In recent years, the push towards sustainability and environmental consciousness has led many businesses to explore the potential of commercial solar systems. Not only do solar energy systems benefit the environment, but they can also have a positive impact on a company's bottom line. The return on investment (ROI) of commercial solar systems is a critical factor in determining whether a business should make the switch to solar energy.
This guide aims to provide business owners with insights into the potential financial benefits of investing in a commercial solar system. By examining the ROI and other key considerations, this guide will help business owners make informed decisions that can benefit their operations, the environment, and their bottom line.
Understanding ROI for Commercial Solar Systems
Return on Investment (ROI) is a critical factor in determining the financial feasibility of a commercial solar system. ROI is calculated by dividing the total savings and revenues generated by the solar system over its lifetime by the total cost of the system. There are many factors that influence ROI in commercial solar systems, including system size, location, orientation, and shading, as well as the cost of electricity in the area, tax incentives, and financing options.
Business owners can increase their ROI by investing in a solar system with a high efficiency rating and optimal placement that maximizes exposure to sunlight. In addition, selecting a reputable solar installation company that provides a high-quality system and long-term warranty can also increase the ROI of the investment.
Some successful examples of commercial solar installations with high ROI include a 2.7 MW solar power system installed by Ikea that generated $10.8 million in electricity savings over its lifetime, and a 2.6 MW solar array installed by Ciel & Terre USA that generated a 20% ROI in its first year of operation.
By understanding the factors that influence ROI and exploring successful commercial solar installations, business owners can gain insight into the financial benefits of investing in solar energy. This knowledge can help inform investment decisions and help business owners achieve a higher ROI from their solar system investment.
Calculating Commercial Solar ROI
To calculate the ROI of a commercial solar system, you need to determine the total cost of the system, including installation and any ongoing maintenance costs. Next, you need to estimate the amount of energy the system will generate and the energy savings over its lifetime. You can then subtract the cost of the system from the energy savings to determine the net profit. Finally, you can divide the net profit by the cost of the system and multiply by 100 to get the ROI percentage.
For commercial solar, a complete ROI formula will comprise:
Your current kilowatt-hour (kWh) utility rate and any demand fees.
Your annual bill without solar energy.
The projected annual increase of utility costs over 25 to 30 years based on historical rises.
The projected amount of solar kWh your system will produce over 25 to 30 years.
The lifetime costs of the solar project, which include installation fees, inverter replacement prices, and maintenance and operating expenses.
The estimated value of all solar rebates, performance-based incentives, and tax incentives received over 25 to 30 years.
Any applicable taxes.
Any applicable interest/loan costs.
For example, suppose a business spends $100,000 on a commercial solar system that generates an average of 20,000 kilowatt-hours per year. If the cost of electricity in their location is $0.12 per kilowatt-hour and the business receives a federal tax credit of 26%, their energy savings over 25 years would be approximately $186,000. Subtracting the cost of the system from the energy savings would result in a net profit of $86,000. Dividing the net profit by the cost of the system ($100,000) and multiplying by 100 would result in an ROI of 86%.
Benefits of Commercial Solar Systems
Aside from the financial benefits, commercial solar systems offer several other benefits for businesses:
Improved Image - Businesses that use renewable energy sources are seen as environmentally responsible and can improve their image among customers and stakeholders.
Predictable Energy Costs - By generating their electricity, businesses can reduce their reliance on the grid, resulting in predictable energy costs and protection against rising energy costs.
Increased Property Value - Installing a commercial solar system can increase the value of the property, making it a more attractive investment.
Longevity - Commercial solar systems have a lifespan of up to 30 years, making them a long-term investment that provides long-term savings.
Key Considerations for Business Owners
Business owners evaluating a solar system investment should consider several key factors, including financing options, maintenance and operating costs, impact on property value, and overall feasibility.
Financing options for solar systems range from cash purchases to leases and power purchase agreements. Each option has its advantages and disadvantages depending on the business's financial situation and long-term goals.
Maintenance and operating costs should be budgeted for when evaluating the ROI of a solar system. Though generally low-maintenance, periodic repairs and maintenance can add to the overall investment cost.
Solar systems can also impact property value and marketability, with studies showing that they can increase property values by up to 4%. By considering these key factors, business owners can make informed decisions when evaluating solar system investments, maximizing ROI while minimizing risk and potential obstacles.
Get a Free Commercial Solar Financial Analysis
If you are a business owner looking to reduce your carbon footprint and save money consider installing a commercial solar system, IntegrateSun is a solar financing and installation company that can help you throughout the process.
We provide a free financial analysis that covers estimated costs, finance options, payback, ROI, NPV, and IRR to help you learn more about your potential solar project. Get your instant free solar estimate and financial analysis by getting in touch with us and take the first step toward a more sustainable and profitable future.
Our team of experts can assess your energy needs, design a system that meets those needs, and help you secure financing and incentives to maximize your ROI.