Inputs
Use either direct annual savings or calculate savings from energy and tariff.
Example Data Table
These sample values illustrate typical mid‑size commercial conditions.
| Installed cost | Incentives | Year‑1 savings | Annual O&M | Life | Discount | Escalation | Degradation | Simple payback |
|---|---|---|---|---|---|---|---|---|
| $25,000 | $5,000 | $2,200 | $270 | 25 | 8% | 3% | 0.6% | ~9.7 years |
Formula Used
- Net upfront cost: NetCost = InstalledCost − Incentives
- Year‑1 savings (energy mode): Savings₁ = kWh × Rate × (Offset%/100)
- Year‑y savings growth: Savingsᵧ = Savings₁ × (1+Esc)^(y−1) × (1−Deg)^(y−1)
- Year‑y O&M growth: OMᵧ = OM₁ × (1+OMEsc)^(y−1)
- Year‑y net after tax: Netᵧ = max(0, Savingsᵧ − OMᵧ) × (1 − Tax)
- Simple payback: Payback = NetCost / Net₁
- Discounted cashflow: DiscNetᵧ = Netᵧ / (1+Discount)^y
- Discounted payback: first year when Σ DiscNetᵧ offsets NetCost.
- NPV: NPV = Σ (Netᵧ/(1+Discount)^y) − NetCost
How to Use This Calculator
- Enter the installed cost and any incentives or rebates.
- Choose a currency for display and export files.
- Fill annual maintenance and monitoring or insurance costs.
- Set system life, discount rate, escalation, and degradation.
- Pick your savings method: direct savings or energy‑based savings.
- Click Calculate to view payback, NPV, and IRR above.
- Download CSV or PDF to share with project stakeholders.
Why payback matters for construction energy planning
Solar payback connects capital cost to operating savings, which helps teams compare upgrades across roofs, facades, carports, and site power needs. When you quantify payback, you can rank options by financial urgency, align with tender budgets, and justify design choices with consistent metrics for owners and lenders.
Key inputs that drive results
Installed cost and incentives set the upfront hurdle, while year-one savings sets the baseline benefit. Escalation increases savings as tariffs rise, and degradation reduces savings as output slowly declines. O&M escalation captures rising service costs. Discount rate converts future value into today’s money for realistic comparisons.
Interpreting simple versus discounted payback
Simple payback uses year-one net benefit after tax and ignores the time value of money, so it is quick but optimistic. Discounted payback uses discounted annual cashflows and identifies the point where cumulative discounted benefits recover the net upfront cost, which is more appropriate for multi-year projects.
Using NPV and IRR for decision confidence
NPV summarizes total discounted value over the selected life; positive NPV indicates the project returns more than the discount rate assumption. IRR estimates the implied return rate of the cashflow stream, which is useful when comparing solar to alternative capital uses, or when financing rates are known.
Example data and practical checks
Example: Installed cost $25,000, incentives $5,000, year-one savings $2,200, annual O&M $270, life 25 years, discount 8%, escalation 3%, degradation 0.6%, tax 0%. Use the schedule to confirm the payback year, then test sensitivity by changing tariff escalation and discount rate to reflect best-case and conservative scenarios.
FAQs
1) What is the payback period?
The payback period is the time required for cumulative savings to equal the net upfront cost after incentives. It helps estimate how quickly a solar investment “repays” itself through reduced energy bills.
2) Why does discounted payback differ from simple payback?
Discounted payback accounts for the time value of money by discounting future cashflows. Simple payback divides net cost by year-one net benefit and can overstate attractiveness for long-life projects.
3) How should I choose a discount rate?
Use a rate aligned with your cost of capital, hurdle rate, or financing APR. For owner-funded projects, many teams use 6–12%. Higher rates make future savings worth less and extend discounted payback.
4) What does degradation represent?
Degradation models gradual output decline from modules and system losses over time. A typical assumption is about 0.3%–0.8% per year. Higher degradation reduces lifetime savings and can lower NPV.
5) How do incentives affect payback?
Incentives reduce the net upfront cost, so payback usually improves immediately. Enter rebates and grants as upfront reductions. If an incentive is received later, treat it as a cash inflow in that year.
6) Should I include inverter replacement?
For commercial systems, inverter replacement can be a meaningful mid-life expense. Add a replacement year and cost to reflect reality, especially when evaluating long lifespans or when warranties end.
7) What if my savings are seasonal or uncertain?
Use conservative year-one savings and run sensitivity checks. Adjust offset percent, tariff escalation, and degradation to bracket outcomes. The annual schedule helps identify how uncertainty shifts payback and NPV.