What Does On-Site Power Cost? – Gas, Solar and Storage Compared

A utility bill tells you what power costs. The moment you decide to make your own, that number becomes your problem. Gas engines, solar panels and batteries all come with sales sheets full of efficiency and price claims, but none of them hands you a simple cost per megawatt-hour you can compare against a tariff. You have to build that number yourself from capital cost, fuel, maintenance and how many hours the equipment actually runs. What does on-site power cost, and how do gas, solar and storage compare?

On-site power cost depends mostly on fuel price, capital cost and how many hours the equipment runs, and in simple models gas generators often land somewhere around $60 to $100 per MWh while solar alone can be cheaper but only produces in daylight.

For a gas engine plant, fuel is usually the biggest line, so a doubling in gas price can add more than $25 per MWh. Solar has no fuel cost, but it needs batteries or another source to cover nights and cloudy days, and storing energy for later use adds a large cost per MWh. That is why most around-the-clock systems rely on gas, with solar and batteries trimming fuel use.

What Goes Into the Cost of On-Site Power?

Four pieces, added together and divided by the energy produced. Every on-site power cost estimate, however fancy, comes back to these:

• Capital: equipment, installation, interconnection, permits and engineering, spread over the project life with financing costs.
• Fuel: gas, diesel or nothing at all for solar and wind.
• Operations and maintenance (O&M): service intervals, overhauls, staff, parts and insurance.
• Utilization: how many MWh the equipment actually produces each year, which spreads the fixed costs.

Dividing lifetime costs by lifetime energy is called the levelized cost of energy, or LCOE. It is the standard way to compare technologies on equal footing, and the models below use a simplified version of it.

How Much Does Gas Generation Cost per MWh?

Start with fuel, because it usually dominates. Fuel cost per MWh is heat rate times gas price. Heat rate is the fuel needed to make one kWh, measured in Btu per kWh, so a lower number means a more efficient plant.

Example inputs: a reciprocating engine plant with a heat rate of 9,000 Btu/kWh, which equals 9 MMBtu per MWh.

• At $3 per MMBtu: 9 × $3 = $27 per MWh for fuel.
• At $6 per MMBtu: 9 × $6 = $54 per MWh for fuel.

Capital and Maintenance for Gas Engines

Installed cost per kW falls as plants get bigger. The EPA's CHP technology catalog lists natural gas engine installed costs from about $2,900 per kW for a 100 kW system down to about $1,433 per kW at 9.3 MW (in 2013 dollars, for combined heat and power systems), with O&M of roughly $8.50 to $25 per MWh.

Here is the capital math with labelled example inputs: $1,500 per kW installed, 25 percent extra units for redundancy, 8 percent financing over 20 years and 90 percent capacity factor.

1. Installed cost with redundancy: $1,500 × 1.25 = $1,875 per kW of load.
2. Capital recovery factor at 8 percent for 20 years: about 0.102.
3. Annual capital charge: $1,875 × 0.102 = about $191 per kW-year.
4. Energy per kW-year: 8,760 hours × 0.90 = 7,884 kWh, or 7.884 MWh.
5. Capital per MWh: $191 ÷ 7.884 = about $24 per MWh.

Add an O&M input of $15 per MWh, within the EPA range, and the gas engine plant comes to about $27 + $24 + $15 = $66 per MWh at $3 gas, or $93 per MWh at $6 gas.

How Much Does Solar Cost per MWh On Site?

Solar has no fuel, so its cost is almost all capital, divided by a relatively small number of hours. A fixed or tracking array produces only while the sun is up, and its capacity factor, the share of the year it runs at full output equivalent, is usually far below a gas plant's.

Example inputs: $1,200 per kW installed, $20 per kW-year O&M, 25 percent capacity factor and the same 8 percent, 20-year financing.

1. Annual capital charge: $1,200 × 0.102 = about $122 per kW-year.
2. Energy per kW-year: 8,760 × 0.25 = 2,190 kWh, or 2.19 MWh.
3. Capital per MWh: $122 ÷ 2.19 = about $56 per MWh.
4. O&M per MWh: $20 ÷ 2.19 = about $9 per MWh.
5. Total: about $65 per MWh, delivered only during daylight.

That daylight-only caveat is the whole story for a data center or any load that runs all night.

What Does Battery Storage Add?

Batteries move solar energy from afternoon to night, but they charge a toll for the trip. You pay for the battery, and you lose some energy in each charge and discharge.

Example inputs: a 4-hour battery at $400 per kWh installed ($1,600 per kW), 8 percent financing over 15 years, one full cycle a day and 85 percent round-trip efficiency.

