Solar PV is a big investment, and you need to carefully consider the cost and return before going ahead. Net Present Value (NPV) is a calculation that can help you to decide if solar PV is a good idea for you. This article will show you how to calculate the NPV for your solar panels. However, keep in mind that calculating and interpreting NPV is a pretty advanced topic. Whether you’re a homeowner or business owner, you should probably check out are solar panels worth it in Ireland first.
Step 1. Download and Open the Spreadsheet
You can calculate NPV with a pencil and paper, but let’s use a spreadsheet for convenience. Click the “Download” button below, save the file, and open it with your favourite spreadsheet program. I recommend LibreOffice Calc but feel free to use Excel or any other spreadsheet you prefer.
Step 2: Enter The Data
There are six yellow coloured cells near the top of the page where you should enter the following data:
- Year 1 Electricity Output (kWh): This is the number of units of electricity that you expect the system to save you in Year 1.
- Annual Output Degradation (linear): Over time, solar PV panels gradually decrease in power output (usually a bit less than one percent per year). You will find this number on the datasheet of the PV panels that you are planning to use. Otherwise, 0.6% per year is a good default value to use.
- Cost per kWh: This is the price you’re currently paying per unit of (daytime) electricity.
- Upfront Cost: The price that you’ve been quoted for the PV system, including installation.
- Future Value Discount Rate: See Above
- Electricity Price Inflation Rate: This is always going to be a bit of a guess.
In the larger block of yellow cells you can include any other income and liabilities that your solar PV system is likely to provide, year by year.
Step 3: Results
Once you’ve entered the data, you should be able to see the results in the blue cells near the bottom of the page. “Gross Present Value” is an estimate of what the solar PV system is worth to you today. “Net Present Value” is the cost of the solar PV system minus what it’s worth to you.
A positive NPV suggests that the solar PV system would be a good investment while a negative NPV suggests that the PV system would be a poor investment. Of course, this needs to be considered alongside other factors such as enhancing your image as an eco-friendly business. If you really want to, you can assign monetary values to intangibles like goodwill and include them in the overall NPV model.
Watch the video below for a walk-though tutorial on calculating NPV.
More on Finance and Saving Money
If you enjoy getting into the nitty-gritty of solar PV finance, then you will probably be interested in saving yourself €200 in the space of only 15 minutes. See this post to find out how. Or how about a simple change to your behaviour that could save you hundreds or even thousands on your electricity bill over the coming years?