What is LCOE
Levelised Cost of Energy (LCOE) is the per-kWh cost of electricity from a generation plant, averaged over its entire operating life, with all costs and all energy discounted to present value. It is the standard metric for comparing the cost of different generation technologies and the basis for PPA tariff setting, regulatory benchmarking and investment decisions.
LCOE accounts for CAPEX, fixed and variable OPEX, financing cost, fuel cost (zero for solar), expected lifetime energy generation and degradation. It produces a single number expressed in ₹/kWh that captures the full lifecycle cost of generation.
For Indian solar, the 2010-11 CERC benchmark tariff was ₹17.91 per kWh, and IRENA’s Renewable Power Generation Costs in 2024 puts the LCOE of Indian utility-scale solar PV commissioned in 2024 at about USD 0.038 per kWh, roughly ₹3.2 at an assumed ₹84 per USD. Rooftop LCOE is higher because of scale. In the illustrative worked example, a 50 kW C&I rooftop plant at ₹55,000 per kWp has an LCOE of about ₹4.79 per kWh (₹4.0 to ₹6.0 across the sensitivity ranges), and a 3 kW home system models at about ₹4.8 to ₹5.9 per kWh without subsidy. See LCOE of Solar in India: ₹4.8/kWh for a 50 kW C&I Plant for the full capex-to-LCOE calculation, with its inputs and sensitivity tables, on a commercial rooftop.
LCOE explained simply
If you build a solar plant and run it for 25 years, the LCOE is the price per unit of electricity you would need to charge to cover all your costs (construction, financing, operating, degradation) and just break even. Below that price you lose money. Above that price you profit.
The big advantage of LCOE is it boils 25 years of solar economics into one number you can compare against other generation sources or against retail electricity tariffs.
Why LCOE matters
PPA tariff setting. SECI bids and CERC tariff orders use LCOE as the underlying methodology.
Investment decision. Developers compare projected LCOE against expected Power Purchase Agreement prices, work SurgePV’s solar financial modelling tools are built to run at the proposal stage.
Customer economics. Residential and C&I solar customers compare LCOE to their retail tariff, a comparison QuickEstimate’s pricing and cost estimation tool is built to surface during the quotation stage. For the return-side counterpart to this comparison, see Solar IRR and Payback for C&I in India, Real Math.
Technology comparison. Solar against other sources on a like-for-like cost basis, using sourced figures for each.
Regulatory benchmarking. State SERCs use LCOE to validate proposed FIT levels.
Lifecycle visibility. Captures the 25-year asset behaviour, not just upfront cost.
How LCOE is calculated
Where:
- Costs_t = total costs in year t (capex, O&M, financing)
- Energy_t = energy generated in year t (declining with degradation)
- r = discount rate (typically WACC)
- t = year (0 to 25 for solar)
Inputs needed:
- Total capex (upfront)
- Annual O&M (₹/kWp/year)
- Initial year-1 energy generation (kWh)
- Annual degradation rate
- Discount rate (WACC)
- Plant life (25 years standard for solar)
Technical deep dive
Indian utility solar LCOE breakdown (illustrative model)
The breakdown below is an illustrative model built on the inputs in the next table. It is not a published benchmark. For a sourced figure, IRENA’s 2024 edition reports about USD 0.038 per kWh (roughly ₹3.2 at an assumed ₹84 per USD) for Indian utility-scale solar PV, and its installed cost of about USD 525 per kW is the lowest of any country it tracked that year.
