Commercial Solar ROI Calculator — IRR, NPV, Payback

For finance directors and CFOs evaluating a commercial solar investment, internal rate of return (IRR), net present value (NPV), and discounted payback are the relevant metrics — not just simple payback. Below is the analytical framework we use, plus the live numbers for typical UK 2026 commercial solar projects.

The Three Numbers That Matter

• Simple payback (SP): Capital cost ÷ annual saving. Useful for quick comparison; ignores discounting and degradation.
• Discounted payback: Same as SP but with future cashflows discounted at the company's cost of capital. More conservative.
• Net Present Value (NPV): Sum of all 25-year discounted cashflows minus initial capital. Positive NPV = the project beats the discount rate.
• Internal Rate of Return (IRR): The discount rate at which NPV = 0. Compare against your investment hurdle rate.

Typical UK Commercial Solar IRR Across System Sizes

For UK 2026 mid-Midlands commercial solar, with 1.5% annual energy price inflation and 0.5% annual panel degradation:

• 50kW system: 25-year IRR of 16–19%, NPV £150k–£185k at 8% discount rate.
• 100kW system: 25-year IRR of 17–20%, NPV £305k–£365k.
• 250kW system: 25-year IRR of 18–21%, NPV £790k–£940k.
• 500kW system: 25-year IRR of 19–22%, NPV £1.6M–£1.9M.
• 1MW system: 25-year IRR of 20–23%, NPV £3.3M–£3.9M.

How To Use This For Your Business Case

1. Confirm your company's investment hurdle rate (typically WACC + risk premium, often 10–15% for UK SMEs, 8–12% for FTSE-listed).
2. Apply that as the discount rate to the model.
3. Confirm IRR exceeds the hurdle.
4. Confirm NPV is positive at the hurdle.
5. Layer in tax (AIA / Full Expensing reduces effective Year-0 capital outlay by 25%).

Drivers of IRR (And How To Improve It)

• Self-consumption ratio. Higher = better IRR. A 24/7 industrial load drives 80%+ self-consumption. Office buildings with weekend gaps drive 50–60%. Battery storage closes the gap (but the battery has its own IRR).
• Grid tariff. Higher £/kWh paid for grid = better IRR. Businesses on legacy 18p/kWh contracts see lower IRR; businesses on 35p/kWh see higher.
• Energy inflation assumption. Conservative model: 1.5%. Aggressive: 4%. Reality from 2020–2026: ~9% p.a.
• System sizing accuracy. Oversized systems with high export ratios reduce IRR (export rates are lower than self-consumption rates).
• Capital structure. Asset finance can flatter cashflow IRR (deferred capital outlay) but costs marginal interest. PPA gives the system owner the IRR; you take only the discount-to-grid saving.

Tax Effects on IRR

For UK limited companies at 25% corporation tax:

• AIA / Full Expensing: 100% deduction in Year 0.
• Effective Year-0 capital cost: 75% of gross capital.
• IRR uplift: typically +3–5 percentage points.
• Annual savings reduce taxable profit, so post-tax savings are 75% of gross savings.
• Net effect on a 25-year horizon: capital outlay reduced 25%, annual savings reduced 25% — IRR rises modestly because Year-0 capital is reduced more than later savings.

Free Project-Specific ROI Modelling

Rather than running generic averages: send us your half-hourly meter data, current electricity tariff, building footprint, and corporation tax rate. We return a project-specific ROI model in PVSyst-grounded numbers — system sizing, generation forecast, year-by-year cashflow, NPV at your hurdle rate, IRR, simple payback, discounted payback. No charge, no commitment.

Frequently Asked Questions

What IRR should I expect from UK commercial solar?

25-year IRR of 16–23% is typical, depending on system size, self-consumption, and tariff. Larger systems and higher self-consumption ratios drive higher IRRs.

How does AIA affect ROI?

Annual Investment Allowance allows 100% of capital cost to be deducted from taxable profit in Year 0. For limited companies at 25% corporation tax, this reduces effective Year-0 capital outlay by 25% and lifts IRR by 3–5 percentage points.

What discount rate should I use?

Use your company's WACC plus a risk premium — typically 10–15% for UK SMEs, 8–12% for listed companies. This is the 'hurdle rate' the project IRR must beat.

Should I use simple payback or discounted payback?

Simple payback is fine for top-of-funnel comparison. For a board-grade business case, use discounted payback (cashflows discounted at WACC) plus IRR and NPV. Discounted payback is typically 0.5–1.5 years longer than simple payback.

Can you provide a project-specific ROI model?

Yes — send your half-hourly meter data, current tariff, and building footprint. We return a free PVSyst-grounded model with system sizing, generation, year-by-year cashflow, IRR, NPV, simple and discounted payback. Typically 5 working days.

Related Guides

• Commercial solar cost
• Solar payback period
• AIA on solar
• Solar finance options
• Is commercial solar worth it 2026?