How is LCOE Calculated?

LCOE, or levelized cost of energy is an economic assessment of the average total cost to build and operate a power-generating asset over its lifetime divided by the total power output of the asset over that lifetime.

SolarNexus provides 3 distinct LCOE calculations:

1. LCOE - solution
2. LCOE - utility
3. LCOE - solution + utility

LCOE - Solution only looks at the kWhs generated (or saved) by the solution, and the cash flows associated with acquiring and maintaining the solution over its entire lifetime.

LCOE - Utility only includes the kWhs and the cost of those kWhs acquired from the utility for the same lifetime.

LCOE - Solution + Utility includes all the costs and kWhs for both the solution and the utility acquired kWhs.

There are multiple formulaic approaches for calculating LCOE. SolarNexus uses the formula described in this Wikipedia article because it allows us to use very specific cash flow elements and electric production estimates for the PV system. As a comparison, NREL provides this calculator which uses a simplified approach.

Note that the Nominal Discount Rate you input into SolarNexus is a major driver for the resulting values. The lower the assumed discount rate, the lower the LCOE value. SolarNexus strongly recommends that your assumed discount rate is at least the same rate assumed for inflation.