Commercial Solar Calculator, Payback, ROI, and Savings

PAYBACK

Depending on the location, most commercial solar projects in Texas have a payback period between four and eight years — and they also offer a faster return than residential solar systems.

IRR

Commercial solar projects in Texas often have an internal rate of return (IRR) between 10% and 15%, which is higher than the minimum acceptable rate of return for many companies.

ROI

With solar, your return comes from reducing your electricity bills by generating your own for free. Thanks to a recent significant drop in installation costs and the generation of a passive income, the ROI of a solar panel system is higher now that ever before.

Savings

Cities, states, and utility providers all over the country are eager to help people go solar, which is why they offer plenty of financial incentives to make the process more affordable. Here’s a quick rundown of the types of incentives available to your business:

• Modified Accelerated Cost-recovery System

Also known as the MACRS, this method of depreciation covers certain business investments across a specified period of time through annual deductions. A tax-paying business that claims the commercial ITC credit can also take advantage of MACRS to drop the overall cost of a solar panel setup. 

• Federal Rebate

In 2021, the government-issued solar investment tax credit (ITC) allows businesses to deduct 22% of the cost of an installation from their annual taxes. This amount will drop to 10% in 2022.

• State and Municipal incentives

Many state and local governments offer their own programs to promote commercial solar installation. These may include flat rebates, sales tax deductions, and tax incentives.

• Utility Rebates

Utility providers all over Texas and Colorado offer incentives for businesses that go solar. These include Guadalupe Valley Electric Cooperative, Garland Power and Light, and the City of Sunset Valley in Texas; EnergySmart Colorado and Holy Cross Energy in Colorado; and many more. 

• Net metering

This solar incentive allows users to send their excess energy to the grid in exchange for credits on their monthly utility bill. During times when the solar panels are underproducing, you can use those net metering credits to offset the costs of energy used from the grid. Texas has net metering in place all over the state through local utility companies, as does Colorado — with Xcel Energy offering the top program in the Centennial State.

These financial incentives will vary based on your location, which means that they’ll be different for every business. But here at Freedom Solar, we’ll help you find and take advantage of every possible incentive available to your business so that you can join the solar revolution and save money on your installation.

CALCULATING ROI

After you’ve made it through the payback period — which is usually between 5 and 10 years, and received your government solar tax credits, your PV system will have paid for itself, which means you’ll start making a profit. It’s important to know that there are many different factors that affect your solar ROI, but at its simplest, the calculation for your return on investment in solar is: 

Lifetime cost of electricity from utility – lifetime cost of solar = solar ROI

1. Determine your lifetime cost of electricity from utility. Here’s how to calculate lifetime cost of electricity: Cost of electricity per kWh x monthly kWh usage x 12 months x 25 years.
2. Subtract your lifetime cost of solar from step 1, your lifetime cost of electricity. Your lifetime cost of solar will include:

• Equipment
• Shipping
• Permitting & inspection
• Installation
• Incentives & rebates (federal tax credit applies to all above line items)
• Financing fees (if applicable)
• Grid connection fees
• Part replacements

Again, there are many factors that can influence the ROI of your solar system, which is why it helps to have a trusted installer like Freedom Solar help you through the calculation process. Here are some top contributors that affect the ROI of your solar investment:

• Installation costs
• Tax incentives
• Fees & permits
• Utility billing structure
• Net metering agreements

CALCULATING INTERNAL RATE OF RETURN (IRR)

The IRR measures the net present value of all cash flows from a particular investment, and companies typically have a minimum IRR threshold for projects. We believe that IRR is a relevant metric to determine whether to invest in a solar PV system instead of other projects during the capital budgeting process or to other investment vehicles more generally.

Texas commercial solar projects often have an IRR above 10% and typically closer to 15%, which tends to be above the minimum acceptable rate of return for many companies. You can use this figure in order to ballpark estimate IRR on your system.

CALCULATING INCREASED PROPERTY VALUE

The capitalization rate measures the value of an asset based on what it produces in terms of income, which is an important component of commercial solar ROI. The income capitalization approach is the preferred method of the National Appraisal Institute to valuate all solar projects, both commercial and residential. Solar is considered a fixture, so the value flows to building itself rather than being measured separately.

So when it comes to property value, how much does a solar installation increase that number? Like our previous calculations, it depends on a few different factors and will vary depending on the setup, location, energy usage, and financial incentives; however, this study will help give you a ballpark range of what to expect: The Lawrence Berkeley National Laboratory produced a calculation of a $5,000 resale value increase for every kilowatt (kW) of solar installed. For example, if your business owns a 9.6kW system, you’d be looking at a $48,000 property value increase (9.6 x $5,000 = $48,000). 

CALCULATING COMMERCIAL ENERGY SAVINGS 

Your annual energy savings can be calculated by multiplying the above 16 kWh average usage by your utility’s cost of electricity. The national average electricity consumption per square foot for office buildings is 16 kWh per square foot. Here’s how to determine the size of a system that would meet 100% of your electricity usage:

• Multiply your building’s square footage by 16 kWh
• Divide that number by a conservative solar production multiplier of 1,400

To calculate the estimated cost of an average system, multiply the system size in kW by $2.00 per watt. For example, a 50 kW system x $2.00 = $100.00.