What commercial solar system will benefit my business most?

Fast read

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.

Go for quality commercial solar

As a general comment, while a top-quality solar system might cost more upfront, it delivers more energy generation each day, resulting in higher savings on your energy 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 investing in a low-quality, price-focused solar system to replace it in around ten years or less will soon find out that the cost of energy generation could be higher than grid electricity when the opportunity cost of capital and the cost of removing and disposing of the “crap system” is taken into consideration.

Buying cheap commercial solar increases the waste generated by poor-quality components as more solar panels are discarded and often not even recycled. This is a poor environmental outcome.

The long-term financial benefits of a commercial solar project depend on determining the following:

  1. the optimal product to use,
  2. the correct solar system size and design, as well as
  3. the delivery method.

The product choices, such as which solar panels and inverter technology to use, are crucial to ensure the best project outcome.

commercial solar system

How to determine the current electricity usage pattern?

The current electricity usage pattern and future energy needs must be evaluated to determine the optimum size of a commercial solar system for 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.

This interval data can be used to undertake detailed modelling so that the solar system’s future positioning of the panels (direction) and output match as closely as possible with your electricity demand.

This is important because if the system is designed too big, you have invested in electricity production, which can’t be utilised on-site without a battery. If, on the other hand, the system is designed too small, then you have yet to maximise the full savings potential.

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 the commercial solar system ROI? 

The Net Present Value (NPV) method is another way to undertake these financial ROI calculations. Under the net present value method, all cash flows, both project revenue and costs, are considered for the life of a project. The value of future cash flows gets adjusted to reflect their importance in the present day.

This adjustment is made via a “discount rate” that considers inflation, the risk of the project and the cost of capital. The present values of all the positive and negative cash flows are then summed up to determine the project’s net current value.

The simple payback method, which is regularly presented to customers, needs to account for the cost of capital. The assumption that the panels will last 25 years, especially for cheaper panels, is risky. If, in any ROI calculation, the assumption is that no further repairs and maintenance are required., then this is ultra optimistic. Some sums must be set aside over the 25-year solar PV system life span period for maintenance, inverter replacements and repairs.

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 for calculating financial returns for large commercial projects would be the Levelised Cost of Energy (LCoE), which is the cost per kWh of electricity generated, considering system purchase and running costs.

commercial solar system

How can I undertake Net Present Value calculations? 

There is a range of software used for performance modelling, and the level of accuracy of this assessment could vary depending on the type of software used and the panel and inverter product specified.

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 ~pecrc technological features, stringent manufacturing process, 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 higher 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.

Cheap solar will disappoint.

Please be aware that it is common to find some price-focused commercial solar companies overestimating low-quality solar systems outputs to show better financial returns. Therefore, the Independent Solar Consultant advisor you select, should you plan to go for an extensive commercial solar project, should specify the products which form the backbone of your commercial solar solution. This clarity can make a great positive difference to the outcome.

Getting an experienced, quality-focused, and knowledgeable system designer in the 1st place is very important. We can help you. Should you consider purchasing solar, batteries, or other renewable energy products we recommend engaging with a qualified local supplier or installer to provide you with extensive advice.  To find the right partner try our company finder and ask our recommended experts to assist you.  Using a Your Energy Answers Authorised Partner will give you a well-vetted, experienced, reliable, and trustworthy company to serve your needs.

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