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What is the average payback period of a solar PV installation

What is the average payback period of a solar PV installation?

Discover how installing commercial solar panels can yield solid financial returns while generating onsite power for your organization.

Solar is a 100% renewable energy solution that can yield a robust business advantage. Installing photovoltaic (PV) panels can help organizations meet their sustainability objectives and reduce their carbon footprint, which in turn can boost their corporate social image and bottom line.

However, one of the biggest reasons many organizations switch to solar is to reduce their operating costs through lower energy bills, making them more competitive by leveraging onsite-generated power instead of pulling more expensive energy from the grid. This can be a powerful competitive advantage, especially for organizations that operate in an industry with narrow profit margins.

Solar is an investment that makes good business sense ­­– one that pays organizations back through lower energy costs from day one, new revenue streams through programs like net metering, improved control over demand charges when solar is integrated with battery storage, and the monetization of assets like roof space, parking lots, and empty land.

Many organizations wonder how much time it takes for the total savings and revenue streams from their solar PV panels to cover the total cost of the installation. This is known as the payback period from solar, meaning how long it takes for you to break even on your investment.

The speed of solar payback depends on several factors

Every solar PV installation is customized to an organization’s specific energy and financial requirements, so no two systems are alike – nor are their payback periods. The exact payback period depends on a number of different factors, including:

1.) Your current energy consumption and spend

In markets with expensive utility rates, the payback period from installing solar is comparatively short. Therefore, the first step in beginning your solar PV project is evaluating your current energy bill to obtain a view of your energy consumption and spend over the course of the past several electricity bills from your utility company.

Centrica Business Solutions can help you analyze your organization’s spend and consumption and use this information to design a bankable solar PV system that will deliver electricity savings by offsetting a certain percentage of the electricity you’re drawing from the grid with clean, efficient solar power instead. This analysis of your energy consumption and spend results in a solar PV system specific to your site’s needs. In addition, we can help you implement energy efficiency measures to reduce your energy consumption prior to going solar – the less energy you need to consume, the smaller and more cost-effective solar PV system you require.

2.) The amount of clean energy that your solar PV system generates

The percentage of energy that your solar PV system generates to offset what you would normally draw from the grid depends on the size of your solar PV system, the amount of direct sunshine your site receives, and the quality of the installation (components and workmanship).

It is therefore important to maximize your available space for a solar PV installation, ensuring the greatest amount of energy production for your site to yield the greatest returns. This does not necessarily have to be your rooftop – it could be empty land space or even your parking lot. When you choose Centrica Business Solutions to be your energy partner, you can be assured of maximum energy production and return on investment.

After the analysis of your site viability, utility bill, and energy usage, our team of system designers and engineers accurately measures the available solar resource at your facility. We custom-design your system – which is composed of best-quality Tier 1 components – based on your available resource and the specific energy requirements of your organization. You will know exactly what your system is guaranteed to produce and will be able to accurately forecast energy spend.

3.) The cost of your solar PV installation

Low equipment pricing combined with available solar incentives comprise the cost of your installation. There are numerous federal, state, and local incentives that are designed to make going solar even more affordable than it already is.

Some incentives, like the Business Energy Investment Tax Credit (ITC), lower the cost of going solar. The ITC currently provides a tax incentive of 26% of all solar PV system expenditures. Other incentives, like net metering and Solar Renewable Energy Certificates (SRECs), transform solar into an additional revenue stream for your organization by selling excess solar electricity that your system generates – monetizing your solar energy.

However, incentives will not last forever, so it’s important to secure the highest level of incentive by acting now, while these cost-saving measures are still available. For instance, the ITC will ramp down from 26 to 22% in 2023. Why leave those funds with the government instead of using them to lower the upfront cost of your system and speed up your payback from investing in solar?

4.) How your finance your solar PV installation

Financing your solar PV system with upfront capital or a low-interest loan is an option that results in the greatest savings over the lifetime of the system. While upfront capital may be needed, this approach pays for itself in the form of higher savings and profits – allowing you to reinvest in your organization and reap the benefits of various incentives like the ITC and net metering, transforming your system into another revenue stream.

But what if you don't have upfront capital?

An innovative way that many organizations can finance their solar PV system is through a 7-year operating lease. This option provides organizations with the trifecta of benefits: no capital investment, immediate savings in year one, and large lifetime savings that come from system ownership – like participation in incentive programs. Unlike many other financing options, the operating lease keeps the incentives with the organization and doesn’t transfer them to the financing entity. At the end of the lease team, organizations can acquire the solar PV system at a significantly discounted rate from the original system cost.

Other commercial solar panel financing options exist if you don’t have upfront capital. One of these options is Property Assessed Clean Energy (PACE), which solves the economics of installing solar by producing a cash-flow positive project from day one. Projects can be secured by the building they benefit and repaid (at low interest rates and with $0 down), through the property tax bill instead of from corporate earnings. PACE participants reap the benefits of various incentives that come with system ownership.

Another commercial solar panel financing option requiring no upfront capital is a Power Purchase Agreement (PPA). With this option, you simply pay for the electricity generated by the solar PV system installed on your property at a discounted kWh price – typically at a discount to utility pricing – for the term of the contract, essentially going solar without any capital investment. While solar PV installations financed with a PPA do not qualify for incentives like the ITC, the owner of the system monetizes the ITC and passes the savings along to you.

Solar is a low-risk investment offering unparalleled financial returns

Lower monthly bills, a smaller carbon footprint, and decades of renewable electricity make solar a smart option for many organizations. While some organizations may struggle to keep up with rising grid prices, those that install solar are tapping into an abundant energy source that helps shield them from future rate increases. As grid electricity rates continue to rise with time, the payback period of your solar PV installation becomes shorter – and the returns of your system becomes higher. Unlike your traditional electricity supply, sunshine remains the same price forever

Solar payback period

Our customers generally see a payback period of 3 – 5 years. Considering a solar PV system has a lifespan of 25+ years, once the system is paid off, the organization benefits from no-cost solar energy generated by their system for the remainder of its lifespan, as well as revenue streams from incentives like net metering or SRECs.

Contact us today to talk to us about developing a solar strategy specific to your needs. Centrica Business Solutions is prepared to maximize your available space for solar and help you navigate available financing options and incentives that will yield the best returns for your organizations.