Hybrid photovoltaic/thermal (PV/T) solar systems provide a simultaneous conversion of solar radiation into electricity and heat. In these devices, the PV modules are mounted together with heat recovery units, by which a circulating fluid allows one to cool them down during their operation. An extensive study on water-cooled PV/T solar systems has been conducted at the University of Patras, where hybrid prototypes have been experimentally studied. In this paper the electrical and thermal efficiencies are given and the annual energy output under the weather conditions of Patras is calculated for horizontal and tilted building roof installation. In addition, the costs of all system parts are included and the cost payback time is estimated. Finally, the methodology of life cycle assessment (LCA) has been applied to perform an energy and environmental assessment of the analysed system. The goal of this study, carried out at the University of Rome ‘La Sapienza’ by means of SimaPro 5·1 software, was to verify the benefits of heat recovery. The concepts and results of this work on energy performance, economic aspects and LCA results of modified PV and water-cooled PV/T solar systems, give a clear idea of their application advantages. From the results, the most important conclusion is that PV/T systems are cost effective and of better environmental impact compared with standard PV modules. Copyright © 2005 John Wiley & Sons, Ltd.