LCOE — levelised cost of energy — is the number that lets you compare a solar plant against a diesel genset, a grid tariff or another solar quote on equal terms: the all-in cost of every kWh the asset will ever produce. The formula is simple; the judgement lives in the input assumptions. Here is the calculation step by step, a worked example, and the benchmark ranges that tell you whether your number is credible.
The formula
LCOE = (total lifetime cost, discounted) ÷ (total lifetime energy, discounted)
Expanded: sum, for every year t of the project life, the year's costs (CAPEX in year 0, then OPEX) divided by (1+r)ᵗ, and divide by the sum of the year's energy output divided by (1+r)ᵗ. Discounting energy sounds odd but is mathematically required — it is what makes LCOE consistent with NPV analysis.
The five inputs that matter
| Input | Typical C&I range (2026) | Sensitivity |
|---|---|---|
| CAPEX | $0.55–0.85/Wp installed (rooftop) | High — directly proportional |
| OPEX | $8–15/kWp/year | Moderate |
| Specific yield | 1,100–1,800 kWh/kWp/yr by climate | High — inversely proportional |
| Degradation | 0.30–0.45%/yr (N-type vs PERC) | Low–moderate |
| Discount rate (WACC) | 6–10% | High — punishes back-loaded energy |
Worked example: 1 MWp C&I rooftop
- CAPEX: $700,000 ($0.70/Wp) · OPEX: $12,000/yr · yield: 1,450 kWh/kWp/yr
- Degradation 0.40%/yr · life 25 years · discount rate 8%
- Discounted lifetime cost ≈ $700k + $12k × 10.67 (annuity factor) ≈ $828,000
- Discounted lifetime energy ≈ 14.1 GWh (nominal 34.7 GWh before discounting)
- LCOE ≈ $0.059/kWh
Against a $0.14/kWh commercial grid tariff, every self-consumed kWh earns an $0.08 margin — that spread, not the LCOE alone, is what drives the business case.
2026 benchmark ranges
| Project type | Typical LCOE (unsubsidised) |
|---|---|
| Utility-scale ground mount (high resource) | $0.025–0.045/kWh |
| Utility-scale (moderate resource) | $0.040–0.060/kWh |
| C&I rooftop | $0.050–0.080/kWh |
| Residential rooftop | $0.080–0.130/kWh |
| Diesel generation at $1.20/L (for comparison) | $0.30–0.40/kWh |
If your calculation lands far outside these bands, audit the inputs — the usual culprits are an optimistic yield figure or a discount rate borrowed from a different risk profile.
The mistakes that corrupt LCOE comparisons
- Comparing LCOEs built on different discount rates. A 6% vs 10% WACC moves solar LCOE by ~25%. Normalise before comparing quotes.
- Ignoring degradation technology differences. N-type's 0.30%/yr vs PERC's 0.45%/yr is worth ~2% of lifetime energy — see our N-type guide.
- Using nameplate yield instead of P50 modelled yield. Shading, soiling, availability and clipping all belong in the energy denominator.
- Confusing LCOE with value. LCOE ignores when energy is produced. Pair it with self-consumption analysis — or with storage economics (peak shaving) — for investment decisions.
Econo Solar provides indicative LCOE modelling with every project quote — CAPEX from live FOB pricing, yield from your coordinates. Send your site details to get the numbers.