How to Calculate the ROI of Your Solar Investment

Investing in solar energy is a smart move for businesses, but understanding its financial return is key to making an informed decision. Calculating the return on investment (ROI) of your solar system involves assessing costs, savings, and financial incentives. Here’s a step-by-step guide to help you determine the ROI of your solar investment.

Start with Installation Costs

The first step in calculating ROI is understanding the total cost of your solar system.

• System Size and Equipment: Larger systems or higher-efficiency panels may come with higher upfront costs.
• Installation Expenses: Include labor, permits, and any necessary upgrades to your building.
• Financing Costs: If you’re using loans or leases, account for interest and fees in the total.

Account for Financial Incentives

Solar incentives can significantly reduce upfront costs, improving your ROI.

• Tax Credits: Federal and state tax credits, like the Investment Tax Credit (ITC), can cover a percentage of installation expenses.
• Rebates: Some utility companies and local governments offer rebates to offset costs.
• Accelerated Depreciation: The Modified Accelerated Cost Recovery System (MACRS) allows businesses to deduct solar costs from taxable income.

Estimate Annual Energy Savings

Your savings on utility bills are a key component of solar ROI.

• Energy Offset: Calculate the percentage of your energy needs that will be met by the solar system.
• Utility Rates: Determine the cost per kilowatt-hour (kWh) your business pays and how much solar will reduce your dependence on the grid.
• Net Metering Benefits: Include credits earned from sending excess energy back to the grid, if available in your area.

Include Maintenance and Operating Costs

While solar systems are low maintenance, they do require occasional upkeep.

• Cleaning and Inspections: Factor in the cost of regular cleaning and system checks.
• Inverter Replacement: Most inverters need replacement after 10-15 years, which should be included in long-term calculations.
• Monitoring Systems: If using advanced monitoring, include subscription or software costs.

Calculate the Payback Period

The payback period is the time it takes for your savings to equal the initial investment.

• Formula: Payback Period = Total Installation Costs ÷ Annual Energy Savings
• Typical Timeline: Most commercial solar systems pay for themselves within 5-7 years.

Determine Long-Term Savings

Once the payback period is reached, your system generates nearly free electricity for decades.

• Lifespan of Panels: Most solar panels last 25+ years, providing substantial savings after the payback period.
• Avoiding Utility Rate Increases: Lock in your energy costs and avoid rising utility prices.
• Cumulative Savings: Add up the annual savings over the system’s lifespan to estimate total financial benefits.

Assess Additional Financial Benefits

Beyond direct savings, solar energy offers other financial advantages that improve ROI.

• Property Value Increase: Solar installations enhance property value, making your business location more attractive to buyers or tenants.
• Marketing Advantage: Highlighting solar adoption can attract eco-conscious customers and employees.
• Resilience Savings: Backup power options reduce losses from potential outages.

Example Calculation Scenario: A business installs a $100,000 solar system, saves $20,000 annually on utility bills, and receives a $30,000 tax credit.

• Initial Costs: $100,000 – $30,000 (tax credit) = $70,000
• Payback Period: $70,000 ÷ $20,000 = 3.5 years
• Long-Term Savings: $20,000 annual savings × 25 years = $500,000

Calculating the ROI of your solar investment helps you understand the long-term value it brings to your business. By factoring in installation costs, incentives, energy savings, and additional benefits, you can make an informed decision that aligns with your financial goals. Need help calculating your solar ROI? Contact us today to explore how solar energy can benefit your business.