Investing in a top-quality commercial solar system might cost more upfront, but it offers higher daily energy generation, resulting in greater long-term energy bill savings.
Quality systems are a better financial choice due to their higher returns and longer lifespan, adding value to the premises and reducing the environmental footprint.
Determining the optimal product, system size, and design is essential for long-term financial benefits. Detailed financial modelling considers solar panel degradation, maintenance costs, and changing electricity tariffs.
The Net Present Value (NPV) method is a more comprehensive way to calculate the system's ROI, considering all cash flows and future costs over the project's life.
Cheap solar systems may result in higher running costs, premature failures, and poor financial returns, making it crucial to invest in high-quality components and expert advice from an Independent Solar Consultant.
How to pick the best solar system for your business
As a general comment, while a high quality solar system for your business might cost more upfront, it delivers more energy generation each day, resulting in higher savings on your electricity bill overall. So a quality system is a better financial choice.
For this reason, the financial returns are likely to be better than cheaper solar systems, which generate less energy for a shorter time and thus lower savings.
Another benefit of investing in a top-quality solar system is your premises’ long-term reliability and increased value with a bankable asset. Finally, quality systems last longer, so the environmental footprint is better.
Companies that invest in a low-quality, price-focused solar system with a plan to replace it in around ten years or less may discover that the cost of energy generation could surpass grid electricity costs. This occurs when considering the opportunity cost of capital and the expenses associated with removing and disposing of the subpar system.
Purchasing inexpensive solar systems for your business leads to increased waste due to poor-quality components, resulting in more discarded solar panels that often go unrecycled. This is a poor environmental outcome.
The long-term financial benefits of a solar project for your business depend on determining the following:
- The optimal product to use,
- The correct solar system size and design, as well as
- The delivery method.
The product choices, such as which solar panels and inverter technology to use, are crucial to ensure the best project outcome.
How do we determine the current electricity usage for my business?
The current electricity usage pattern and future energy needs must be evaluated to determine the optimum size of a solar system for your business’s financial returns. This means a detailed current energy consumption and load data analysis should lead to developing a performance model for the solar system.
In most cases, this consumption data, known as interval data, can be obtained from your electricity retailer. The data shows electricity consumption in 30-minute intervals and details the patterns and changes over each day, week, month and season.
The financial modelling exercise
A financial modelling exercise considers solar panel degradation over time, future replacement costs for failed panels and inverters, maintenance costs and potentially changing electricity tariffs.
Solar installation companies often use simple payback calculations in their quotes. This method is applied in the residential consumer market as a simple way to represent financial value. However, this method has some limitations that could add risk to a project.
The simple payback period method considers only the upfront capital cost to implement the project divided by the first year’s revenue once the project is up and running.
A simple payback period indicates how long it takes for the project to “break-even”. There are limitations to this method as it does not if applied simplistically, take into account solar panel performance degradation, the lifespan of panels, the replacement labour costs in case of early failure and inverter replacement costs or maintenance of the system.
Is there an alternative to calculate solar system ROI?
The Net Present Value (NPV) method is another way to undertake these financial ROI calculations. The net present value method incorporates all project revenues and costs throughout its lifespan, adjusting future cash flows to their present value through a “discount rate.” This rate considers inflation, project risk, and the cost of capital. Summing up these adjusted cash flows determines the project’s net present value.
For the simple payback method, usually presented to customers, factoring in the cost of capital is essential. Assuming a 25-year lifespan, especially for cheaper panels, carries risks. Being overly optimistic in ROI calculations by assuming no further maintenance or repairs over the solar system’s life span isn’t advisable. Allocating funds for maintenance, inverter replacements, and repairs throughout the 25-year period is prudent.
What is wrong with the simple payback method?
The simple payback method does not consider any future running costs to the project, nor does it account for the changing value of future revenue, system breakdowns due to poor quality components or the cost of capital.
The net present value method is more realistic, especially when the applicable product warranties are considered in developing the return on investment calculations. The NPV method can consider all future costs, including potential premature solar module failure and associated replacement costs over the project life, inverter replacements at the end of their life and degradation of solar panel performance over time.
Another way to calculate the financial returns of solar systems for business projects would be the Levelised Cost of Energy (LCoE), which is the cost per kWh of electricity generated, considering system purchase and running costs.
How can I undertake Net Present Value calculations?
Other performance modelling variances vary in the expertise in assessing and inputting product specifications into the software and the accuracy of site-specific information such as local weather data and installation aspects.
Due to several PERC technological features, stringent manufacturing processes, and the use of N-type silicone, some models of solar panels will regularly deliver higher performance estimates for a project, resulting in more energy generation compared to cheaper standard panels.
The benefits of more efficient panels, high quality and high-performing inverters from leading manufacturers, such as SMA, Fronius, Sungrow, Enphase or SolarEdge, and modern monitoring software, will create a solid, reliable solar system.