Return on Investment of Solar Panels
,Learn how the return on investment of your solar panels works and what defines if a ROI is healthy or not.
Term and minimum energy consumption
The term of the return on investment varies between each person. It depends on the hours in which electricity is used, the rate and the physical characteristics of the site.
We recommend a minimum of 50,000 colones per month of electricity consumption, to invest in solar energy (Costa Rica).
Commonly, photovoltaic projects range from four to 9 years to receive a return on investment. Classifying a project only by its ROI is complex. Both the return period and the Internal Rate of Return (IRR) must be analyzed. Typically, when it is above 9% it becomes attractive to invest in this type of project.
How to know if the ROI is healthy or not?
You must know that the purchase of a photovoltaic generation system means the purchase of infrastructure, with warranties that go to more than 25 years. Continuos improvement projects have extremely fast returns (less than 3 years). However, investment projects in critical infrastructure, such as generation systems have longer ROI rates. With the difference clear, a ROI of less than 6 years is typically acceptable.
Factors that define a healthy ROI
a) The profile of each client and their interest in investing
b) Parameters of financial flows: inflation, capitalization rate, increase in the cost of electricity, etc.
The life cycle of the equipment versus the return on investment
The different parts of a photovoltaic solar system (solar panels, inverters, electrical installation, etc.) have different warranty terms, ranging from 5 to 30 years depending on the equipment. Solar panels, for example, have a warranty of 30 years on power generation and 10 years against manufacturing defects. If the average ROI of the investment is 6 years, it means that the client will return their investment when the solar panels have reached 20% of their life cycle, and the client could still enjoy 20 more years of these solar panels being within the Warranty period. Solar panels, if properly maintained, can extend their life cycle to up to 40 years.
The difference in the ROI depending on the solar photovoltaic system
There are several types of solar photovoltaic systems and the return on investment of each type of system also varies. There are some systems that require more equipment than others and therefore the ROI and IRR term may differ.
6. If the ROI term is not “healthy”, can it be installed?
There are cases where the customer’s priority is not the return on their investment but to have clean energy in their home to actively contribute to the environment. Return on investment is used at the commercial and industrial level to compare two different energy efficiency solutions. The ROI in the residential sector is more limited since the technical options for energy efficiency are smaller compared to what can be offered at an industrial and commercial level.
Here is a relevant article by the University of Costa Rica about cost effectiveness of photovoltaic systems.