How to read a solar payback figure

Ask any finance director what they want to know about a solar proposal and the answer is the same: how many years until it pays for itself. It is a fair question and a useful number. It is also the easiest number in the proposal to make look better than it is.

A payback figure is the result of four choices: the electricity price, the share of solar used on site, what happens to prices and panels over time, and what the cost includes. Two honest proposals for the same roof can differ by two years because they made different choices. Neither is wrong, but you need to know which choices were made.

What a payback figure measures

Simple payback divides the installed cost by the first year's saving. A 710 kWp system that costs €582,000 and saves €100,200 in its first year pays back in 5.8 years. It is easy to explain and easy to compare, which is why boards like it.

What it does not say is how the saving was worked out. The saving is where all four choices live.

Four questions to ask of any payback figure

1. Which electricity price was used? Your all-in price per kWh includes energy, network charges and taxes. Solar used on site saves all of it. A proposal that uses only the energy part understates the saving; one that uses last winter's peak price overstates it.
2. How much of the solar is used on site? Power you use saves your full price. Power you export earns a much lower rate. A warehouse that works weekdays from 07:00 to 18:00 will use 60 to 75 per cent of a well-sized array. Ask for the figure, and how it was modelled.
3. What happens over time? Panels lose about 0.5 per cent of their output each year. Electricity prices usually rise, but nobody knows by how much. A proposal that assumes a 5 per cent yearly rise will show a much shorter payback than one that assumes 2.
4. What does the cost include? Check for the grid connection, any transformer work, structural reinforcement, scaffolding, permits and the first years of monitoring and service. A low price that leaves these out is not a low price.

Payback is not the whole return

A system that pays back in six years and lasts twenty-five keeps earning for nineteen more. Two systems with the same payback can have very different lifetime returns, because a larger system that exports more pays back at a similar speed but earns less on every extra kWh.

That is why we show three figures beside payback: the net saving over 25 years, the internal rate of return and the share of solar used on site. Together they tell you whether the system is sized for your business or for the roof.

How we present it

Every Lumora proposal shows simple payback, payback with our price assumption and payback with no price rise, side by side. The yield model is attached as a spreadsheet, so your team can change any assumption and see what moves. If you want to start with a rough figure, the savings estimate on this site uses the same method with northern European averages.