Solar LCOE calculator: levelised cost of electricity for a PV park

The levelised cost of electricity (LCOE) of a solar park is its discounted lifetime cost divided by its discounted lifetime output. For a fixed-tilt park near Szolnok, with EUR 700/kWp capital cost, a 5% real discount rate and 30 years, the solar LCOE calculator above returns EUR 52/MWh. Capex is 74.0% of the discounted lifetime cost.

How is the LCOE of a solar park calculated?

To calculate LCOE, divide the present value of lifetime costs by the present value of lifetime energy. Costs are the up-front capital cost (capex) plus a fixed operating cost (opex) each year. Energy is the first-year yield, reduced by compound degradation each year. Both are discounted at the same real rate. In plain text, the levelised cost of electricity formula is:

LCOE = [ capex + SUM(t=1..N) opex / (1 + r)^t ]
       / [ SUM(t=1..N) yield × (1 - d)^(t - 1) / (1 + r)^t ]

N is the lifetime in years, r the real discount rate and d the annual degradation. Capex, opex and yield are per kWp (kilowatt-peak, direct current (DC) module capacity), so the raw result is in EUR/kWh. The calculator converts it to EUR/MWh. It has no tax, inflation, financing structure, decommissioning cost or residual value.

The outputs are the LCOE, capex's share of discounted lifetime cost (shown to one decimal, such as 74.0%), the discounted lifetime energy in kWh/kWp (the denominator of the formula) and a sensitivity table: discount rate plus and minus 2 points, capex plus and minus 20%.

What does each input do, and where do the starting values come from?

Capex is paid before any output, so it carries most of the result. Opex is paid every year. Yield sets how many MWh share the cost. Degradation and lifetime change the energy of later years, which is discounted most.

These are inputs, not measurements. Capex and the discount rate sit between German benchmarks and higher-risk cases. IRENA puts soft costs, such as permitting, grid connection and financing, at 26% of installed cost in Hungary, the highest of the countries compared (average 18%). It is a share, not a price, but it argues for testing higher capex.

Why does the discount rate matter so much for solar?

Most of a solar park's cost is paid before the first kilowatt-hour, while the output it buys arrives over decades. A higher rate shrinks discounted energy by more than discounted cost. IRENA calls renewables capital-intensive, with almost all lifetime cost incurred upfront. For a standardised, fully contracted project it puts the real weighted average cost of capital (WACC) near 3% in the United States and Australia. In the highest-risk economies it exceeds 10%.

In the default case, spreading EUR 700/kWp over 30 years costs EUR 35.7/kWp per year at 3% and EUR 62.2/kWp per year at 8%.

A 2-point rise in the rate adds more than a 20% rise in capex. Lazard's sensitivity has the same shape: USD 53/MWh for average utility-scale solar at a 4.2% after-tax cost of capital, USD 83/MWh at 10.0%.

What specific yield should a fixed-tilt park near Szolnok use?

About 1,254 kWh/kWp in year 1. The run used PVGIS 5.3 through its API, with PVGIS-SARAH3 satellite radiation data (2005 to 2023) at 47.18 N, 20.19 E. It modelled crystalline silicon modules, a fixed array at the angles PVGIS optimises (38° tilt, azimuth 2° east of south) and the default 14% system loss. The capacity factor vs performance ratio explainer uses the same run.

The system loss covers everything between the modules and the grid, such as cables, inverters and dirt. PVGIS adds angle-of-incidence, spectral, temperature and irradiance effects. Total loss is 21.25%, which gives a performance ratio (PR) of 78.75% and a DC capacity factor of 14.3%.

The PVGIS manual lists ageing among the causes of the loss its 14% default covers. This calculator models degradation explicitly, so 14% with 0.5%/year probably counts some ageing twice, and the default yield is cautious. At a 10% loss the LCOE is 4.4% lower. The figure is a modelled multi-year average, with a year-to-year standard deviation of 49 kWh/kWp (3.9%).

What does a worked example look like?

Three cases from the formula above: the default, an 8% real discount rate (within IRENA's range) and the 10% system-loss yield.

In the default case, discounted cost is EUR 700 of capex plus EUR 246.0 of discounted opex. EUR 946.0 divided by 18,261 kWh is EUR 0.0518/kWh, or EUR 51.8/MWh. The 8% rate cuts discounted cost by 7% and discounted energy by 26%.

How does the result compare with published LCOE figures for solar in Europe and elsewhere?

The default of EUR 51.8/MWh sits inside the EUR 41 to 69/MWh that Fraunhofer ISE's German range implies. The sources differ in currency, price year, country and financing, so read them as context. No currency has been converted.

Given Fraunhofer ISE's own inputs, the model reproduces its study. Those are EUR 700 and 900/kWp, EUR 13.3/kWp per year, 0.25% degradation, 30 years, 3.5% real, and 1,280 kWh/kWp in southern and 935 kWh/kWp in northern Germany. The model returns EUR 41.3 and 50.1/MWh for the south and EUR 56.6 and 68.6/MWh for the north, against the study's 4.1, 5.0, 5.7 and 6.9 EUR cents/kWh.

At the same capex, the default is EUR 10.5/MWh above the study's low end of EUR 41.3/MWh. Changing inputs one at a time, the 5% discount rate adds EUR 5.9 of that, higher opex EUR 2.2, faster degradation EUR 1.2 and Szolnok's 2% lower yield EUR 0.9.

How does LCOE differ from market value?

LCOE is a cost per MWh averaged over all output, not revenue. In LCOE vs market value, the right comparison is the price the park earns when it produces, not the market's average price. The study of negative quarter-hours in Hungary's first year of 15-minute day-ahead prices covers when midday prices fall below zero.

What this means for owners, investors and analysts

• Owners and developers: test capex and the discount rate first, then compare the result with the price the park earns when it produces.
• Investors and lenders: treat LCOE as a screening number and match the discount rate to the revenue risk.
• Analysts: compare LCOE figures only with the same currency, price year, country and cost of capital.

Limits of the calculator

• No tax, inflation, financing structure, decommissioning cost or residual value. One real discount rate stands in for the whole cost of capital.
• Yield falls by the same percentage every year, with no first-year step, outage or curtailment.
• Capex and yield must share a basis. The starting values use kWp (DC); capex per kW of alternating current (AC) needs a yield per kW of AC.
• The starting values come from German, global and US sources, not Hungarian market quotes. PVGIS gives a modelled multi-year average, not a site energy yield assessment.
• The output is an estimate. Data sourcing is described on the methods page.