Solar Glossary

Levelised Cost of Energy (LCOE)

The Levelised Cost of Energy (LCOE) is the average cost per kWh of electricity generated by your solar system over its entire lifetime, accounting for all upfront and ongoing costs.

Levelised Cost of Energy (LCOE) explained

Levelised Cost of Energy (LCOE) is the gold standard metric for comparing energy costs across different technologies and over time. It divides the total lifetime cost of a solar system by the total electricity it produces, giving you a cost per kWh.

LCOE formula (simplified):
LCOE = Total lifetime costs ÷ Total lifetime kWh generated

For a typical UK residential system:

  • Upfront cost: £7,000
  • Inverter replacement (year 12): £1,000
  • Maintenance/insurance over 25 years: £500
  • Total cost: £8,500
  • Total generation (4 kW, degrading at 0.5%/yr): ~87,000 kWh over 25 years
  • LCOE = 8,500 ÷ 87,000 = ~9.8p/kWh

Compare this to the current UK retail electricity price of 24–28p/kWh — solar electricity costs roughly a third of grid electricity over its lifetime.

LCOE also helps compare solar vs grid over time: as grid prices rise with inflation, solar's LCOE stays fixed (since the panels are already paid for), making it increasingly valuable. A system installed today at 10p/kWh LCOE looks even better if grid electricity reaches 35p/kWh in 2030.

How this affects your solar decision

LCOE shows you the true cost of your solar electricity versus grid power over the system's lifetime. Use the Solar Payback Calculator to model your LCOE alongside payback period.

Model your solar LCOE vs grid electricity costsSolar Payback Calculator

Related terms

Solar Payback PeriodThe solar payback period is the number of years it takes for your cumulative energy bill savings and export income to equal the upfront cost of your solar installation.Return on Investment (ROI)Return on investment for solar measures the total financial gain from your solar system over its lifetime, expressed as a percentage of the original installation cost.Solar Panel DegradationSolar panel degradation is the gradual reduction in a panel's electricity output over time as its materials slowly deteriorate from exposure to sunlight and weather.Energy Payback TimeEnergy payback time is how long a solar panel takes to generate the same amount of energy that was used to manufacture, install, and eventually recycle it.
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