Solar ROI – How and What to Expect?

Have you ever wondered how does solar service provider come up with 3 to 4 years ROI in the solar investment calculation? Is the return of investment (ROI) of the system promising to achieve? Or it is purely just a sugar coat that looks good but tastes bad?

Business owners are now looking for solar investment at their factory rooftop to reduce their running cost. The solar power system is indeed a profitable product niche that can generate monthly savings ranging from 30% to 50% of the electricity cost.

However, to answer the above questions, the solar ROI depends on various factors, such as the type of system installed, your building location, and the total tax incentive that one can enjoy. Below are details that one should pay attention to before deciding on a solar investment.

How big a solar system size you need?

Before the ROI calculation, you need to know how big a system size you need to install for your business premises, and what your investment cost comprises of. The size of a solar photovoltaic (PV) system will very much depend on:

a. Electricity Consumption of your commercial building/ factory

The tariff and consumption patterns of your electric bills determine your savings when using a solar power system. The higher your rates and usage, the more money you can save with solar.

b. Roof Space

The roof space of your factory will also determine how many solar panels can fit into your roof.  On average one piece of solar panel will take up 2 square metres of your roof space, a good rule of thumb is that you need 70 square feet of roof space for every 1 kW of conventional solar panels.

What will determine your solar ROI?

After knowing the system size that you need, the payback period and ROI will take account of the below factors:

1. Solar System Cost

A solar system consists of panel, inverter, cable, and mounting structures. The lower the cost, the shorter the payback period. It is therefore advisable that you take advantage of grants and tax incentives to reduce your installation cost.

2. Tax Incentive or Grant

Considering the tax incentives or grants that you can be entitled from the government programme, your ROI could be high or low. In a solar power system, higher incentives translate to lower upfront costs and a shorter payback period.

3. Peak-Sun Hour

Solar energy production estimate is done by using a variable Peak Sun-Hour (PSH) times the power of the solar photovoltaic system in watts.

The “peak sun hours” is the solar insolation that a particular area can receive if the sun is shining at its maximum value for a certain number of hours.

For regions that have a better sun-hour, the ROI will be shorter because the solar energy production is higher too.

4. Financing Model

The financing method that the owner chose to pay to finance the system cost will also determine the ROI of the investment. If someone chose to pay off the system price with bank financing, the payback period may differ considering the interest rate charged by the banks.

However, if someone chooses a leasing model for their solar installation, the ROI is considered immediate because the owner pays zero upfront cost upon installation.

How to make sure your ROI achieved as expected?

Now that your solar solution provider offers a solar package with an estimation of certain years of ROI, how do you make sure the ROI is achievable? Below are factors that how your solution provider can achieve the ROI for you:

1. Engineering Design of Solar System

Good engineering design of the solar system will make sure the system is performing at its optimum condition and brings you maximum saving to your electricity bill.

The design of the solar panels should be custom made to fit into different roof shape and structure, and consider factors such as shading area, air circulation, soiling, safety measurement, walkway design and many more.

A good solar design will also make sure your investment cost is being utilized at its maximum without any wastage.

2. Regular Operation & Maintenance (O&M) Service

Your solar power system will only deliver full returns on your investment if it runs smoothly over its lifetime.

To avoid breakdown time risk, daily monitoring is important to make sure any faulty can be corrected immediately and it is also essential to perform an annual health check of your system.

A good O&M service shall include immediate fault detection, corrective maintenance with stringent reaction time and detailed reporting.

3. Project Management & Delivery

Quality solar project management will make sure the installation works are done well, and meantime delivers the completion of the solar project on time, which allows you to enjoy solar returns as soon as possible.

A good project delivery requires many years of on-site experience from the installation service provider, with compliance with the global standards and requirements.

How long will it take to break even and see financial returns?

If you qualify for tax incentives from the government programme, you may expect a breakeven within 3-4 years.

However, it depends mostly on the size and startup costs of the system you choose, which will determine energy production and, therefore, your average annual savings and solar panel return on investment.

Subsequently, every month of savings after this payback period should be counted as a financial gain!

To find a trusted solar partner for your solar investment, please do not hesitate to get in touch with our friendly and professional solar specialists and have all your doubts answered.