Levelized Cost of Energy (LCOE) is the average cost per unit of electricity over a power plant's lifetime, serving as the primary economic benchmark for comparing different generation technologies like geothermal, solar, wind, and natural gas. LCOE provides an apples-to-apples economic comparison between different power generation technologies by accounting for all capital costs, operating expenses, fuel costs, and the time value of money. This metric enables investors and policymakers to evaluate the true economic competitiveness of energy sources independent of subsidies, financing structures, or operational variations.

For geothermal projects, LCOE calculation reveals that drilling costs dominate project economics. Unlike solar or wind where equipment costs are distributed relatively evenly, geothermal projects typically allocate 40-60% of total capital expenditure to well construction. Because drilling costs increase non-linearly with depth and formation hardness, small improvements in drilling efficiency—faster penetration rates, longer bit life, reduced non-productive time—create disproportionate reductions in overall LCOE. A technology that cuts drilling time significantly can transform an economically marginal geothermal project into a commercially viable one.

LCOE comparison shows geothermal's competitive position evolving rapidly. Conventional hydrothermal geothermal typically achieves LCOE of $60-100/MWh, competing favorably with new natural gas plants and increasingly competitive with wind and solar when accounting for baseload reliability value. Enhanced geothermal systems currently face higher LCOE due to drilling challenges, but advanced drilling technologies that reduce well costs could bring EGS LCOE below conventional renewables. For project developers and investors, LCOE serves as the critical decision metric—any technology or operational improvement that lowers LCOE directly improves project financial returns and expands the universe of economically developable geothermal resources.