Commercial Solar Calculator, Payback, ROI, and Savings

Businesses are increasingly realizing the monetary benefits of installing commercial solar panels. With a payback in the mid-single digits and a typical internal rate of return (IRR) exceeding 10%, most companies find that solar makes sense purely as a financial investment. There are other intangible benefits that can further improve the economics, such as employee recruiting and retention, customer attraction and loyalty, reputation in the community, and competitive differentiation.

How to Calculate Payback and ROI on Commercial Systems

To calculate the payback of a solar investment, we simply subtract the annual electricity savings from the upfront cost of the system, net of tax credits and rebates, until we achieve a positive number. For example, a $300,000 system (less $90,000 for the 30% federal tax credit and $90,000 in depreciation tax savings) that creates $20,000 in annual energy savings will pay back in 6 years.

Most commercial solar projects in Texas have a payback period between 4 and 8 years depending on the location and provide a faster return than residential solar systems.

Keep in mind that the payback period is not necessarily the most important metric for determining the value of a solar investment. The return on investment (ROI) for commercial solar panels should factor in the continued income stream resulting from the solar panels for 40 years or more as well as the increased value of the property should you decide to sell it.

Calculating Internal Rate of Return (IRR) for Commercial Solar Panels

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.

Calculating the Value of Commercial Solar

The capitalization rate measures the value of an asset based on what it produces in terms of income, which is an important component of the 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.

Commercial Solar Savings Calculator

The national average electricity consumption per square foot for office buildings is 16 kilowatt-hours (kWh) per square foot. To determine the size of a system that would meet 100% of your electricity usage, multiply your building’s square footage by 16 kWh and then divide that number by a conservative solar production multiplier of 1,400.

To calculate the estimated cost of an average system, multiple the system size in kW by $2.00 per watt.

Your annual energy savings can be calculated by multiplying the above 16 kWh average usage by your utility’s cost of electricity.

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By clicking “Contact Me” you authorize Freedom Solar to call you and send you pre-recorded messages and text messages at the number you entered above, using an autodialer, with offers about their products or services, even if your phone number is a mobile phone or on any national or state "Do Not Call" list. Message and data rates may apply. Your consent here is not based on a condition of purchase.

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