Two solar quotes land on a factory owner's desk for the same 100 kW rooftop. One is ₹2 lakh cheaper. The cheaper one looks like the obvious choice, and in many companies it would win without further discussion.
It might still be the more expensive system. The price on the quote covers day one. The system has to run for 25 years or more, and over that time it will produce a certain number of units, lose some output every year and need maintenance. The number that captures all of that is LCOE, the levelized cost of energy.
This guide explains what LCOE means in solar, how to calculate it, and how to use it to compare quotes. It includes a worked example with real numbers, and an honest note on when the cheaper system really is the better buy.
What LCOE means in solar panel
LCOE stands for levelized cost of energy (also written levelised cost of electricity). It is the average cost of producing one unit (kWh) of electricity over a system's whole life, counting every rupee spent and every unit produced.
Put simply: if you added up everything the system will ever cost you and divided it by every unit it will ever produce, adjusted for the time value of money, you would get the LCOE. For a solar plant, it is expressed in rupees per kWh, which makes it directly comparable with your electricity tariff.
That is why it is useful. A factory paying ₹9 per unit to the DISCOM can look at a solar system with an LCOE of ₹3.50 and see the saving immediately. And two systems with different prices, panels and warranties can be compared on a single number.
LCOE is the standard metric energy planners use to compare power sources. The International Renewable Energy Agency (IRENA) tracks it every year. Its July 2026 report put India's utility-scale solar LCOE at about US$35 per MWh (roughly ₹3 per unit), the lowest among major markets, against a global average of US$44. Recent Indian solar auctions have cleared at ₹2.52 to ₹2.69 per unit for plain solar, which shows how low LCOE goes at gigawatt scale.
The LCOE formula
The full formula looks like this:
LCOE = (sum of all costs over the life, discounted) ÷ (sum of all units produced over the life, discounted)
Costs include:
- Capital cost (capex): panels, inverters, structure, cabling, installation and approvals
- Operation and maintenance (O&M): cleaning, inspections, repairs, insurance
- Replacements: typically one inverter replacement during the system's life
- Financing costs: if the system is funded by a loan
Units produced depend on:
- First-year yield: how many units each kW produces in year one, set by location, tilt and panel performance
- Degradation: how much output falls each year
- System life: usually modelled at 25 years, sometimes 30
Discounting reflects the fact that a rupee today is worth more than a rupee in year 20. Each year's costs and units are divided by (1 + discount rate) raised to the power of the year. A business usually uses its cost of capital, say 9% to 12%, as the discount rate.
If discounting feels abstract, a rough version still helps: total lifetime cost divided by total lifetime units. It will understate the true LCOE, but it points in the right direction when you compare two systems.
A worked example: two 100 kW quotes
Here are two quotes for the same 100 kW rooftop in Gujarat. The numbers are illustrative but realistic for 2026.
| Quote A: 550W Mono PERC | Quote B: 600W N-Type TOPCon | |
| Installed cost | ₹41,00,000 | ₹43,00,000 |
| First-year yield | 1,500 units per kW | 1,560 units per kW (4% higher) |
| First-year degradation | 2% | 1% |
| Yearly degradation after year 1 | 0.55% | 0.4% |
| O&M | ₹50,000 a year, rising 5% a year | same |
| Inverter replacement (year 12) | ₹5,00,000 | same |
| Discount rate | 9% | 9% |
Why is Quote B's yield 4% higher? Three effects, each modest. TOPCon panels lose less power in heat (a temperature coefficient of -0.30% per °C against about -0.35% for PERC). They produce more in weak morning, evening and monsoon light. And bifacial panels on a light-coloured roof pick up some rear-side yield. The degradation figures come from the typical warranty terms for each technology. Quote B uses Atal Solar's published warranty for its N-Type TOPCon modules.
The results over 25 years:
| Quote A | Quote B | |
| Lifetime units | about 34.3 lakh | about 36.7 lakh |
| LCOE | about ₹3.65 per unit | about ₹3.56 per unit |
Quote B costs ₹2 lakh more (about 5%), but produces about 2.5 lakh more units and ends up roughly 2.3% cheaper per unit. At a commercial tariff of ₹8 to ₹10 per unit, those extra units are worth ₹20 to ₹25 lakh in avoided electricity bills over the system's life.
The honest caveat: remove the 4% yield advantage and Quote B's LCOE rises to about ₹3.71, higher than Quote A. LCOE only favours the more efficient system if its performance advantage is real. That is why the next section matters.
What moves solar LCOE
In rough order of impact:
1. Yield. Units per kW per year. Location matters most (Rajasthan and Gujarat beat Kerala), then shading, tilt, soiling and panel technology. Because yield sits under every rupee in the formula, a 5% change in yield moves LCOE by about 5%.
2. Capital cost. The biggest cost item. But cost per watt of panels is only part of it. Structure, cabling and labour scale with the number of panels, so higher-wattage panels can lower total capex per kW. Our guide to 600W and 635W panels explains how.
3. Degradation. A 0.15% difference in yearly degradation sounds trivial. Over 25 years it compounds into several percent of lifetime output.
