Quick answer
Levelized Cost of Energy The levelized cost of energy (LCOE) is the average cost of each kilowatt-hour a power source produces over its life: everything it costs to build, finance, run and maintain, divided by all the electricity it generates, with both usually discounted to today's dollars.
It turns a large upfront price into a per-kWh number you can set beside your utility rate. A rooftop system whose LCOE is below the rate you pay is, on that measure, cheaper electricity.
Quick facts
The key facts about levelized cost of energy, with sources:
- Unit
- Dollars per megawatt-hour ($/MWh) or cents per kWh
- Formula (simple)
- Lifetime costs ÷ lifetime kWh
- EIA utility-scale solar PV, 2030 online
- $31.86/MWh simple average; $26.06/MWh capacity-weighted (2024 dollars) 1
- EIA assumptions
- 30-year cost recovery, 6.65% after-tax WACC, tax credits included 1
- Companion metric
- LACE (levelized avoided cost): the value side 1
Key takeaways
- LCOE is the lifetime cost of a power source divided by the kWh it makes.
- For solar, upfront cost, financing and how much sun the site gets drive almost all of it.
- EIA's figures are for big power plants, not rooftops. Rooftop LCOE is higher.
- At home, compare your solar LCOE with the retail rate you pay per kWh.
- A low LCOE does not guarantee savings if exports earn far less than retail.
- Always check the dollar year and the assumptions behind any LCOE figure.
What LCOE means in plain words
Imagine you prepaid for 25 years of electricity. LCOE is the price per kWh you effectively paid.
It lets you compare things that cost money in very different ways. A gas plant costs less to build but needs fuel every year. A solar system costs most of its money on day one and then uses free sunlight. LCOE puts both on the same per-kWh scale.
You will see it as dollars per megawatt-hour ($/MWh) for power plants or cents per kWh for homes. One MWh is 1,000 kWh, so $30/MWh equals 3 cents per kWh.
How LCOE is calculated
Add up every cost over the system's life: purchase or build cost, financing, operations and maintenance, fuel (zero for solar) and any replacements. Add up the electricity it will make over the same period. Divide the first by the second.
Analysts discount both streams. Discounting means a dollar or a kWh twenty years from now counts for less than one today. The U.S. Energy Information Administration (EIA) uses a 30-year cost recovery period and a 6.65% after-tax weighted average cost of capital for plants coming online in 2030.
Because solar has no fuel, its LCOE depends almost entirely on upfront cost, financing and how many kWh the site makes. That makes shade and orientation as important as price.
Sources: [1]
The formula as a chain
- Lifetime costs: price after incentives + financing + upkeep + replacements
- Lifetime output: yearly kWh × years, reduced each year for panel aging
- Discount both to today's value (optional, but more accurate)
- LCOE = discounted lifetime costs ÷ discounted lifetime kWh
EIA's 2025 estimates for new power plants
| Technology | Simple average | Capacity-weighted average |
|---|---|---|
| Solar PV (single-axis tracking) | $31.86 1 | $26.06 |
| Wind, onshore | $29.58 | $18.90 |
| PV-battery hybrid | $53.44 | — |
| Natural gas combined-cycle | $64.55 | $67.09 |
| Advanced nuclear | $81.45 | — |
Why rooftop LCOE is a different number
EIA's figures cover large plants owned by the power sector. EIA says outright that they exclude home and business systems. Rooftop systems are smaller, cost more per watt to install and are financed differently, so their LCOE is higher.
NLR's Annual Technology Baseline models a typical home system as 7.9 kW DC on a fixed roof mount, with a 30-year life. It notes that cost per watt, not LCOE, is the most common way to compare home solar prices, because LCOE assumptions vary so much.
The comparison that matters at home is not rooftop solar versus a gas plant. It is your solar LCOE versus the retail per-kWh rate your utility charges you.
Example: a rough rooftop LCOE from your own quote
An illustration of the undiscounted method, using the hypothetical South Carolina home from our payback example: 10,000 kWh a year for 25 years and a net cost of $10,926 (the level that breaks even in 10 years on Duke Energy Carolinas rates). The cost is an assumption, not a price.
| Step | Math | Result |
|---|---|---|
| Lifetime output | 10,000 kWh × 25 years | 250,000 kWh |
| Undiscounted LCOE | $10,926 ÷ 250,000 kWh | 4.4¢/kWh |
| Compare: retail energy charge | Duke Energy Carolinas SC, Schedule RS, first 1,000 kWh 7 | 13.8¢/kWh |
Substitute your contract price after incentives and your installer's production estimate. Add expected inverter replacement and repairs to the cost, and reduce output for panel degradation; a discounted calculation raises the figure further. Even so, LCOE below the retail rate does not guarantee savings if exports are credited far below retail.
