What is LCOE for solar?

Levelized Cost of Energy (LCOE) is the total cost of a solar system over its lifetime divided by total lifetime energy production. It gives you a single $/kWh figure you can directly compare to your grid electricity rate. A typical residential solar LCOE in 2026 is $0.05–$0.09/kWh versus a US grid average of $0.15–$0.17/kWh.

What LCOE is considered good for solar?

A good residential solar LCOE is below your local electricity rate. US average grid rate is ~$0.15/kWh. Most well-sized residential systems achieve an LCOE of $0.05–$0.09/kWh after the 30% federal tax credit, making solar 40–65% cheaper than grid electricity over a 25-year lifetime.

How does panel degradation affect LCOE?

Solar panels degrade about 0.5% per year — meaning a 10kW system producing 14,000 kWh in year 1 will produce about 13,300 kWh in year 25. This reduces total lifetime production by roughly 11%, directly increasing your LCOE. Higher-quality panels with lower degradation rates (0.3–0.4%/yr) have meaningfully better long-term economics.

Should I use a discount rate in my LCOE calculation?

Yes if you're comparing solar to investing the same money elsewhere. A 5–7% discount rate is common for residential analysis. At 0% discount rate (nominal LCOE), solar looks best. As you increase the discount rate, future energy savings are worth less today, slightly worsening the LCOE. Most homeowners use 3–5%.

Solar LCOE Calculator

What does your solar electricity actually cost per kWh? Enter system cost and production — compare your LCOE to the grid rate.

System details

Total system cost?

Year 1 production?

kWh/yr

Annual degradation?

Annual O&M cost?

$/yr

System lifetime?

Discount rate?

Grid electricity rate?

$/kWh

Levelized Cost of Energy

$0.1744/kWh LCOE

vs grid rate ($0.15/kWh)16% more expensive than grid

Lifetime production329,783 kWh

Lifetime energy savings$-8,032

NPV of O&M costs$2,819

Total NPV cost$32,819

Simple payback period14.3 years

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How to Use This Calculator

Enter total system cost

Use the gross installed cost including panels, inverter, racking, wiring, labor, permitting, and grid interconnection fees. Do not subtract tax credits yet — the calculator separately shows the unsubsidized LCOE. If you want to see post-ITC LCOE, enter the net cost after the 30% credit.

Year 1 production

Use your actual monitoring data, or estimate with NREL PVWatts (pvwatts.nrel.gov). For a quick estimate: system kW × peak sun hours × 365 × 0.85 (efficiency) = annual kWh. A 10kW system in Denver with 5.5 peak sun hours: 10 × 5.5 × 365 × 0.85 = ~17,100 kWh/year.

Discount rate

The discount rate reflects the time value of money. For homeowners, use your mortgage rate or a conservative opportunity cost (5-7%). For businesses, use your weighted average cost of capital (WACC). A higher discount rate makes future savings less valuable, increasing LCOE.

The Formula

For each year t (1 to system lifetime): Annual production(t) = Year1 kWh × (1 - degradation)^(t-1) Discount factor = (1 + discount rate)^t NPV production = Sum of [Annual kWh(t) ÷ Discount factor(t)] NPV O&M costs = Sum of [Annual O&M cost ÷ Discount factor(t)] LCOE ($/kWh) = (System cost + NPV O&M) ÷ NPV production

LCOE is the "true" levelized cost of each kilowatt-hour your solar system produces over its lifetime, accounting for both upfront cost and ongoing expenses, discounted to present value. When LCOE < grid rate, solar is economically favorable. US residential solar LCOE typically ranges from $0.05-0.12/kWh in 2026.

Example: 10kW Residential System

Standard residential solar, US average conditions

A 10kW system installed for $30,000 gross ($21,000 after 30% ITC). Produces 14,000 kWh/year, 0.5% annual degradation, $200/year O&M, 25-year life, 5% discount rate.

System cost (gross)$30,000

Year 1 production14,000 kWh

Degradation0.5%/year

Discount rate5%

Result

LCOE (pre-ITC)$0.049/kWh

LCOE (post-ITC)$0.034/kWh

vs grid rate ($0.15/kWh)77% cheaper than grid

25-year lifetime savings~$45,000

Even at the pre-ITC LCOE of $0.049/kWh, solar is 3x cheaper than the $0.15/kWh grid rate. After the 30% ITC, the effective LCOE drops to $0.034/kWh — one of the best investments available for most homeowners in 2026.

FAQ

What is a good LCOE for solar? ▼

In 2026, a residential solar system LCOE of $0.04-0.08/kWh is considered excellent. Utility-scale solar achieves $0.02-0.04/kWh. The key comparison is your local grid electricity rate — if your rate is $0.15/kWh and your solar LCOE is $0.06/kWh, solar is 2.5x cheaper per kWh. In high-rate states like California ($0.30+/kWh), even a higher-LCOE system provides exceptional value.

How does LCOE differ from simple payback period? ▼

Simple payback = System cost ÷ Annual savings (ignores time value of money and production degradation). LCOE = True cost per kWh accounting for discounting and lifetime production changes. Simple payback is easier to explain but LCOE is more accurate for comparing energy sources. For a complete financial picture, use both: payback period tells you when you break even, LCOE tells you how your solar compares to grid power long-term.

Should I include the battery in my LCOE calculation? ▼

Yes, if you're calculating LCOE for a solar+storage system. Include the battery cost, and account for the battery's shorter life (10-15 years for LiFePO4 vs 25+ for panels) — meaning you may need one battery replacement during the system life. Add the present value of battery replacement to the numerator. Storage-augmented LCOE is typically $0.10-0.20/kWh, but the value comes from peak shaving, backup power, and TOU optimization.