| Component | Contribution to ₹/kWh |
|---|---|
| Module capex | 0.80 to 1.00 |
| BOS capex | 0.50 to 0.70 |
| Installation labour | 0.10 to 0.15 |
| Financing cost | 0.60 to 0.90 |
| O&M | 0.20 to 0.30 |
| Land + civil | 0.10 to 0.20 |
| Insurance and overheads | 0.10 to 0.15 |
| Total LCOE | 2.40 to 3.40 |
LCOE inputs for Indian utility solar
| Parameter | Typical value |
|---|---|
| Capex (₹ Cr/MW) | 3.5 to 4.5 |
| Annual O&M (₹ Lakh/MW) | 5 to 8 |
| Year 1 yield (kWh/kWp) | 1,650 to 1,800 |
| Degradation (%/year) | 0.50 to 0.55 |
| Plant life (years) | 25 |
| WACC (%) | 8 to 10 |
Sensitivity
| Input change | LCOE impact (₹/kWh) |
|---|---|
| Capex +10% | +0.25 to 0.35 |
| O&M +20% | +0.05 to 0.07 |
| Yield -10% | +0.27 to 0.35 |
| WACC +1% | +0.15 to 0.25 |
| Degradation +0.1%/year | +0.04 to 0.06 |
Solar compared with other sources
| Source | Cost ₹/kWh |
|---|---|
| Utility solar (no storage) | IRENA 2024: about 3.2; 2.5 to 3.5 in this page’s illustrative model |
| Diesel genset (fuel only, for comparison) | About 24 to 30 (diesel at ₹95 to ₹104 per litre on 14 October 2026, 3.5 to 4.0 kWh per litre; CarDekho) |
Wind, coal, gas, nuclear and solar-plus-storage LCOE rows were removed from this page because no dated primary source for Indian figures could be reached. Use CEA, CERC tariff orders or IRENA’s country data for those comparisons.
Real-world applications
SECI utility solar PPA tariff discovery.
Project finance modelling.
State SERC tariff orders.
Customer-facing solar economics.
Wind-solar hybrid project structuring.
Solar-plus-storage tariff design.
Advantages
Single number, easy to communicate.
Lifecycle visibility.
Standard methodology globally.
Direct comparison across technologies.
Bankable input for project finance.
Limitations
Sensitive to assumptions (WACC, yield, life).
Pre vs post-tax variations.
Subsidy treatment varies.
Storage and grid services add complexity.
Does not capture grid-service value.
Common problems
WACC assumed too aggressively, understating LCOE.
Yield projections too optimistic.
Degradation underestimated.
O&M cost escalation ignored.
End-of-life replacement cost not included.
Land cost variable across regions, hard to standardise.
Best practices
Use validated WACC (8 to 10 percent for Indian utility solar).
Apply P50 yield with realistic degradation.
Document assumptions transparently.
Sensitivity-test the LCOE outcome.
Compare pre-subsidy and post-subsidy LCOE separately.
Update LCOE as capex and tariff trajectories shift.
Comparison: LCOE by project type (Indian, 2026)
The utility row is IRENA’s 2024 figure plus the illustrative model range. The C&I and residential rows are calculated with the same method as the LCOE of Solar in India post: ₹750 per kWp per year O&M escalating 3 percent, 0.5 percent annual degradation, 9 percent discount rate, 25 years and 1,423 kWh per kWp in Year 1 (5.0 peak sun hours, 0.78 performance ratio). C&I is a 50 kW plant at ₹55,000 per kWp for the baseline, with ₹45,000 to ₹65,000 per kWp, 4.0 to 6.0 peak sun hours and 7 to 12 percent discount rates in the sensitivity runs. Residential is a 3 kW system at ₹55,000 to ₹70,000 per kWp, with the ₹78,000 subsidy deducted from upfront cost in the subsidised row. These are illustrative models, not quotations.
| Project type | LCOE ₹/kWh |
|---|---|
| Utility solar | 2.5 to 3.5 (IRENA 2024: about 3.2) |
| C&I rooftop (50 kW) | about 4.8 baseline, 4.0 to 6.0 across sensitivities |
| Residential rooftop (3 kW) with PM Surya Ghar subsidy | 2.9 to 4.0 |
| Residential rooftop (3 kW) without subsidy | 4.8 to 5.9 |
Indian market context
Indian utility solar tariffs fell steeply through auctions. The CERC-determined tariff for solar PV in 2010-11 was ₹17.91/kWh without accelerated depreciation, and JNNSM Batch 1 reverse-auction bids that year ran ₹10.95 to ₹12.76/kWh with a weighted average of about ₹12.12/kWh (World Bank/ESMAP review of JNNSM Phase I). On 23 November 2020 SECI’s 1,070 MW Rajasthan Tranche-III auction set a record-low bid of ₹2.00/kWh (Mercom India). In October 2025 SECI concluded a 2,000 MW solar plus 1,000 MW/4,000 MWh storage auction at ₹2.86/kWh (pv magazine); that price includes storage and is not comparable with a bare solar tariff. Tariff is a discovered price and is not the same as LCOE.
