This paper presents methodology to evaluate size and cost of PV power system components. The simplified mathematical expressions are given for sizing of PV system components. The PV array size is determined based on daily electrical load (kWh/day) and number of sunshine hours on optimally tilted surface specific to the country. Based on life cycle cost (LCC) analysis, capital cost (US$/kW(P)) and unit cost of electricity (US$/kWh) were determined for PV systems such as stand-alone PV (SAPV) and building integrated PV (BIPV). The mitigation of CO2 emission, carbon credit and energy payback time (EPBT) of PV system are presented in this paper. Effect of carbon credit on the economics of PV system showed reduction in unit cost of electricity by 17-19% and 21-25% for SAPV and BIPV systems, respectively. This methodology was illustrated using actual case study on 2.32 kW(P) PV system located in New Delhi (India). (C) 2009 Elsevier B.V. All rights reserved.