Noble Green Energy Blog // How Quickly Can You Pay Back Solar Panel Installation?
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When considering solar panels for your commercial building or land, cost is a vital factor for every business. Solar energy is an investment, but one that provides a great return on investment (ROI) as well as important environmental benefits. In fact, the annual solar panel ROI for commercial solar PV is around 25-35% which is significantly greater than it was just a few years ago. At Noble Green Energy, the company understands the importance of cost for businesses which is why the company is keen to address a commonly asked question: how quickly can you pay back solar panel installation?
There are 2 key factors that shorten the payback on solar panel installation:
- Increase in the cost of electricity that the solar generation is replacing
- Reduction in the cost per kWp of electricity generated from solar installations
1. Increase in Cost of Electricity
The greater your electricity costs, the faster the payback of installing a solar panel system. The 200-300% average increase in electricity costs imported from the grid is one of the main reasons payback is much faster than it was previously.
In recent years, wholesale electricity prices in the UK have risen significantly due to a combination of global, political and market-related factors.
Global Impacts on Electricity Costs
Although the COVID-19 pandemic was a few years ago now, the impact it had on electricity costs still stands. After causing huge disruptions in energy production, supply chains and logistics, energy demand rebounded faster than supply could adjust during economic recovery.
Additionally, a surge in global demand for gas, coupled with supply chain disruptions, led to spiralling gas prices. Gas is used in the generation of electricity, therefore electricity prices also increased.
Political Impacts on Electricity Costs
Russia’s invasion of Ukraine and sanctions placed on Russia’s exports of energy led to European countries taking action to reduce their dependence on Russian gas. This meant they started looking for alternative suppliers which caused a huge spike in energy prices.
Some businesses saw some of the highest prices at around £1/kWh which was up from a tenth of that the month before. Whilst these prices were short-lived, they have never returned to the pre-invasion level – and never will.
Market-Related Impacts on Electricity Costs
Price of electricity to businesses is not only dependent on wholesale electricity prices. There is a growing proportion of commercial electricity bills being made up of non-commodity costs, which consist of levies intended to finance the upgrade of the National Grid as the UK incorporates far more micro-generation.
2. Decrease in Cost per kWp of Electricity Generation
A constant increase in demand for solar panels and production has resulted in the automatic implementation of Wright’s Law. This dictates that for every doubling of production, the cost of manufacturing will reduce by 20%. The efficiency of solar panels has increased, which means more energy can be generated from the same size panels, thus reducing the cost per kWp of electricity generated.
Innovations within manufacturing processes, automation and material efficiencies have helped achieve this, alongside efficiencies with logistics, distribution and installation processes. This has led to solar panels, inverters and other components reducing in cost. Plus, the raw materials used in the production of solar panels, like silicon and polysilicon, have also reduced in price.
Following on from point 1, it is assumed that the spike in electricity costs in the UK and throughout Europe, resulted in a swift response from China. This consisted of a rapid increase in their production of solar panels, from both existing manufacturers and new entrants alike. They believed the shortened payback as a result of increasing electricity grid prices would also generate an elevated demand for solar PV.
Site-Specific Factors That Affect Solar Panel Payback
Having reviewed the key factors that affect solar panel ROI, there are site-specific factors that should also be considered:
Self-Consumption
The higher the percentage of self-consumption, the faster the payback of installing a solar panel system. Self-consumption refers to the amount of energy generated by the solar panels that is utilised by the business at the time of generation, as opposed to being exported to the grid or stored for later use.
The reason for this is a simple, cost-offset calculation. Currently, grid energy costs are around 26p per kWh, whilst export rates achieved are typically between 6-8p per kWh. Therefore, you will be much better off reducing the kWh’s you pay 26p for, rather than obtaining 6-8p for exporting. Of course, this is ceteris paribus (all things being equal) and there is always a sweet spot where the benefits of increasing or reducing the system size are optimised for business goals.
Battery Energy Storage Systems (BESS)
BESS also have an impact on the payback from solar panel installations. Batteries actually lengthen the payback considerably, typically turning a 3-year payback into an 8-year to never payback.
That’s not to say that batteries don’t have a place in the solar eco-system. Simply, there needs to be a specific set of factors and business drivers for them to make sense commercially.
Larger Commercial Solar PV Installations
Larger sites often benefit from a lower £ per kWp cost due to economies of scale and thinning overhead costs. This can potentially shorten the payback period along with improving the long-term benefits.
When deciding the size of a solar panel installation, it can be a question of payback vs. long-term benefits (financial and other). If the solar PV system is installed through financing, either asset finance or Power Purchase Agreement (PPA), then the payback is essentially instantaneous.
Efficiency of the Commercial Solar PV Installation
The actual kWh of energy generated per kWp of solar generation capability installed will, of course, affect the payback and ROI of any system. In turn, the efficiency of the commercial solar PV system will be affected by:
Orientation or Azimuth of the Array
Is it pointed south, north, east or west? It’s generally accepted that a south-facing array will be the optimum, however, it could be the case that an east-west array will produce better results. This is dependent on the load profile of the customer; aka at what points during the day the most energy is consumed from the grid.
Prior to installation, a full assessment should always be undertaken using the client’s half hourly data and any Distribution Network Operator-imposed grid limitations to determine the optimum.
Angle or Tilt of the Panels
For solar panel systems installed on a pitched roof, the tilt of the panels will largely be dictated by the pitch of the roof. For ground-mounted systems, you can ensure optimum payback by erecting the ground-mounted system, so the panels are installed at the optimum tilt.
Location of the Installation in the Country
The optimum tilt also varies depending on whereabouts in the country you are. To help you find the optimum tilt for your area, you can use the Photovoltaic Geographical Information System (PVGIS).
Shading of the System
The effects of shading from surrounding trees, buildings or plant on the roof
can be mitigated through the installation of an intelligent optimised inverter system such as SolarEdge technology. There is the ability to design a system, so no panels are affected by shading or to help you minimise shading. This is only possible by utilising effective solar design software like:
Other Factors That Affect Solar Panel Payback
Finally, here are some other less obvious factors that can affect the speed of solar panel ROI.
Sustainability & Corporate Social Responsibility (CSR) Benefits
The brand reputation of businesses can be improved through the installation of solar as this enhances their CSR profile and helps them to meet their sustainability goals. This can help attract customers, investors, and partners who value green energy.
More and more, customers are becoming demanding of their suppliers’ sustainability credentials, therefore businesses are exerting pressure on those in their supply chain to reflect this. This includes encouraging them to increase their sustainability credentials and reduce their carbon emissions as part of their own scope 1, 2 and 3 emission reductions.
Carbon offset savings can be another benefit for businesses who can sell carbon credits or benefit from Renewable Energy Guarantees of Origin (REGO) certificates, offering additional revenue streams that improve solar panel ROI.
Commercial Solar PV Installation from Noble Green Energy
At Noble Green Energy, we provide sustainable, onsite and low carbon green energy solutions for a range of commercial, industrial and agricultural businesses. We’ve helped a number of clients with their solar energy requirements and ensured solar panel ROI to be paid back in less than 4 years, including Noble Foods, Hall Hunter Partnership, Oadby Plastics, and CHEP Pontefract and Manchester.
Read more news on Noble Green Energy here.
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