What discount rate should I use for residential solar?

Q: What does LCOE mean for a homeowner solar project?

LCOE is the long-run average cost per kWh generated after accounting for capital cost, O&M, degradation, and discounting over project life.

Q: How is LCOE different from simple payback?

Payback measures how many years until savings recover upfront cost. LCOE expresses lifecycle generation cost per kWh and accounts for time value of money.

Q: Should incentives reduce capex or be modeled later?

For first-pass LCOE, incentives are commonly netted from upfront capex. Detailed tax-equity or depreciation modeling can be layered in separately.

Q: Can two systems with the same payback have different LCOE?

Yes. Different degradation, O&M, lifespan, and discount-rate assumptions can materially shift LCOE even when simple payback looks similar.

Q: Does this include battery replacement costs?

Not by default. Add expected replacement and lifecycle costs into annual O&M or extend the model externally for hybrid-system finance analysis.

Question

What discount rate should I use for residential solar?

Accepted Answer

Many homeowners use about 4 to 6 percent, while commercial projects often model higher rates. Use your own opportunity-cost assumptions.

What discount rate should I use for residential solar?

Answers