Where you see LCOE
- In energy news and reports comparing solar, wind, gas and nuclear plants.
- In some solar proposals, as "your cost per kWh" over 25 years.
- In lease and PPA offers, where the per-kWh price plays a similar role. Compare it with LCOE if you bought instead.
- In utility planning filings, where LCOE and value measures guide what gets built.
Why LCOE helps, and where it falls short
What it does well
- Turns a big upfront price into a number you can set next to your utility rate.
- Captures how much the system actually makes, not just its size.
- Works for comparing a purchase with a PPA price per kWh.
- Makes shade and orientation costs visible.
Where it falls short
- Ignores when power is made, which affects its value.
- Very sensitive to the discount rate and lifetime chosen.
- Says nothing about export credits on your bill.
- Hard to compare across reports with different assumptions.
What LCOE leaves out
- Myth A lower LCOE always means better value.
- Reality EIA pairs LCOE with LACE, the value of the electricity, because timing matters. Midday solar is worth less to the grid than evening power 1.
- Myth LCOE is a fixed property of the technology.
- Reality It moves with site output, interest rates, tax law and assumptions. Always read the dollar year and the assumptions.
- Myth Different reports should agree.
- Reality EIA, NLR's Annual Technology Baseline and private analyses use different assumptions and dollar years. Compare like with like.
What drives a rooftop LCOE up or down
| Driver | Lower LCOE when… | Higher LCOE when… |
|---|---|---|
| Price after incentives | The system costs less for its size | Extra work or upgrades add cost |
| Sunlight | The site gets strong sun with little shade | Shade or a poor roof angle cuts output |
| Financing | You pay cash or borrow cheaply | High interest or a dealer fee 4 |
| Lifespan | The system runs its full life | You remove it early or it fails |
| Panel aging | Output drops slowly; NLR's baseline uses 0.7% a year 2 | Faster loss from damage or defects |
| Upkeep and repairs | Few repairs; good warranty | Inverter swap or roof work mid-life |
How sunlight changes the answer
The same system makes more kWh in a sunny place, so each kWh costs less. NLR's baseline gives first-year capacity factors for home systems from 12.7% in the least sunny areas to 19.6% in the sunniest. Capacity factor is the share of its full rating a system makes over a year.
That gap alone means a system can have an LCOE about 50% higher in a cloudy area than in a sunny one at the same price. See capacity factor for more.
Sources: [2]
How to work out your own LCOE
- Take your contract price and subtract incentives you will actually get.
- Add loan interest and fees if financing, and a budget for an inverter replacement.
- Get a yearly kWh estimate from your installer or NLR's PVWatts 3.
- Multiply by the years you expect to run it, lowering each year for panel aging.
- Divide total cost by total kWh. Compare the result with your retail rate.
Keeping your LCOE low after install
Every kWh lost raises your real cost per kWh. Watch monitoring each month and fix faults fast.
Keep panels clear of heavy debris and trim trees that grow into the sun path. Our cleaning guide explains when cleaning is worth it.
Budget for the inverter, which often wears out before the panels. That cost belongs in your LCOE.
Warning signs in an LCOE claim
- A per-kWh figure with no stated lifespan, discount rate or dollar year.
- A 30-year life with no inverter replacement cost.
- No allowance for panel aging.
- A cost that subtracts the federal 25D credit on a 2026 owned system.
- Utility-scale LCOE quoted as if it applied to your roof.
Rules and policies behind the numbers
LCOE is not a regulated number. But tax law and utility rules shape it.
EIA's 2025 figures include tax credits under laws in effect as of December 2024. Federal credits have since changed. Homeowners cannot claim §25D for property placed in service after 31 December 2025. For leases and PPAs, a business credit may apply to the owner; ask a tax professional.
Utility tariffs decide what your solar kWh are worth, which is the other half of the story. A low LCOE helps only if your tariff values the power well. See net metering vs net billing.
LCOE vs related money terms
| Term | What it measures | Unit |
|---|---|---|
| LCOE | Lifetime cost per kWh made | ¢/kWh or $/MWh |
| Cost per watt | Upfront price per watt of size | $/W |
| Payback period | Years until savings equal cost | Years |
| Solar ROI | Lifetime gain per dollar | Percent |
| LACE | Value of each MWh to the grid | $/MWh |
| Avoided cost | What a utility saves by not making power itself | ¢/kWh |
Common misreadings
- Myth Solar costs 3 cents per kWh, so mine will too.
- Reality That is EIA's utility-scale figure. Rooftop LCOE is higher.
- Myth If my LCOE beats my rate, I save money.
