By ArtIn Energy

May 10 – 2024

Calculating and Maximizing ROI for Commercial Solar Installations

Commercial Solar ROI

When talking about solar energy installations one of the first concerns is the high upfront investment. Considering the commercial solar ROI (Return On Investment), the IRR (Internal Rate of Return), and the expected payback period are essential for businesses to decide to invest in renewable energy. The type of project and other factors will influence the profitability of solar installations. 

If your company is interested in transitioning partially or completely to renewable energies, we will provide all the necessary information to understand how to calculate the estimated ROI of solar installation for your business, and how to maximize it so the investment is as good for your company as for the environment. 

At ArtIn Energy we’re here to assist you, so if you want to know more about the investment and profitability of solar energy for your company, contact us and get a free consultation. 

Steps to Calculate ROI for Commercial Solar Installations

The ROI is a financial metric that expresses the profitability of an investment, in this case, commercial solar panels. It focuses on diverse variables to determine how long it will take to regain the initial cost of the investment and start seeing a net profit. Some of the factors to consider are the cost of traditional electricity, the amount of energy required, the tax benefits the company would benefit from, and even the weather conditions of the area. 

To clearly understand how ROI works, let’s see this practical example. Let’s say a company invests $100,000 in a commercial solar system. Over the next five years, the system generates enough energy savings that the electricity bills are reduced by a total of $150,000. 

In this scenario, the ROI would be ($150,000 Profit / $100,000 Investment) * 100% = 150%. This means that over the five years, your investment in solar generated a net profit of 150% of the initial cost.

It’s also important to know the difference between ROI and payback period. ROI looks at the total profitability over a specified timeframe, while the payback period focuses on how long it takes to break even on the initial investment. In the example above, the ROI is 150% over five years, but the payback period might be closer to three years if the energy savings from solar energy even out the initial investment cost within that timeframe.

Another financial metric that gives companies more clarity on investment profitability is the Internal Rate of Return or IRR. Unlike the ROI, the IRR considers the time value of future energy cost savings and other factors to provide a deeper analysis of the investment performance. Our solar installations deliver an immediate IRR of above 32%. 

Several key advantages contribute to a strong ROI and IRR for commercial solar installations:

• Reduced Electricity Bills: Solar panels generate clean power on-site, significantly reducing the reliance on the grid. This translates to substantial cost savings over the system’s lifespan, typically exceeding 25 years.
• Energy Independence: Fluctuating energy prices become less of a concern with solar. You gain greater control over your energy costs, shielding your business from market volatility.
• Increased Property Value: Studies show commercial buildings with solar installations can get higher sale price compared to those without.Investing in solar demonstrates your commitment to sustainability and attracts top talent.
• Government Incentives: Many governments offer tax credits, rebates, and other financial incentives to encourage businesses to adapt to renewable energies. These incentives can significantly reduce the upfront cost of installation.

Follow these steps to calculate the ROI of your company’s solar installation project. 

Estimating Installation, Maintenance, and Operational Costs

The first step to calculating a commercial solar ROI is having an estimation of the initial cost of installation. It may vary depending on system size, location, and equipment. 

Other than considering the cost of solar modules, energy storage, and other technologies required, it’s necessary to think about the complexity of the roof structure and any necessary electrical upgrades. A simple south-facing roof with easy access will be less expensive to install a system on compared to a complex, multi-angled roof. 

It’s also important to consider local permitting requirements and labor costs in your area since these factors also have a slight impact on the total project cost. 

The good news is that the cost of solar panels and installation has steadily decreased in recent years, making going solar a more accessible option than ever before. 

At ArtIn Energy, we understand the importance of cost transparency.  We offer free consultations, assistance during every step of the project, and detailed cost breakdowns to help you understand the specifications of your investment. 

Forecasting Energy Production and Savings

Accurately estimating the amount of electricity your company’s solar system will generate and the resulting cost savings are crucial to calculate a project’s ROI. Production can be influenced by variables such as 

• Solar Irradiance: The amount of sunlight exposure the roof receives throughout the year plays a major role.
• System Size and Efficiency: The size and efficiency of solar panels directly impact energy production. 
• Shades: Shading from trees or neighboring buildings can reduce power generation.

By combining the production forecast with your company’s current electricity bills, it is possible to estimate the potential cost savings over the lifetime of a solar system. Knowing this will allow you to have a clear image of the financial return on your investment, plus you will know how much CO2 your company is saving from not using fossil fuel energies. 

Calculating Payback Period and Net Savings

As mentioned before, the payback period refers to the estimated time it takes for the cost savings generated by your solar system to equal the initial investment. Both factors explained above (initial cost and production, and others like government incentives) can influence the payback period. 

