The Levelized Cost of Energy (LCOE) is a comprehensive metric used to evaluate the overall economic efficiency of an energy system—such as solar power—over its entire operational lifetime. It represents the average cost of producing one unit of electricity (typically measured in dollars per megawatt-hour or kilowatt-hour) by dividing the total lifetime costs of building, financing, operating, and maintaining the system by the total energy it generates during that time.
In essence, LCOE provides a single, comparable figure that captures both upfront and ongoing expenses, allowing investors, policymakers, and businesses to assess the long-term value of different energy sources on an equal footing. For solar, this includes the initial installation cost, inverter replacements, maintenance, and system degradation over time.
Because solar systems have no fuel costs and relatively low maintenance requirements, their LCOE has declined dramatically in recent years—making solar one of the most cost-competitive energy sources available. By comparing the LCOE of solar with that of conventional energy sources like coal, natural gas, or wind, businesses can make more informed decisions about where to invest and how to achieve the best financial and environmental return.
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