Free LCOE Calculator
Read the full article here, or jump down to our free LCOE calculator at the bottom of this page.
LCOE, or levelized cost of energy is a term which describes the cost of the power produced by solar over a period of time, typically the warranted life of the system. By purchasing solar you are essentially creating a hedge against rising utility costs by fixing the per kWh rate at a known cost.
Please note: This simple calculation does not take into account NPV (net present value) which is a critical component in calculating true LCOE. To dig into the details in greater detail, read this fantastic article from Solar Power World.
Another term used to describe LCOE is the kWh price over the life the system. Here's another article on about LCOE from NREL.
A simple way to look at LCOE is that it is a measure of the cost of power. Essentially, you're just breaking down the cost of solar into the same terms that you pay on electric bill every month. i.e. cost per kWh.
Calculating LCOE requires knowing two key variables:
- All-in cost for the system. This should include financing costs and deduct any incentives received, such as tax credits and deprecation.
- How much power will the solar array produce over the period you wish to calculate LCOE? (We suggest using the warranted period, 25 years)
How to Calculate LCOE
1. First, figure out your Net System Cost:
Total System Cost: $125,000 (50 kW solar system)
Less Tax Benefits: -$75,000
NET SYSTEM COST: $50,000
2. Next, figure out the Total kWh Production over the period you wish to calculate LCOE for. We'll use the 25 year warranty period:
kWh Produced Annually less degraded production x 25 Years (NOTE: All of the estimates we create include degradation over the warranted period)
62,500 kWh / Year
62,500 * 25 Years = 1,562,500 TOTAL kWh PRODUCED
3. Last, figure LCOE by using the two figures above. Divide the NET SYSTEM COST by the TOTAL kWh PRODUCED:
$50,000 (net cost) / 1,562,500 (total kWh production) = .032 per kWh
Not too shabby. 3.2 cents per kWh! That looks pretty good compared to one of the largest utilities in Iowa's rate of 14.5 cents per kWh!