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Solar LCOE Calculator — Levelised Cost of Energy
Levelised cost of energy answers one question: what does a kilowatt-hour from this system cost over its whole life, once money has a time value? It is the number that lets you compare a solar investment with a grid tariff, a power purchase agreement or another project entirely.
The calculation is not difficult, but it is easy to get wrong by discounting the cash and not the energy. This tool discounts both, which is the standard treatment.
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LCOE
€0.0938/kWh
9.38 cents per kilowatt-hour
Undiscounted average cost
€0.0677/kWh
The figure most brochures quote
Discounted lifetime cost
€11,715
Discounted lifetime energy
124,892 kWh
Undiscounted lifetime energy
197,870 kWh
Capital cost per kWp
€1,500/kWp
How the calculation works
LCOE is the present value of all costs divided by the present value of all energy produced. Discounting the energy stream feels strange to engineers but is correct: a kilowatt-hour delivered in year 24 is worth less today than one delivered next month, exactly as a euro is.
Costs include the initial capital outlay, annual operating expenditure and any mid-life replacement — for residential systems that means the inverter, usually somewhere between year 10 and year 15.
The discount rate is the most powerful input. For a household using savings, a real rate of 2 to 4% reflects the return foregone. For a commercial project it is the weighted average cost of capital, often 5 to 8% real. Doubling the discount rate can raise LCOE by a third.
The formula
LCOE = ( C₀ + Σ (O_y + R_y)/(1+r)^y ) / ( Σ E_y/(1+r)^y ) E_y = E₁ × (1 − d)^(y − 1) C₀ capital cost · O_y annual opex · R_y replacement in year y r real discount rate · d degradation · N project life
Assumptions behind the numbers
- All figures are real (inflation-adjusted). Do not mix a nominal discount rate with real costs.
- Energy is discounted at the same rate as money, which is the convention used by IEA, IRENA and NREL.
- No subsidy, tax credit or accelerated depreciation is included. Add those as negative costs in the capital figure if they apply.
- One inverter replacement is modelled. Battery replacement, if relevant, must be added to the capital or replacement figure.
- Decommissioning and recycling costs are excluded; for residential systems they are small and often offset by scrap value.
How to read the result
Compare LCOE against the retail tariff you avoid for self-consumed energy, and against the export price for the rest — not against a single blended number. A system with an LCOE of €0.09/kWh is excellent against a €0.25 tariff and marginal against a €0.07 export price.
European residential LCOE typically lands between €0.06 and €0.12/kWh at current installed costs, and utility-scale projects between €0.03 and €0.05/kWh. If your result is far outside those bands, check the capital cost per kWp and the specific yield.
LCOE deliberately ignores when the energy arrives. A system with a low LCOE but poor alignment with load can still be a worse investment than a more expensive one that displaces peak-price imports.
Worked example
A 6 kWp system costs €9,000 installed, yields 1,400 kWh/kWp in year one, costs €120 a year to run, needs a €1,400 inverter in year 13, degrades 0.5% a year, and is assessed over 25 years at a 4% real discount rate.
Discounted costs come to about €10,700: €9,000 capital, €1,875 of discounted opex and €840 of discounted replacement. Discounted energy is about 133,000 kWh against 198,000 kWh undiscounted.
LCOE is therefore roughly €0.080/kWh. Against a retail tariff of €0.24/kWh the margin on self-consumed energy is large; against an export price of €0.06/kWh, exported energy is loss-making, which is the entire argument for sizing to consumption rather than to roof area.
Mistakes that skew the answer
- Discounting the costs but not the energy, which understates LCOE by 25 to 40% on a 25-year project.
- Mixing nominal and real values — using a 7% nominal discount rate with costs stated in today's money.
- Omitting the inverter replacement, which adds around €0.005 to €0.01/kWh on a residential system.
- Comparing LCOE with a retail tariff that includes fixed standing charges the solar system does not avoid.
- Using a zero discount rate to make the number look better. That is a simple average cost, not LCOE, and should be labelled as such.
Questions readers ask
- What is a good LCOE for rooftop solar?
- In Europe at current prices, €0.06 to €0.12/kWh for residential and €0.04 to €0.07/kWh for commercial rooftop. The spread is driven mainly by installed cost per kWp and by irradiation, which varies by roughly a factor of 1.6 from northern Germany to southern Spain.
- Why discount the energy?
- Because LCOE is defined as the constant price that, if received for every unit of output, would exactly recover the discounted costs. Solving that equation requires discounting both streams. Not doing so answers a different, less useful question.
- What discount rate should a household use?
- A real rate of 2 to 4% is defensible: it corresponds to the real return on low-risk savings. If the system is financed with a loan, use the real loan interest rate instead, and model the loan explicitly rather than relying on LCOE alone.
- Does LCOE include the value of the energy?
- No. LCOE is a cost metric only. To judge an investment you need to compare it with the value of the energy produced, which for a self-consuming household is a mix of avoided retail tariff and export revenue.
- How does a battery affect LCOE?
- It raises it, always — storage adds cost and round-trip losses without adding generation. Batteries are justified by the value they shift, not by the cost of energy they produce, so evaluate them with a cash-flow model rather than an LCOE comparison.