Ask five solar companies for a payback period on the same roof and you will get five different numbers. None of them is lying. They are using different assumptions, and the assumptions are doing more work than the roof is.
This is what sits underneath the number, so you can interrogate any proposal you are handed, including ours.
The number in one line
Payback is the capital cost of the plant divided by the annual saving it produces. Both halves of that fraction are estimates, and the bottom half is an estimate that runs for twenty-five years.
What moves the capital cost
- Rooftop or ground-mount. Ground-mount is usually cheaper per kilowatt if you have the land.
- Roof type and structure. A metal sheet roof needing strengthening costs more than a flat RCC roof that does not.
- Component specification. Panel and inverter make and warranty terms move the price materially, and they move the twenty-five-year outcome more.
- What is excluded. This is where quotes diverge most. Safety walkway, net meter and liaising, DG synchronisation and cleaning systems are often excluded line items. A quote without them looks cheaper and is not.
- GST treatment. Supply and installation are taxed at different rates. Compare like with like, inclusive of tax.
What moves the annual saving
- Your actual tariff. Not the average industrial tariff. Yours, all in, including demand charges, fuel surcharge and duties, from your own bills.
- Self-consumption share. The proportion of generation you consume on site rather than export. Exported units are almost always worth less than avoided units. A single-shift factory self-consumes nearly everything; a plant that runs mostly at night does not.
- Specific generation for your location. Units generated per kilowatt installed per year, for your latitude, orientation and tilt.
- Soiling and shading losses. A dusty site loses output between cleans. If the model does not carry a soiling allowance, the model is optimistic.
- Degradation. Panels lose output each year. The rate assumed compounds over twenty-five years and is rarely shown.
- Grid tariff escalation. The single largest lever. Assume grid tariffs rise faster and your solar saving looks bigger every year. This assumption should always be stated.
- Operating cost. Cleaning, maintenance, insurance, inverter replacement at some point in the asset life. If none of these appear, the saving is a gross figure dressed as a net one.
And then the financing
If the plant is debt-funded, payback on your own equity is a different number from payback on the project cost. Our own proposals state the assumption used (a debt-to-equity split of 75:25, a cost of debt of 10.0 per cent a year and a debt tenure of ten years), because a payback figure without a capital structure attached is not comparable to anything.
The four questions to ask any bidder
- What annual degradation have you applied to generation?
- What escalation have you assumed on my grid tariff, and why that figure?
- What soiling loss have you assumed for my location, and what cleaning frequency does it depend on?
- What is excluded from this price?
Any bidder who can answer those four in writing is worth talking to. Any bidder who cannot has given you a number, not a projection.
A word on IRR
Payback tells you when you get your money back. It tells you nothing about what happens afterwards, and a solar plant runs for a long time after payback. Two plants with identical five-year paybacks can differ substantially over twenty-five years on component quality and degradation alone. Look at both figures, and look hardest at the assumptions under them.
What we do
Our feasibility study is free and it comes with the assumptions written beside the numbers. If our escalation assumption looks aggressive to you, argue with it. That is what it is there for. Send twelve months of bills and the roof or land you have, and we will do the arithmetic on your site rather than on an average one.