Calculating the payback period is simple: divide the initial cost of your solar system by your projected annual electricity savings. A shorter payback period indicates a solar investment that delivers a quicker return on your investment.

Beyond the payback period, investing in solar energy offers substantial long-term financial benefits through net saving; which refers to the total amount of money that is saved on electricity bills over the lifetime of a solar system, which is over 25 years.

Maintenance & Depreciation Costs

Like most equipment, solar systems experience depreciation, meaning their market value gradually decreases over time. However, one great thing is that solar panels have a well-established track record of slow depreciation.  Most high-quality panels retain a significant portion of their value (typically around 80%) after 25 years.

Maintenance expenses are also to be considered when calculating the ROI of commercial solar installations, but one of the significant benefits of solar energy is its low maintenance requirement. Solar panels are built to resist harsh weather conditions and require minimal care. Our high-quality installations prioritize durability and reliability.

When compared to the substantial cost savings and energy independence offered by solar energy, maintenance and depreciation costs become manageable factors. Also, the extended lifespan of solar systems ensures a long-term value proposition for your investment.

Strategies to Maximize ROI for Commercial Solar Projects

Now that we know how to calculate the commercial solar ROI, it is essential to know that there are ways to optimize the system and maximize its financial benefits. We’re committed to helping your business achieve the best possible ROI from your solar investment. Here are some key strategies to consider:

Navigating Financial and Tax Implications

• Government Incentives: Many governments offer tax breaks, rebates, and other financial perks to businesses who chose to transition to clean energies. These incentives can bring down the initial cost of your solar system and help you see a return on your investment quicker.
• Financing Options: Solar installations can be financed through various options, including loans with attractive interest rates. Carefully evaluate different financing options to find the one that best suits your business’s financial needs and cash flow.

Evaluating Additional Factors that Impact Cost

Optimizing System Design

• Maximize Sun Exposure: The ideal scenario to boost the energy production of a solar system is that it receives direct sunlight during most of the day. In urban areas, sun exposure can be affected by shades. But it can be minimized through strategic panel positioning.
  
• Right-Sized Systems: A system sized perfectly for your energy needs maximizes cost savings without increasing the initial investment. Oversizing the system won’t necessarily translate to higher returns, and undersizing might leave you reliant on the grid during peak usage times.
  
  
• Selecting High-Efficiency Panels: High-efficiency panels may have a slightly higher upfront cost, but they generate more power per square meter, potentially leading to a shorter payback period and increased long-term savings. We offer high-efficiency solar modules with a maximum output of 700 watts and a conversion efficiency of 23.8%.

Ensuring Long-Term Performance

• Quality Installation: A well-designed and properly installed system is crucial for optimal performance and maximizing your ROI. 
• Regular Maintenance: As mentioned previously, preventative maintenance practices like periodic cleaning and professional inspections ensure your system operates at peak efficiency throughout its lifespan.

Maximize Your Commercial Solar ROI with ArtIn Energy: Your Trusted Partner

Choosing the right solar provider is essential for maximizing your ROI. At ArtIn Energy, we are committed to understanding your unique business needs and designing customized solar solutions that optimize your energy production and financial return. Plus, by making the change to sustainable energy, you will reduce your reliance on fossil fuels, stop your greenhouse gas emissions, combat climate change, and lead a positive impact on the planet. 

Why Choose ArtIn Energy?

• Experience and Expertise: Our team of qualified professionals possesses extensive experience in designing, installing, and maintaining commercial solar systems. We stay updated on the latest technologies and industry best practices to ensure your solar solution is optimized for performance and ROI.
• Customized System Design: We don’t offer a one-size-fits-all approach. Our team meticulously analyzes your case and budget to design a customized solar system that perfectly meets your unique needs.
• Transparency and Support: We believe in open communication throughout the entire process and transparency in our costs and practices. 
• Commitment to Quality: ArtIn Energy prioritizes quality in every aspect. We use high-efficiency solar panels, employ certified installers, and ensure your system operates at peak performance for all of its lifespan.

Commitment to Quality: ArtIn Energy prioritizes quality in every aspect. We use high-efficiency solar panels, employ certified installers, and ensure your system operates at peak performance for all of its lifespan.

Contact us today to schedule a free consultation and explore how we can help you design a customized solar solution that maximizes your ROI and takes your business to a more sustainable future.  With our expertise and strategic approach, you can get all the benefits of solar energy and achieve significant financial rewards while making a positive impact on the environment. Let us be your trusted partner on the path to solar success!