Estimate the approximate annual electricity production of your system. Multiply your system’s production by your local electricity rates to see the amount of money you can save each year on avoided utility costs. Project those solar savings over 25 years of efficient solar production. Compare how much you will save to your original investment.
To get technical, you could also use a standard ROI formula (net return on investment / the cost of the original investment x 100%) to put a number on it. Here, the net return on the investment could be considered $20,000 ($36,000 in value, less $16,000), which divided by $16,000 and multiplied by 100% would equal a solar ROI of 125%.
ROI, or Return on Investment, is a metric used to evaluate the financial performance of an investment. In the case of solar energy, it measures how much money you can expect to save over time relative to the cost of installing a solar system. Essentially, it’s a way to determine how quickly your investment in solar energy will pay itself back.
Here, the net return on the investment could be considered $20,000 ($36,000 in value, less $16,000), which divided by $16,000 and multiplied by 100% would equal a solar ROI of 125%. Although we have just illustrated how to calculate your solar ROI, this formula should always be taken with a grain of salt.
The ‘Total cost of solar installation’ is the gross cost of installation of the solar system over your property. The size of your installation and the various components are considered while calculating this cost. Upfront financial incentives are tax breaks and rebates.
While there’s no definitive “good” IRR rate, industry benchmarks can provide a general reference point. According to various reports, the average IRR for commercial solar projects in the United States can range from 10% to 15%. The best approach to determining a good IRR for a solar project is to consider the unique circumstances of your project.
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