Balancing upfront costs and ongoing savings in commercial solar systems
Table of contents
- Understanding upfront costs
- Calculating ongoing savings
- Return on investment analysis
- Financing options and payback periods
- Long-term energy price stability
- Environmental and corporate social responsibility (CSR) benefits
- Risk mitigation and resilience
- Safety considerations
- Cybersecurity
- Asset management and monitoring
- The bottom line
Investing in commercial solar systems is an increasingly attractive option for businesses seeking to reduce utility expenses, enhance sustainability, and improve their bottom line. However, understanding the financial considerations of such an investment is crucial for making informed decisions. In this article, we present some considerations regarding the economics of balancing upfront costs with ongoing savings and long-term returns when it comes to solar energy systems. Rather than providing financial advice, we aim to offer business owners, property managers, and other decision-makers with insights into the economic benefits, payback periods, and return on investment (ROI) associated with commercial solar installations.
Understanding upfront costs
The initial investment in a commercial solar system involves several components, including equipment costs, installation fees, permitting, engineering, interconnection expenses, and potential financing charges. The inverter, which typically accounts for about 10-20% of the total installation cost, is critical because it processes 100% of the energy generated by the solar panels. SolarEdge, for instance, offer advanced features such as power optimisers that enhance yield, safety, and visibility. While optimisers add to the upfront cost, they significantly increase the system’s efficiency and safety, translating to higher long-term savings.
Calculating ongoing savings
Once installed, a commercial solar system can generate substantial ongoing savings. These include reduced electricity bills, avoided utility rate increases, net metering credits, and potential revenue from excess energy generation. SolarEdge systems provide a minimum yield advantage of 2% and, in some instances, up to 10%. This extra yield may mean the asset owner is able to save more energy over the system’s lifetime. Our monitoring portal also offers enhanced visibility from macro to micro levels across all sites, enabling proactive monitoring to maximise uptime and minimise downtime and lower management costs by up to 20%, further enhancing the financial benefits.
Return on investment analysis
Conducting ROI analysis is essential for assessing the financial viability of a commercial solar investment. Key factors to consider include the payback period, internal rate of return (IRR), and net present value (NPV). The payback period is the time it takes for the savings generated by the solar system to cover the initial investment. Typically, commercial solar systems have a payback period of 5 to 7 years, depending on various factors such as location, system size, and energy consumption. The IRR and NPV provide further insights into the profitability and financial performance of the investment over its lifetime.
Financing options and payback periods
Several financing options are available for commercial solar projects, each with different implications for payback periods and financial returns. One option is cash purchases, where paying upfront for the solar system eliminates financing costs and typically results in the shortest payback period and highest ROI. This method requires significant initial capital but offers the greatest long-term savings.
Solar loans offer another route, allowing businesses to finance the solar installation over time. This spreads out the cost and preserves capital for other investments. Although interest costs can extend the payback period, the ongoing energy savings often outweigh the loan payments, making it a financially viable option.
Power purchase agreements (PPAs) are also popular. Under a PPA, a third party installs, owns, and maintains the solar system, and the business agrees to purchase the generated electricity at a predetermined rate. This option requires no upfront investment and provides immediate energy cost savings, though the long-term savings might be less compared to owning the system outright.
Solar leases are similar to PPAs but involve leasing the solar equipment from a third party. The business pays a fixed monthly lease payment, benefiting from reduced energy costs without the upfront capital expenditure. This option provides a balance between immediate savings and manageable long-term costs. Each of these financing options offers unique benefits, and businesses should consider their specific financial situation and goals when deciding which method to pursue.
Long-term energy price stability
One of the most significant benefits of commercial solar power is the long-term energy price stability it offers compared to volatile utility electricity rates. By locking in energy costs, businesses can achieve predictability and protection against future energy price increases. This stability allows for more accurate financial planning and budgeting, enhancing the overall financial health of the business.
Environmental and corporate social responsibility (CSR) benefits
In addition to the financial advantages, commercial solar installations offer substantial environmental and CSR benefits. By reducing carbon emissions and reliance on fossil fuels, businesses contribute to environmental stewardship and sustainability. These efforts enhance the company’s brand reputation, demonstrating a commitment to green initiatives and corporate social responsibility. Many customers and stakeholders value and support businesses that prioritise sustainability, potentially leading to increased customer loyalty and market opportunities.
Risk mitigation and resilience
Commercial solar systems can also mitigate business risks associated with energy price volatility, grid outages, and supply chain disruptions. By generating their own electricity, businesses gain energy independence and resilience, ensuring a reliable power supply even during grid failures or shortages. This reliability is particularly crucial for critical operations and industries where power continuity is essential. Furthermore, incorporating battery storage can enhance this resilience, providing backup power during emergencies.
Safety considerations
Safety is another critical aspect of commercial solar systems that is often overlooked and this can impact ongoing costs. SolarEdge systems feature advanced safety mechanisms such as SafeDC™, which ensures that the system operates at a safe, low voltage during maintenance or emergency situations. This reduces the risk of electrical hazards, protecting both personnel and equipment. Enhanced safety features can lead to lower insurance premiums and reduced liability, contributing to long-term cost savings.
Cybersecurity
Cybersecurity is paramount when selecting commercial solar equipment to protect against potential cyber threats and vulnerabilities. As solar systems become more interconnected and digitised, they are increasingly susceptible to cyber attacks, which can disrupt operations, compromise sensitive data, and pose safety risks.To mitigate these risks, it's essential to select commercial solar equipment from reputable manufacturers that prioritise cybersecurity in their product design and development. SolarEdge products and processes are compliant with existing and upcoming cyber security requirements globally, including ISO 27001, ETSI 303-645, UK PSTI and 2014/53/EU.
Asset management and monitoring
Effective asset management is essential for maximising the performance and longevity of commercial solar systems. SolarEdge’s monitoring portal provides comprehensive oversight, allowing businesses to manage their solar assets efficiently. Enhanced visibility enables businesses to monitor system performance from macro to micro levels across multiple sites. Proactive monitoring maximises uptime and minimises downtime by quickly identifying and addressing issues, ensuring that the system operates at peak efficiency. Remote control capabilities lower management costs by up to 20%, making asset management more cost-effective.
The bottom line
Investing in commercial solar systems involves balancing upfront costs with long-term savings and returns. While the initial investment can be substantial, the ongoing savings, enhanced energy price stability, environmental benefits, and increased resilience can make it a financially sound decision—especially with the benefit of our market-leading solar energy technologies. To kickstart a discussion, get in touch with a product expert or sales representative now.
