As the solar photovoltaic (PV) matures, the economic feasibility of PV projects is increasingly being evaluated using the levelized cost of electricity (LCOE) generation in order to be compared to other electricity generation technologies. Unfortunately, there is lack of clarity of reporting assumptions, justifications and degree of completeness in LCOE calculations, which produces widely varying and contradictory results. This paper reviews the methodology of properly calculating the LCOE for solar PV, correcting the misconceptions made in the assumptions found throughout the literature. Then a template is provided for better reporting of LCOE results for PV needed to influence policy mandates or make investment decisions. A numerical example is provided with variable ranges to test sensitivity, allowing for conclusions to be drawn on the most important variables. Grid parity is considered when the LCOE of solar PV is comparable with grid electrical prices of conventional technologies and is the industry target for cost-effectiveness.

Given the state of the art in the technology and favourable financing terms it is clear that PV has already obtained grid parity in specific locations and as installed costs continue to decline, grid electricity prices continue to escalate, and industry experience increases, PV will become an increasingly economically advantageous source of electricity over expanding geographical regions.

It should be noted that for utilities calculating the value of a PV system, the value of solar calculation is now a better method than LCOE. See A review of the value of solar methodology with a case study of the U.S. VOS

Background and Major Findings[edit | edit source]

The levelized cost of electricity(LCOE)requires considering the cost of the energy generating system and the energy generated over its lifetime to provide a cost in $/kWh (or $/MWh or cents/kWh).

Recognizing that LCOE is a benchmarking tool, there is high sensitivity to the assumptions made, especially when extrapolated several years into the future. Thus, if used to consider policy initiatives, assumptions should be made as accurately as possible, with respective sensitivity analysis (e.g. Monte Carlo) and justifications. Especially in the case of renewable energy technologies, like solar PV, that are capital intensive with negligible maintenance (like fuel costs), it is important to make the appropriate assumptions when comparing systems for energy management plans. There are many varying estimates as demonstrated in the paper, with varying degrees of reporting detail.

A key recommendation for improving the reporting of the LCOE for Solar PV is the inclusion of assumptions and specifications which make each calculation unique. Thus, when a value is reported, it should also clearly include:

  1. The Solar PV technology and degradation rate (e.g. c-Si or a-Si:H, and 0.5%/year degradation rate etc.).
  2. Scale, size and cost of PV project [including cost breakdown] (residential, commercial, utility scale/# kW, # MW, $/Wp).
  3. Indication of solar resource: capacity factor, solar insolation, geographic location, and shading losses.
  4. Lifetime of the project and term of financing (these are not necessarily equal).
  5. Financial terms: financing (interest rate, term, equity/debt ratio, cost of capital), discount rate.
  6. Additional terms: inflation, incentives, credits, taxes, depreciation,carbon credits, etc. (these need not be in the analysis, but it should be stated whether or not these are included).

Thus, the author would suggest the degree of applicability of their analysis so that sweeping assumptions as to future policies are not incorrectly made.

LCOE Quick Calculator[edit | edit source]

Here, a free simple open source calculator is provided for finding the LCOE of a Solar PV system. The default scenario is for a system in Kingston, Ontario, Canada. The "assumptions and sources" section in the calculator gives guidelines on how to change inputs based on location.

Please note there was an error in the calculator. If you are using a version posted before Jan. 29, 2013 - you should discard it and download the new version below.

Download the calculator formatted for Microsoft Excel here:

Also housed at the For doing detailed calculations we recommend other free tools: RETScreen and NREL Solar Advisor Model (SAM) - for a full list of PV modeling tools see solar photovoltaic software.

Please be aware the calculator is based on the assumption of a 40 year system lifetime. System lifetime can not be changed.