4. Cost of capital. A higher discount rate raises LCOE, because solar is front-loaded: you pay most of the cost on day one and collect the benefit over decades.
5. System life. Modelling 30 years instead of 25 lowers LCOE, but only if the panels and warranty support it. Atal's modules carry a 30-year power output warranty, guaranteeing at least 87.4% of rated output in year 30.
Why panel price misleads
Buyers focus on panel price because it is the most visible number on a quote. But in a typical C&I system, panels are only about half the installed cost, and installed cost is only one of the four inputs above.
Panel price tells you nothing about:
- How many units each panel will produce in Indian heat
- How fast output will fall over 25 years
- How many panels, rails, clamps and connectors you need for the same capacity
- Whether the panel will still be under warranty when problems appear
A panel that is ₹2 per watt cheaper but loses an extra 0.15% of output every year, runs 2% hotter and needs 8% more mounting hardware is not the cheaper panel. LCOE is the tool that shows this in one number. Our TOPCon vs PERC comparison covers the technology behind these differences.
How to use LCOE when comparing quotes
You do not need a financial model to use LCOE. Ask each supplier for five numbers and compare them on the same basis:
1. Total installed cost for the same DC capacity (kWp), including structure, inverter, cabling and approvals
2. Expected first-year yield in units per kWp, from a simulation using the actual site, tilt and shading. Ask which software and weather data they used.
3. Degradation terms from the warranty: year-one loss, then yearly loss. Use the warranty, not the brochure.
4. O&M cost and scope: cleaning frequency, monitoring and response times
5. Inverter warranty and expected replacement year
Then run both quotes through the same spreadsheet with the same discount rate. If one supplier claims a much higher yield than the other for the same site, ask them to justify it. Inflated yield is the easiest way to make a quote look good on LCOE.
Where LCOE falls short
LCOE is a strong tool, but it is not the whole decision:
- It ignores when you use power. A unit produced at noon, when your factory runs at full load, saves more than one exported to the grid at a low rate. Match system size to your load profile.
- It depends on assumptions. Yield, degradation and discount rate drive the result. A model with optimistic inputs gives an optimistic answer.
- It does not capture quality risk. A cheap panel with a strong warranty from a manufacturer that may not exist in 10 years is a different risk from the same warranty backed by an established one.
- It leaves out tax effects. Accelerated depreciation (40% written-down value for solar plants) and GST (5% on solar modules and inverters since September 2025) change the post-tax picture for businesses. Include them in your full financial model.
Use LCOE to compare systems on equal terms, then use payback, IRR and your own load data to make the final call. Our 10kW solar system for business guide walks through payback and ROI at a smaller C&I scale.
The short version on LCOE
LCOE (levelized cost of energy) is the lifetime cost of each unit a solar system produces. It combines capital cost, running costs, yield, degradation and the time value of money into one number you can compare directly with your electricity tariff.
For solar buyers, it corrects the most common mistake: choosing on panel price. A system that costs more upfront can deliver cheaper electricity over 25 years if it produces more and degrades less, and that advantage has to be real and backed by the warranty.
Ask for yield simulations and warranty terms, not just prices. If you are planning a C&I or utility project, talk to Atal Solar's team about module options, datasheets and warranty terms, or browse the N-Type TOPCon range.
Frequently asked questions
What is the full form of LCOE?
LCOE stands for levelized cost of energy, also called levelised cost of electricity. It is the average cost of producing one unit of electricity over a power plant's full life, including capital, operating and replacement costs, adjusted for the time value of money.
How do you calculate LCOE for a solar plant?
Add up all costs over the plant's life (capital, O&M, inverter replacement, financing), discounting each year's cost to today's value. Do the same for all units produced, accounting for yearly degradation. Divide total discounted cost by total discounted units. The result is in rupees per kWh.
What is a good LCOE for solar in India?
It depends on scale and location. Utility-scale plants in India reach about ₹3 per unit or less, according to IRENA, and auction tariffs have cleared below ₹2.70. On typical 2026 costs and yields, C&I rooftop systems work out at roughly ₹3 to ₹4.5 per unit over 25 years, well below commercial grid tariffs of ₹8 to ₹11. Smaller residential systems sit higher.
Why is LCOE better than panel price for comparing solar?
Panel price covers only part of the upfront cost and says nothing about output, degradation or balance-of-system savings. LCOE includes all of these, so it shows the true cost of each unit the system will produce over its life.
Does higher panel efficiency lower LCOE?
Usually, yes. Higher-efficiency panels produce more units from the same area and need fewer panels, rails and connectors for a given capacity. But if they cost much more and the site cannot use the extra output, the advantage can shrink. Run the numbers for your project.
What discount rate should I use for solar LCOE?
Use your organisation's cost of capital, typically 9% to 12% for Indian businesses. The same rate must be applied to every quote you compare. A higher rate raises LCOE for all solar systems, because most of the cost is paid upfront.
How does degradation affect solar LCOE?
Degradation reduces output each year, so lifetime units fall and LCOE rises. N-Type TOPCon modules typically degrade more slowly than P-type PERC modules. Atal's warranty caps yearly loss at 0.4% after year one, against about 0.55% on typical PERC warranties.