1. Capital recovery factor at 8 percent for 15 years: about 0.117.
2. Annual capital charge: $1,600 × 0.117 = about $187 per kW-year.
3. Energy delivered per kW-year: 4 hours × 365 days × 0.85 = 1,241 kWh, or 1.241 MWh.
4. Storage cost per MWh shifted: $187 ÷ 1.241 = about $151 per MWh.

Then add the solar energy that went in, raised a bit to cover the 15 percent loss, and night-time solar costs well over $200 per MWh in this model. Battery prices have a history of falling fast. The EIA found that utility-scale battery costs fell nearly 70 percent between 2015 and 2018, from about $2,152 to $625 per kWh of capacity. Always rerun the math with current quotes.

How Do Gas, Solar and Storage Compare?

The chart below stacks the modeled costs from the worked examples above. It shows why gas usually carries the around-the-clock load and why solar is attractive as a daytime fuel saver.

Two lessons stand out. Gas cost is very sensitive to fuel price, so a fuel contract or hedge matters as much as the equipment. Solar is cheap energy when the sun shines, but storing it for night-time use costs several times more than using it directly.

Why Do Running Hours Matter So Much?

Because fixed costs get divided by the hours you run. The same gas plant costs very different amounts per MWh depending on whether it carries the load all year or only fills gaps.

Using the gas engine capital charge from above, about $191 per kW-year:

• At a 90% capacity factor: $191 ÷ 7.884 MWh = about $24 per MWh.
• At a 50% capacity factor: $191 ÷ 4.38 MWh = about $44 per MWh.
• At a 10% capacity factor: $191 ÷ 0.876 MWh = about $218 per MWh.

That last case is why a plant built only as backup or bridge power looks expensive per MWh, even though it may be cheap insurance. Judge it by the outage risk it removes, not by its levelized cost.

Can Solar and Gas Work Together?

Yes, and that is often the sweet spot. In a hybrid design, solar covers part of the daytime load and the gas engines throttle back, saving fuel. A modest battery smooths the handoff when clouds pass and gives the engines time to respond.

The engines still need to be sized for the full load at night and on cloudy days, so solar mostly saves fuel rather than capital. It pays when the solar energy costs less than the fuel it displaces. In the models above, daytime solar at about $65 per MWh competes with gas fuel only when gas prices run high, or when solar costs are lower than the example inputs.

What About Diesel?

Diesel generators cost less to buy than gas engines in small sizes, but they are expensive to run all the time. A large diesel genset at full load makes roughly 14 kWh per gallon. At an example price of $3.00 per gallon, fuel alone comes to $3.00 ÷ 14 × 1,000 = about $214 per MWh.

That is why diesel is the standard for standby power, which runs only a few hours a year, and a poor choice for prime power wherever gas is available. Remote sites that truck in diesel pay even more once delivery is added.

What Costs Do People Forget?

The equipment price is the easy part. These items regularly surprise first-time owners:

• Gas supply: a pipeline lateral, meter station, pressure regulation and fuel conditioning.
• Air permits and emissions controls, such as catalysts on engines.
• Redundancy: spare units for maintenance and failures, which raise capital per useful kW.
• Switchgear, controls and integration so multiple units share load smoothly.
• Major overhauls, which come due at set operating-hour intervals.
• Land, especially for solar, which needs several acres per MW.
• Staffing or a service contract to keep the plant running every day.

When Does On-Site Power Beat the Grid?

When the grid is unavailable, slow or expensive, and fuel is cheap and reliable. On-site generation makes the most sense at remote sites with no utility service, where the utility timeline is years away, where gas is cheap or stranded, or where demand charges and tariffs push grid costs high.

It is a harder case where cheap, reliable grid power is already available. The utility spreads its plant costs over many customers and runs a large, diversified fleet. Competing with that requires either low fuel costs, avoided grid upgrade costs or a reliability need the grid cannot meet. Compare against your actual tariff, including demand charges, not an average price; our guide to self-generation vs utility power walks through that comparison.

Pricing On-Site Power Cost Without Fooling Yourself

On-site power cost comes down to capital, fuel, maintenance and running hours. In simple models, gas engines land around $66 to $93 per MWh across a $3 to $6 gas range, solar runs about $65 per MWh in daylight, and storing solar for night use pushes the cost past $200 per MWh.

Use those numbers as a frame, then rebuild them with your own quotes, fuel contract, financing terms and site costs. Run the gas price at a high case, not just today's price. If the project still pencils out at the high case, you have a plan worth taking further.

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