When people talk about renewable energy being “cheaper,” they’re often referring to something called the Levelized Cost of Energy (LCOE). It may sound technical, but the concept is actually quite simple – and it helps explain why solar is now considered one of the most cost-efficient power sources in the world.
Think of LCOE as the average cost of producing one unit of electricity (usually measured in USD per kilowatt-hour, or $/kWh) over the entire lifetime of a power plant.
It takes into account:
Upfront investment – the cost to build and install the system.
Operating and maintenance costs – keeping the system running.
Fuel costs – for fossil fuels like coal, gas, or oil.
System lifetime – how long the plant generates electricity.
Total energy output – how much electricity it produces in its lifetime.
Put simply:
LCOE = Total lifetime cost ÷ Total lifetime energy generated
It’s like dividing the total cost of owning a car (purchase price, fuel, maintenance) by the total kilometres you’ll drive. The lower the cost per kilometre, the more efficient the car. Similarly, the lower the LCOE, the cheaper the energy.
Over the past decade, the cost of solar power has fallen dramatically. According to the International Renewable Energy Agency (IRENA) Renewable Power Generation Costs 2024 report, the global weighted-average LCOE of utility-scale solar PV fell by 90% between 2010 and 2023, reaching USD 0.049 per kWh in 2023.
Today, solar’s LCOE is often lower than coal, natural gas, or oil-fired power in many parts of the world.
Several factors explain this:
Falling panel costs – Solar PV module prices have dropped by more than 80% since 2010.
Technological improvements – Panels are now more efficient, generating more electricity from the same amount of sunlight.
Zero fuel costs – Unlike fossil fuels, solar doesn’t rely on coal, gas, or oil. Sunlight is free.
Low maintenance – Solar systems require minimal upkeep compared to thermal power plants.
Scalability – Solar can be deployed on small rooftops or at massive utility-scale farms, adapting to different needs.
Most solar panels today are built to last over 30 years, ensuring stable energy generation well beyond their initial warranty period.
Traditional power plants such as coal and natural gas still dominate in many regions — but their LCOE depends heavily on fuel prices. When coal or gas prices rise, electricity costs rise with them.
Solar, on the other hand, locks in low and predictable costs for decades once panels are installed. With no fuel dependency and minimal maintenance, solar provides long-term energy stability.
For instance, Lazard’s Levelized Cost of Energy Report 2024 estimates that the unsubsidised LCOE of utility-scale solar ranges between USD 24–96 per MWh, while coal remains between USD 65–159 per MWh — and that gap continues to widen.
In Malaysia, the Regulatory Period 4 (RP4) tariff structure — taking effect in July 2025 — introduces new electricity pricing rules that go beyond just energy cost per kilowatt-hour.
Under RP4:
For Low Voltage (LV) users, the energy charge per kWh has been revised slightly lower.
For Medium Voltage (MV) and High Voltage (HV) users, the Maximum Demand (MD) component has increased significantly.
This means that even if a business’s total energy consumption remains the same, its electricity bills may rise due to higher MD charges — which are based on the highest level of power drawn from the grid during a billing cycle.
Solar remains one of the most effective ways to reduce long-term energy costs. By generating electricity on-site, businesses can:
Lower their LCOE compared to fluctuating utility tariffs.
Reduce reliance on fossil-fuel-based grid electricity.
Hedge against future tariff hikes.
However, under RP4, solar alone isn’t enough to fully offset rising MD charges. That’s because while solar reduces your energy cost per kWh, it doesn’t automatically control your demand peaks — the moments when your facility draws the most power from the grid.
To truly optimise costs under RP4, businesses now need integrated energy solutions that combine:
Solar generation to reduce overall energy costs, and
Battery Energy Storage Systems (BESS) to manage demand peaks and store excess solar power.
Together, these technologies help smooth out consumption, lower MD charges, and make energy use far more efficient.
This is where TERA comes in. As an energy solutions provider, TERA helps businesses transition to solar through design, installation, monitoring, and optimisation — while integrating advanced BESS technologies to manage both energy and demand.
By focusing on your long-term LCOE, TERA ensures that you’re not just saving on monthly electricity bills, but also future-proofing your business against rising tariffs and regulatory changes. With the right system in place, solar + storage becomes a strategic asset, not just an expense.
LCOE may sound like industry jargon, but it’s the most transparent way to measure the true cost of electricity, and the numbers don’t lie. Solar has already surpassed coal, gas, and oil in cost-effectiveness worldwide.
For Malaysian businesses facing a new energy landscape under RP4, the time to act is now. With TERA’s expertise, solar + BESS isn’t just green energy, it’s the cheapest, smartest, and most sustainable investment for the future.
Got questions? Reach out to us via WhatsApp at +60 1975 02386 or email us at [email protected] to kick-start your solar journey.
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Understanding Malaysia’s Renewable Energy Mix: Where Solar Fits in the Bigger Picture
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