CERC Tariff Regulations 2024 use LCOE methodology for benchmark tariff setting.
State SERCs publish LCOE-based feed-in tariffs for distributed solar.
RTC (Round-The-Clock) solar plus storage projects under SECI tenders use composite LCOE.
Subsidised residential LCOE can be compared with your state’s retail tariff slab; the result depends on installed cost, yield and slab, so run it with your own quote.
Standards and certifications
| Standard | Scope |
|---|---|
| CERC Tariff Regulations | Indian LCOE methodology |
| IEA LCOE conventions | International standard |
| NREL LCOE Calculator | Reference model |
| IRENA LCOE methodology | Global benchmark |
Common mistakes
Underestimating WACC, producing optimistic LCOE.
Ignoring degradation, overstating lifetime energy.
Skipping insurance, overheads, contingency in capex.
Treating subsidy as cost reduction rather than transfer.
Comparing solar LCOE to a firm source such as coal without a storage or firming adjustment.
Using nominal vs real LCOE inconsistently.
Key takeaways
LCOE is the lifetime cost of electricity from a solar plant, expressed in ₹ per kWh. Indian solar costs have fallen sharply: IRENA puts India’s utility-scale solar LCOE for 2024 projects at about USD 0.038 per kWh, roughly ₹3.2. In this site’s illustrative models a 50 kW C&I rooftop plant lands at about ₹4.8 per kWh (₹4.0 to ₹6.0 across sensitivities), and a 3 kW home system at about ₹4.8 to ₹5.9 without subsidy and ₹2.9 to ₹4.0 with the PM Surya Ghar subsidy. Capex, yield, WACC and degradation are the key drivers. LCOE is the foundation of PPA tariff discovery and customer economics.
Further reading
For how LCOE plays out in real projects, these guides go deeper:
- LCOE of Solar in India: ₹4.8/kWh for a 50 kW C&I Plant
- Solar Inverter Payback Period: ROI Guide 2026
- Solar Inverter Installation Cost, Real Numbers
Sources
- CERC Tariff Regulations 2024.
- IEA Projected Costs of Generating Electricity 2024.
- IRENA Renewable Power Generation Costs in 2024 (India utility-scale solar PV LCOE about USD 0.038/kWh; installed cost about USD 525/kW; reported also by TaiyangNews). Rupee conversion at an assumed ₹84 per USD is this site’s own.
- NREL Annual Technology Baseline 2024.
- BloombergNEF New Energy Outlook 2024.
- SECI Tender Documents and Discovered Tariffs, including SECI 1,070 MW Rajasthan Tranche-III result, 23 Nov 2020 (Mercom India) and SECI 2 GW solar plus storage auction, Oct 2025 (pv magazine).
- MNRE Annual Reports.
- Forum of Regulators publications on renewable tariff methodology.
- IEA PVPS Trends in Photovoltaic Applications 2024.
Frequently Asked Questions
What is LCOE in simple words?
What is the formula for LCOE?
What is the current Indian solar LCOE?
How is LCOE different from tariff?
Why has Indian solar LCOE fallen?
Does LCOE include subsidy?
Why does utility LCOE beat rooftop?
Does LCOE include financing cost?
Is LCOE the same as PPA tariff?
Does LCOE account for degradation?
What is the typical WACC for Indian utility solar?
Is LCOE used in tariff orders?
Does LCOE include storage?
How does CUF affect LCOE?
How is residential LCOE calculated without a PPA?
From the Blog
CFO overseeing solar financing, procurement, and channel partner enablement at Qbits.