Related Papers[edit | edit source]

  • K. Branker, M.J.M. Pathak, J.M. Pearce, A Review of Solar Photovoltaic Levelized Cost of Electricity, Renewable and Sustainable Energy Reviews, 15, pp.4470-4482 (2011). DOI and Open access

Related Research Pages[edit | edit source]

See also[edit | edit source]

Media Coverage[edit | edit source]

Discussion[View | Edit]

Would like to see different scenarios. Spreadsheet is password protected so you can't. —The preceding unsigned comment was added by, 12:44, 16 December 2011

Passwords for Spreadsheet[edit source]

The default scenario is for a system in Kingston, Ontario, Canada. The "assumptions and sources" section in the calculator gives guidelines on how to change inputs based on location. Some of the inputs with default values are controlled from the Assump & Ref page. Our thought was this would make sure users made it to the Assump & Refs before making any changes. The password required to unlock the cells is included in the instructions on the Assump & Ref page.--Joshua 11:26, 22 December 2011 (PST)

Suggested upgrades[edit source]

To start with, the password production from the system size cell (PVSize) should be removed. That's probably the only cell most users would want to change, and it's marked as a user input, but is protected.

I find the "Associated Costs" section of the Inputs to be impractical to work with - it simply doesn't work the way we do in the industry. Due to the rapidly falling costs of some of the components, it would be useful to break out each part of the system separately as a per-watt cost. Likewise, some of the installation costs are fixed, engineering and permitting for instance, so we don't price that per-watt. Ideally there would be separate sections for the hardware in $/W and the "paperware" in raw $.

Specifically, I'd like to see the hardware section include inputs for modules, inverters, mounting, installation and electrical. The second section would include installation, electrical, engineering and permits. Yes, installation and electrical are in both sections, because some people price it one way and some another. Below these input sections would be a cell that calculates the total effective cost per watt. The rest of the sheet would work as it does now.

To demonstrate why this split up is useful, consider the price of panels over the last two years. I put SolarWorld 235's on my roof in early 2010 at a cost to me of $2.35 a watt. Today, their 255's are available for around 95 cents. On the contrary, inverter prices have remained almost flat, with a 3 kW inverter reducing in price from perhaps 40 to 35 cents over the same period. Install costs, due to new paperwork, have increased. So if all of these are rolled into a single number, it simply makes the user manually calculate the install $/W on their own, then type it in. Let's do that for them.

For reference, here in Ontario, following domestic content rules for a microFIT system, one would put in about $1.05, $.35, $.50 for flat-roof racking, $.60 for physical install and $3500 flat for electrical (including inspections and meter install), $1000 for engineering and permits. For non-domestic content using net-metering, $0.95, $.30, $.50, $.60, $2500 and $1000 would be appropriate. For 8kW example systems, that comes to $3.06 for microFIT, and $2.79 for net metering. Assuming a flat markup of 30% for the installation company, that's a little under $4.50 or $4.00/W, respectively. These seem like the right numbers at the time of posting in late 2012.

Another issue is the replacement inverter cost. It is very simple to find the $ cost of an inverter, or in $/W, but to express that as a percentage of the overall system cost? Uggg. I have these on my roof and I have no idea what that number is. Once again, I would recommend simply putting this in as a direct $ input, or simply using the figure entered into the inverter $/W field.

I'd be happy to make these changes to the sheet, if there is someone I can send the result to for uploading.

Maury Markowitz 09:02, 30 October 2012 (PDT)

Hi Maury,
Dr. Pearce would love if you made the changes you suggested and sent the spreadsheet to him.
Thanks! --Lonny 16:44, 30 October 2012 (PDT)

Ok great, I'll work on it over the next little bit. One issue has popped up though... am I missing something, or is the calculator missing the derate factor? It asks for sunlight hours, but I don't see this being adjusted for downstream losses... Maury Markowitz 09:09, 31 October 2012 (PDT)

Hi Maury,
Dr. Pearce would love if you added the derate factor -- there is no factor currently for downstream losses. Again, it was previously used as a comparison/benchmarking tool. Please suggest and back up any assumption on derate factor that you include.
Thanks! -- Kadra B/O Dr. Pearce

Error corrected in calculator on January 7, 2013[edit source]

Please note there was an error in the calculator. If you are using a version posted before Jan. 7, 2013 you should download the new version. The formula was correct in the paper and in "6. Assumptions", but not in the "5. Project Savings". There was an error was made in putting in the formula for the section "Annual Present Value Cost" for all cells. It should be (1+disc_rate)^t in columns X to AF.It was done correctly for "NPV Energy". You'll notice the numbers growing instead of declining under "Annual Present Value Cost". --Joshua 09:42, 7 January 2013 (PST)

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