dispatchable plants, matters as much as batteries.

Scale gives perspective. World electricity use is about 31,700 TWh a year, so one hour of it is 3.6 TWh. Packs for just that hour, at $70 per kWh, would cost about $250 billion, before power electronics, land, and installation. A few hours of storage per grid is realistic and valuable. Weeks of it is a different order of cost, which is why the debate between "mostly renewables with storage and grids" and "also keep firm sources such as nuclear, hydro and gas with capture" is about the cost of the last 10 to 20% of a system, not the first 80%.

Nuclear, hydro and biofuels: the arguments

Three technologies split opinion. The point is not to pick; it is to hear each side at its strongest. Compare them on two numbers first: life-cycle emissions (IPCC 2014 medians) and deaths per unit of energy (from accidents and air pollution; Our World in Data, drawing on Markandya and Wilkinson 2007 and Sovacool et al. 2016, with the caveat that the coal, oil and gas rates are from European plants and probably understate the global figure).

Nuclear. The case for: it makes low-carbon electricity day and night, from a small footprint, at a death rate per TWh close to wind and solar and far below fossil fuels, and plants can run 60 years or more. Without it, supporters say, a firm clean backbone is much harder and costlier to find. The case against: new plants in the West have run years late and billions over (the American Vogtle 3 and 4 went from about $14 billion to more than $30 billion), Lazard's 2026 range for new nuclear ($175 to $255) is far above solar, wind or gas combined-cycle, long-lived waste has an operating permanent repository in very few countries, and the technology is linked to weapons proliferation. The honest summary: both the safety record and the cost record are real, and the dispute is mostly about whether costs reflect the technology or the way the West builds. The full story is in Nuclear Energy (29/09).

Hydro. For: it is the largest renewable source (2.7% of primary energy), usually cheap once built, dispatchable, and the source of most grid storage. Against: big dams flood land and move people (China's Three Gorges Dam, 22.5 GW, displaced an estimated 1.1 to 1.4 million), hold back sediment, harm migratory fish, and reservoirs in warm places can emit methane. Output follows rainfall, so a drought can cut supply on a hydro-dependent grid. Most of the best sites in rich countries are already used, and the remaining growth is in Asia, Africa and Latin America, where the trade-offs are sharpest.

Biofuels. For: liquid fuels from plants are one of the few options for aviation, shipping and heavy transport, where batteries struggle, and sugarcane ethanol in Brazil gives roughly 8 to 10 units of energy out per unit of fossil energy in. Against: US corn ethanol gives only about 1.3 to 1.6, and the argument turns on land: a 2008 Princeton-led study counted the emissions from clearing other land to replace the crops diverted to fuel and found corn ethanol worse than gasoline (+93%), while the US EPA's 2010 analysis projected a 21% saving by 2022. Researchers still dispute how to model that indirect land use. Biofuels also compete with food: during the 2007–08 price spike the World Bank first attributed 70 to 75% of the rise to biofuels and related factors, and later studies found a smaller share. Biofuels from wastes and residues avoid most of the land problem but are limited in amount.

Transitions are slow, and so far they have added up

History offers a caution. Coal did not replace wood in the 19th century; oil did not replace coal; the world burns more of both than ever. The energy historian Vaclav Smil has argued that energy transitions take decades because the machines, pipes and habits built around a fuel last decades. The optimists' reply is that solar and batteries follow a different path: they are manufactured goods whose costs fall as the total built doubles, and the numbers in this piece (batteries down 93% since 2010; solar growing 30% in a year) show that curve at work. The two views are not exclusive: solar is growing very fast, and it is growing from a small base.

Play with it. If the world simply adds the same 636 TWh of solar every year while demand grows 3%, solar's share creeps to about 28% by 2050. If the yearly additions themselves grow by 5% a year, the share reaches roughly half by 2050. The point is not the number: it is that a share is a ratio, and the answer depends on the growth of both the numerator and the denominator. The decision-makers who matter in the next two decades are the ones building: China, which added the most wind and solar, India, which in 2025 installed more new solar capacity than the United States for the first time, and the countries that mine and refine the materials, such as the lithium-rich salt flats of Chile, Argentina and Bolivia and the cobalt mines of the Democratic Republic of Congo. Whether and how fast to change is a matter for Environmental Economics & Policy (36/19). What the engineering and the numbers say is that it is a build-out problem as much as an invention problem.

Figures here are dated as shown; energy statistics are revised each year.

What a graduate just sees

• An energy share depends on the slice (primary or electricity) and on the counting convention.
• For solar, wind and nuclear, cost is capital cost and the cost of money; fuel is almost irrelevant.
• LCOE compares plants, not systems: a megawatt-hour's value depends on when it arrives.
• Batteries fix the daily cycle, not the cloudy week; the last 10 to 20% of a clean grid is the expensive part.
• Every low-carbon source has a hard problem: nuclear its cost and waste, hydro its land and rivers, biofuels their land, wind and solar their variability.
• Energy transitions have so far been additions; growth in demand can absorb a lot of clean supply.
• Shares are ratios: ask what is growing in the numerator and in the denominator.

Where it shows up next

• Environmental Economics & Policy (36/19): carbon prices, subsidies and regulation are the tools for changing the cost columns in the LCOE calculator.
• Pollution & Environmental Health (36/17): the deaths-per-TWh column is mostly air pollution.
• Climate Science (36/14): the carbon budget sets the deadline the energy system is racing.
• Power Systems & Electric Machines (34/39) and Thermodynamics (34/14): the engineering behind the grid-balancing demo.
• In the world: utility planning, energy ministries, investment banks, and every household choice about heating, cooking and transport.

If you want to go deeper

• 📘 Textbook. Vaclav Smil, Energy and Civilization: A History (MIT Press, 2017) for the long view; and Jefferson Tester et al., Sustainable Energy: Choosing Among Options (MIT Press, 2nd edition 2012), the textbook for MIT's introductory energy course.
• 📘 Gentler. David MacKay, Sustainable Energy - Without the Hot Air (2009), free to read online, which does the arithmetic of energy supply and demand in everyday units. Written for the UK, so the numbers are dated, but the method is the point.
• 🌐 Free course. MIT OpenCourseWare 22.081J Introduction to Sustainable Energy (Fall 2010). Also free: Our World in Data's energy pages and Ember.