Wave energy is arguably one of the most promising renewables. Less developed at present than other renewables, the existing models to estimate the costs of a wave energy project are often oversimplified, and the resulting scatter in the economic assessments weighs on the confidence of potential investors and constitutes therefore an impediment to the development of wave energy. Indeed, understanding the costs of wave energy is one of the main fields of research in marine renewable energy. In this context, the main objective of this paper is to review all the factors that must be considered in an economic analysis of wave energy, including a number of elements that are usually overlooked. In the process we characterise the direct and indirect costs of a wave farm – preliminary costs, construction, operation and maintenance and decommissioning cost – as well as its prospective incomes. For each of them a reference value is presented, together with a generic formula for its calculation. Moreover, the levelised cost, i.e., the production cost of an energy unit (1 kW h), is compared between various energy sources, and on these grounds conclusions on the profitability and competitiveness of wave energy are drawn. In sum, this work reviews the state of the art and sets the basis for a thorough economic analysis of wave energy.