What is the payback period for commercial solar panels?

As businesses look for ways to reduce operational costs and improve their sustainability, many are turning to commercial solar panels. But before making the investment decision, it’s crucial to understand the financial benefits – which include return on investment (ROI) and also the payback period of these systems.

Commercial solar panels on Huntapac's roof

How is the Payback Period Calculated?

Of all the financial metrics, “payback” is the most intuitive measure and doesn’t involve any fancy financial concepts – it simply states how long it takes for your installed energy system to recoup its cost through energy price savings.

The basic calculation is to calculate the net cost of a system, by taking its net cost (after applying any incentives such as grants or tax benefits and export income) and deducting costs for maintenance, and dividing it by your annual projected electricity savings. The resulting number is equal to the number of years it takes to pay back the investment.

Payback Formula

To calculate the payback period of your system, use this formula:

Net solar energy system cost / Annual energy savings = Simple payback in years

For example, if your net installation cost is £100,000 and you save £15,000 per year on your grid-supplied electricity bills, then your payback period would be 6.7 years. In Eden’s experience, the typical payback period for a commercial solar array is 5 to 7 years - which is pretty good when you consider that a well-maintained commercial solar array has an effective lifetime of at least 25 years.

The average commercial solar payback period

Return on Investment (ROI)

Often when making financial decisions, businesses like to look at a more standard metric which is uniform across all investments.

ROI takes the Net savings after costs and divides it by the initial outlay and multiplies it by 100 to provide a percentage return in year 1.

If you’d like to read a bit more about calculating ROIs check-out this blog post we’ve previously written. But the good news is that if you’re considering working with Eden Sustainable, our proposal to you will include this on your behalf!

Benefits of Commercial Solar Systems

1. Improved brand perception:

Businesses that use renewable energy sources are seen as environmentally responsible and can improve their image among customers and stakeholders. This can differentiate your business and enhance its market position and can often be mandated for contract discussions for larger contracts.

2. Predictable energy costs:

By generating your own electricity, you reduce reliance on the grid, resulting in predictable energy costs and protection against rising energy costs. As recent history has shown, this is a very significant factor for all businesses to address.

3. Increased property value:

If you are a landlord or a property owner, installing a commercial solar system can increase the value of the property, making it a more attractive investment.

4. Environmental impact:

When your business harnesses renewable energy from the sun, it decreases its reliance on fossil fuels, leading to lower greenhouse gas emissions. This environmental stewardship not only helps combat climate change but also aligns with global and national sustainability goals. In short, you’re helping to do your bit for a cleaner and more sustainable planet.

What does this mean for you?

Investing in commercial solar panels can be a wise financial move for many businesses. By understanding the payback and ROI through assessing the costs, savings, and benefits, you can decide if a commercial solar solution is right for you.

If you’re thinking about making the switch to a more sustainable energy future, then contact us via our website and we’d love to help you unlock the benefits.