- Reality Only on the kWh you use yourself. Exports may earn much less than retail.
- Myth LCOE includes the value of backup power.
- Reality It does not. Backup needs a battery, which adds cost and value LCOE does not show.
In South Carolina, Georgia and Virginia
In South Carolina, the 25% state income tax credit (capped at $3,500 a year and half of state tax liability, with a 10-year carry-forward) lowers the cost side of LCOE 6.
Duke Energy Carolinas pays $0.0419 per kWh for net excess exports under Rider RSC, well under its retail energy charge, so self-used solar is worth far more than exported solar 8. In Georgia and Virginia, check your utility's current export terms.
When LCOE matters to you, and what to do next
LCOE is most useful when you compare buying with a PPA or lease priced per kWh, or two quotes with different sizes and outputs.
If you care most about when you get your money back, use payback. If you care about total gain, use ROI.
Next step: get a production estimate and your utility tariff, then run the tools below.
Related guides and tools
- Solar payback calculatorThe time view of the same inputs
- Solar cost per wattThe upfront input to LCOE
- Electricity prices and solar adoption by state
- Solar panel degradationWhy lifetime output shrinks each year
Questions about levelized cost of energy
What is the LCOE of solar?
For new utility-scale solar coming online in 2030, EIA's 2025 outlook estimates $31.86/MWh as a simple average, about 3.2 cents per kWh in 2024 dollars, including tax credits. That is for large plants. Rooftop solar costs more per kWh because systems are smaller and cost more per watt to install.
How do I calculate LCOE for my home solar system?
Divide the system's total lifetime cost by the kWh it will make over its life. Cost includes the price after incentives, financing, upkeep and an inverter replacement. Lower output each year for panel aging. Discounting both makes the result more accurate.
What is the difference between LCOE and LACE?
LCOE is the cost of making each MWh; LACE is what that MWh is worth to the grid. LACE stands for levelized avoided cost of electricity. EIA uses the two together, because a cheap MWh made at a low-value time may be worth less than a pricier one made at peak.
Is LCOE the same as cost per watt?
No, they measure different things. Cost per watt is the upfront price divided by system size. LCOE spreads all lifetime costs over all lifetime energy, so it reflects how much the system actually makes. A cheap system on a shady roof can have a high LCOE.
What is a good LCOE for rooftop solar?
A good LCOE is one clearly below the retail rate you pay per kWh. How far below matters, because exported power may earn much less than retail. Compare your figure with your tariff, not with national averages or utility-scale numbers.
Why do LCOE estimates differ so much?
Because the assumptions differ. Lifespan, discount rate, dollar year, tax credits, sunlight and financing all change the answer. NLR notes LCOE can be confusing and often not comparable across estimates. Always read the assumptions before comparing two numbers.
Does LCOE include the federal tax credit?
It depends on the source. EIA's 2025 figures include credits under law as of December 2024. For your own home, do not include §25D for an owned system placed in service after 31 December 2025, since the IRS says it is no longer available.
How does a loan change my solar LCOE?
It raises it, because interest and any dealer fee add to lifetime cost. The CFPB found dealer fees often add 10% to 30% to the cash price. Use the full financed cost in the calculation, not the cash price.
Sources
- U.S. Energy Information Administration, Levelized Costs of New Generation Resources in the Annual Energy Outlook 2025 (April 2025), retrieved .
- National Laboratory of the Rockies (NLR), Annual Technology Baseline 2024: Residential PV, retrieved .
- National Laboratory of the Rockies (NLR), PVWatts Calculator, retrieved .
- Consumer Financial Protection Bureau, Issue Spotlight: Solar Financing (August 2024), retrieved .
- IRS, Residential Clean Energy Credit (§25D), retrieved .
- South Carolina Code §12-6-3587 (solar energy income tax credit), retrieved .
- Duke Energy Carolinas (SC), Schedule RS (Docket No. 2025-172-E), retrieved .
- Duke Energy Carolinas (SC), Rider RSC Residential Solar Choice (effective 1 January 2026), retrieved .
Expert review
Written by the HyreSolar Research team. Not yet reviewed by an outside expert. We say so rather than imply a review that has not happened; see our editorial policy.
How the numbers were checked: LCOE values, assumptions and the residential exclusion are copied from EIA's AEO2025 levelized-cost report.
Residential assumptions (7.9 kW DC, 30-year life, 0.7%/yr degradation, 12.7–19.6% first-year capacity factors) are from NLR's ATB 2024 residential PV page, loaded 8 October 2026; no ATB price is quoted.
The rooftop example uses stated assumptions and a cited Duke Energy Carolinas tariff. Not financial advice.
Suggest a correction. We fix errors and say what changed.