For any business considering solar panels, the financial return is likely to be one of the biggest factors in deciding whether to go ahead. Reducing carbon emissions is important, but when you are investing a substantial amount of money, you want to know what you are getting back and how long it will take.
It is a question we are regularly asked at East Green Energy, and understandably so. The answer depends on several factors, including how much electricity a business uses, what it currently pays for energy and the size of the proposed installation.
For many businesses, the figures can be surprisingly attractive, particularly when you consider how much electricity costs over the course of a year.
How quickly can solar pay for itself?
Most commercial solar installations can achieve a payback period of around four to eight years, although some will be quicker and others may take longer.
Essentially, the payback period is the number of years it takes for the savings generated by the panels to cover the original installation cost. Once that investment has been recovered, the electricity produced continues to reduce energy bills, with the usual allowances for maintenance and equipment replacement.
To give an example, a business investing £100,000 in a solar installation that generates 100,000 kWh of electricity annually could see a significant reduction in its energy costs.
If that business currently pays 23p per kWh and uses 80% of the electricity generated by its panels, it could save around £18,400 a year on electricity purchases alone. If the remaining electricity is exported to the grid at an assumed rate of 7p per kWh, that could bring in another £1,400 annually.
Together, that represents a potential annual benefit of £19,800, giving a simple payback period of just over five years before maintenance and other ongoing costs.
These are illustrative figures, but they show why commercial solar is worth investigating, particularly for businesses facing substantial electricity bills.
It is not just about how many panels you install
Something we often explain to businesses is that a larger solar installation does not necessarily mean a better financial return.
What really matters is how much of the electricity generated can be used by the business itself.
A food producer running refrigeration and machinery throughout the day, for example, is likely to benefit considerably from solar because its electricity demand coincides with daylight hours. A business operating mainly overnight may have a very different experience.
This is why we spend time looking at electricity consumption before recommending a system. There is little point installing a large array without first understanding how the electricity will be used and whether exporting any surplus power makes financial sense.
For some businesses, battery storage can help by allowing electricity generated during the day to be used later. For others, solar panels alone will provide the better return.
Every site is different, and getting the design right from the outset can make a substantial difference to the savings achieved over the years.
Looking beyond the initial payback period
Although most businesses naturally focus on how quickly they can recover their investment, the longer-term savings are equally important.
Commercial solar panels are designed to operate for decades, with many manufacturers offering performance warranties of 25 to 30 years. That means a system which pays for itself in five or six years could continue producing electricity for another 20 years or more.
There is also the question of future electricity prices. We have seen considerable fluctuations in energy costs in recent years, making it difficult for businesses to predict what they will be paying from one contract renewal to the next.
Producing electricity on site gives businesses greater control over a proportion of their energy costs and reduces their reliance on electricity purchased from the grid.
For businesses with large rooftops that are currently doing very little, it is also worth considering whether that unused space could become a valuable asset.
Making the figures work for your business
Commercial solar can be a very worthwhile investment, but it needs to be approached with realistic expectations. Installation costs, electricity consumption, roof suitability and future energy requirements all need to be considered before deciding what system is right.
At East Green Energy, we have been working with commercial, industrial and agricultural businesses since 2007, helping them understand the practical and financial benefits of generating their own electricity.
We believe the starting point should always be a clear assessment of what a business needs and what the proposed installation is likely to deliver. That includes realistic generation forecasts, projected savings and an honest assessment of the likely payback period.
For businesses considering solar, the important thing is having the right information to make a decision. With a well-designed installation, the savings can continue long after the original investment has been recovered.
If you are wondering whether commercial solar would make financial sense for your business, get in touch with East Green Energy. We can look at your current electricity usage and help you understand what sort of return you could realistically expect.
