What Is LCOE? Solar's Levelised Cost of Energy Explained

If you've seen solar or wind news coverage quote a project's cost in £/MWh, or a manufacturer claim their panels have "the lowest LCOE in the industry", you've run into Levelised Cost of Energy (sometimes Levelised Cost of Electricity) — the standard yardstick the energy industry uses to compare generation technologies. It's a genuinely useful number. It is also, honestly, the wrong number for deciding whether to buy solar panels for your own roof. Here's what LCOE actually measures, what the current UK figures say, and what to use instead.

What LCOE actually means

The UK government's own definition, from the Department for Energy Security and Net Zero's (DESNZ) Electricity Generation Costs 2025 report, is the cleanest one available: LCOE is "the discounted lifetime cost of building and operating a generation asset, expressed as a cost per unit of electricity generated (£/MWh)", covering pre-development, capital, operating, fuel and financing costs over the asset's lifetime.

The formula itself is a simple ratio, calculated in net present value terms so future costs and future generation are both discounted back to today's money:

LCOE = (net present value of total lifetime costs) ÷ (net present value of total lifetime electricity generated)

In plain terms: add up everything it costs to build, run and eventually decommission a power station over its whole life, divide by every megawatt-hour it's expected to produce over that life, and you get an average cost per unit — a way to compare a solar farm, a wind farm and a gas plant on one scale, even though they have completely different cost structures (solar is nearly all upfront capital cost with almost no fuel cost; gas is the opposite).

What the current UK LCOE figures actually say

DESNZ publishes updated LCOE estimates periodically as part of its Electricity Generation Costs series, most recently the 2025 edition. For large-scale solar PV (over 5MW, so utility-scale solar farms — not domestic rooftop systems), the modelled figures for projects commissioning in 2030 come out at roughly £55–£60/MWh, falling to around £50/MWh for projects commissioning in 2050 as costs continue to fall. For comparison, in the same 2030 estimates: onshore wind lands in a similar band to solar (around £55–£60/MWh); fixed-bottom offshore wind is markedly higher, around £100–£105/MWh; and unabated gas CCGT running as baseload (a 93% load factor) comes out around £105–£110/MWh — rising sharply to several hundred pounds per MWh if the same plant only runs at a 5% "peaking" load factor, since its fixed costs then get spread over far less electricity.

Solar and onshore wind are consistently the cheapest generation technologies in DESNZ's own modelling across every commissioning year the report covers. Nuclear is conspicuously missing a current figure — DESNZ states plainly that the project-specific costs for Hinkley Point C, Sizewell C and the Rolls-Royce SMR programme "cannot be made available in this report because of their commercial sensitivity".

Why LCOE isn't the number to judge your own roof by

This is the part solar marketing sometimes glosses over: DESNZ built LCOE as a tool for comparing generation technologies at grid scale and informing government power-sector policy — not as a tool for a homeowner deciding whether to buy a system. The report says so directly, listing what LCOE explicitly leaves out:

• No revenue. LCOE is a pure cost metric. It says nothing about what a generator (or a homeowner) actually earns or saves from the electricity produced — export payments, avoided grid purchases, none of it is in the number.
• No system context. DESNZ's own limitations section warns that a plant's location, timing and dispatchability all affect its real value to the system in ways a single £/MWh average can't capture — a small rooftop array feeding one house is a completely different animal to a 50MW solar farm feeding the grid.
• Not comparable across technology types. DESNZ itself cautions that "a direct comparison of LCOEs between different classes of technologies is not appropriate" because dispatchable and intermittent generation play different roles — the same logic applies even more strongly when comparing a utility asset's generation cost to a household's retail electricity bill.

That last point is the one that trips people up most. A solar LCOE of roughly £55/MWh converts to about 5.5p/kWh — which sounds dramatically cheaper than a typical household electricity bill. But that comparison mixes up two different things: LCOE is what it costs a generator to produce a unit of power at the plant, before any of the network charges, supplier operating costs, policy costs and VAT that make up the retail price you actually pay are added on. It isn't a promise about what your own system will save you.

What to use instead: payback period and self-consumption

For a residential purchase, the metric that actually answers "is this worth it" is payback period — installed cost divided by what you save each year — covered in detail in our solar panel payback period guide. Two figures drive that calculation, and neither is LCOE:

• Self-consumption savings — every kWh you generate and use yourself avoids buying that kWh from the grid at the full Ofgem price cap unit rate, currently 26.11p/kWh (Direct Debit, GB average, 1 July–30 September 2026).
• Export income — any surplus you send back to the grid earns a Smart Export Guarantee payment, typically well below the import rate (see our Smart Export Guarantee rates guide), which is why sizing a system (and any battery) around using more of your own generation, rather than exporting it, usually produces the better return.

Full worked installed-cost and typical-saving figures for UK homes are in our solar panel cost and savings guide.

So is LCOE worth knowing at all?

Yes, just for a different job. It's genuinely useful for reading the news honestly — for understanding why solar and onshore wind keep winning UK renewable auctions on cost, or for sense-checking a claim like "solar is now cheaper than gas" against DESNZ's own published figures. What it isn't is a number you should plug into your own decision about whether to fit panels on your roof. For that, payback period, self-consumption and export income are the figures that actually apply to you.