LCOE (Levelized Cost of Energy) is the average cost per kilowatt-hour of electricity generated by a solar or wind system over its entire 25 to 30-year lifetime. It accounts for total installation costs, maintenance expenses, and expected energy production, providing a standardized metric for comparing renewable energy systems against traditional power sources.
Technical Calculation
LCOE is calculated by dividing the total lifecycle costs (capital investment, operations, maintenance, and decommissioning) by the total energy output in kilowatt-hours. For residential solar installations, typical LCOE ranges from $30 to $60 per megawatt-hour, making it competitive with grid electricity in most U.S. markets. The calculation assumes a system efficiency degradation of approximately 0.5% annually.
Practical Significance
LCOE helps homeowners and businesses evaluate solar investment returns against utility rates. When LCOE is lower than your local electricity rate, the system becomes cost-effective. This metric is essential for understanding long-term savings potential and comparing quotes from different solar installers.