Solar PV Levelized Cost of Electricity (LCOE

Energy Economics & Renewable Power: Levelized Cost of Electricity (LCOE)

LCOE is the universal metric used by the Department of Energy (DOE) and energy traders to compare the lifetime cost per unit of electricity produced across different power sources (Solar, Wind, Nuclear, Natural Gas, Coal):

• Discounting Energy and Capital: Because money and energy produced in year 25 is worth less in present value terms than money today, both financial cash flows and kilowatt-hours generated must be discounted using the project's Weighted Average Cost of Capital (WACC).

• Grid Parity Threshold: Grid parity is achieved when a renewable energy source can generate electricity at an LCOE equal to or lower than the local retail electricity rate from the utility grid.

How to Use This Calculator

Enter your System DC Capacity Rating (kW-DC) (e.g. 10.0 (10 kW residential or commercial solar array)), Turnkey Installed System Cost ( / Watt-DC) (e.g. 2.80 (2.80/W after or before incentives)), Year 1 Annual Solar Energy Generation (kWh / year) (e.g. 14,500), Annual PV Degradation Rate (%) (e.g. 0.5 (0.5% degradation per year)), System Economic Lifespan (Years) (e.g. 25 (Standard 25-year panel warranty)), Annual Operations & Maintenance Cost ( / kW / year) (e.g. 18 (18/kW-yr for cleaning, inverter reserve & monitoring)), and Real Discount Rate / Cost of Capital (WACC %) (e.g. 6.0 (6% weighted average cost of capital)). Results update instantly as you type — adjust any value to compare scenarios.

The Formula

National Renewable Energy Laboratory (NREL) LCOE equations:

Initial CAPEX (\) = System DC Capacity (kW) × 1,000 × Installed Cost (\/W)

NPV of Total Lifecycle Costs (\) = I_0 + Σ_t=1^N (O\&M_t) / ((1 + r)^t)

Lifetime Discounted Generation (kWh) = Σ_t=1^N E_0 × (1 - d)^t-1(1 + r)^t

LCOE (\/kWh) = (NPV of Total Lifecycle Costs) / (Lifetime Discounted Generation (kWh))

LCOE (\/MWh) = LCOE (\/kWh) × 1,000

Worked Example

For example, evaluating a 10.0 kW-DC solar installation costing \ (\28,000.00 CAPEX) producing 14,500 kWh in Year 1 with 0.5\% annual degradation, 25-year lifespan, , and a 6.0\% discount rate: The discounted lifecycle cost is \30,301.00 and discounted generation is 176,145 kWh. The Levelized Cost of Electricity (LCOE) is \.

Understanding Your Result

Evaluate your result in the context of your specific use case and relevant industry standards or reference values. A single calculated result is a starting point — test two to three scenarios to understand how sensitive the outcome is to your key input assumptions. For high-stakes decisions, verify your result against a secondary source or subject-matter expert before acting.