In the year 2023, federal and state government–provided rebates are more prevalent than ever, especially for small businesses that might struggle to make the switch to renewables. The Australian government’s Renewable Energy Target (RET) program aims to lower greenhouse gas emissions from the power sector and promote the increased production of energy from sustainable and renewable sources. This scheme facilitates both small and large-scale businesses with the green transition. But from a business perspective, the switch has to make financial sense. On that note, we will be discussing the main factors that determine the ROI of commercial solar system.
What is ROI and ROI of Commercial Solar System
Return on investment (ROI) is a financial ratio used to measure the profitability of an investment. It is calculated by dividing the net profit (or gain) of an investment by the amount of the investment and then expressing that number as a percentage. In simple terms, ROI shows how much profit or return you have received on your investment compared to the initial cost of that investment. A higher ROI indicates a more profitable investment, while a lower ROI indicates a less profitable investment.
A commercial solar system is indeed an investment that requires commitment. Some companies may find it financially ineffective to transition to renewable energy sources; however, they are a small minority. Solar panels have the potential to reduce your long-term energy costs if you are paying high monthly electricity prices.
ROI of Commercial Solar System - Determining Factors
System Size and Capacity
The size and capacity of the solar system will have a significant impact on its ROI. A larger system will generate more energy, which can lead to higher savings on electricity bills. However, the cost of installation will also be higher, which can affect the ROI. It is important to find the right balance between system size and cost to ensure maximum savings.
Also, it would be financially unwise to pick a large system at random. Your solar expert here has to determine the correct size of system you need according to your daily electricity usage and a forecast of future usage increase as the business grows. Solar panels have a lifespan of 25 to 30 years on average. This huge time has to be catered to when installing a large-scale solar system.
Cost of Commercial Solar Installation
The cost of installing commercial solar power can vary greatly depending on factors such as the type of panels, mounting system, and labor costs. A higher installation cost can decrease the ROI, so it is important to shop around for the best price and quality. However, top experienced installers in the market might charge a bit higher than the rest; it’s the price you pay for their expertise.
As solar is a long-term big-budgeted investment, this seemingly higher price point will pay off. But if you look around the market and compare prices and quotes of several experienced solar installation companies, you are sure to come across a company that compliments your budget.
The price to install a commercial solar system in Australia, however, ranges from $1.20 to $1.80 per watt as a general rule. Thus, the price of a 50kW system might range from $60,000 to $90,000.
There are several things that affect this value. Small enterprises often choose systems between 40kW and 100kW. These systems often meet a small business’s needs well while keeping them eligible for government incentives.
Solar Panel Efficiency and How It Affects ROI of Commercial Solar System
The efficiency of solar panels is another important factor in determining ROI. Higher-efficiency panels can generate more electricity from the same amount of sunlight, resulting in higher savings on energy bills. However, higher-efficiency panels also tend to be more expensive.
As of today, SunPower solar panels offer the highest efficiency rate of 22.8%, which is extraordinary indeed, but from a business standpoint, you may get away with panels that offer less efficiency rates and still gain an outstanding ROI. It all depends on the calculations and energy prices.
Location and Climate
The ROI of a commercial solar system can also be influenced by the business’s location and environment. The amount of power produced in areas with greater sunshine will increase savings. Nevertheless, regions that experience severe weather, such as hurricanes or snowstorms, could need to pay more for maintenance or insurance, which might reduce the ROI.
Incentives and Tax Credits
Government incentives and tax credits can have a significant impact on the ROI of a commercial solar system. Businesses can take advantage of federal, state, and local incentives to reduce the cost of installation and increase savings. It is important to research all available incentives and credits before making a decision.
Currently, you can take advantage of the following government-provided incentives and interest-free loaning options if met all the conditions –
- Small-scale Renewable Energy Scheme- SRES (applicable for less than 100kW systems)
- Large-scale Renewable Energy Target- LRET (applicable for more than 100kW systems)
- Victorian government provided $3500 incentive (applicable for less than 30kW systems)
- Victorian government provided $1000 to $5000 interest-free loaning options
- Adelaide government offers up to $5,000 for the installation of up to 20kW of commercial solar systems
- Businesses in the Northern Territory that meet the requirements can get commercial solar incentives of up to $6,000, or $450 per kilowatt hour of usable battery system capacity
For a Quick Understanding of Your ROI of Commercial Solar System
Understanding these simple concepts explained below will help you grasp the entire project a little better.
Current annual bill without solar and with solar (consider the time value of money)
You can find many online calculators that will give you an estimation of how much you can save on your annual electric bill if installed a certain kW PV system. In this case, consider the time value of money.
It is a financial concept that states that money received or spent today has a different value than money received or spent in the future due to factors such as inflation and opportunity cost. In other words, a dollar received today is worth more than a dollar received a year from now because you could invest the dollar today and earn interest. The more you save today, it will have exponential benefits in the future.
Estimated increased cost of power (based on history)
Due to the exceptional cost of wholesale energy in 2023, retail power rates might increase by at least 35%. This percentage has seemingly only increased over the years.
Estimated value of solar rebate
In 2030 the STC government rebates will come to an end, potentially increasing the switch to solar expensive for small businesses.
Cost of inverter replacement
The micro–inverters of 200W to 300W with low processing power have 25 years of warranty and the central ones with 1-10 kW capacity and 5-15 years warranty. Central hybrid inverters are the most commonly used ones, and in the calculation of ROI, the cost of inverter replacement has to be accounted for.
Take in consideration inflation
This point needs no explanation. Inflation will increase the prices of commodities, making the switch expensive later on.
Additionally, the main factors that determine the ROI of commercial solar system have been explained in the above writing. However, if you still have any confusion and would like to understand your gain on the switch, do not hesitate to reach out. Our solar experts will set up an appointment at your convenience.
