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ROI & Payback Period

Simple payback, ROI and lifetime net savings of a PV plant.

Financial

Inputs (SI units)

Results

Simple payback
4.5 years
Net investment
500,000
Year-1 net savings
107,000
Net savings over 25 yr
3,167,890
Return on investment
633.6 %
Cost per kWh generated
1.43 /kWh
Undiscounted CAPEX ÷ lifetime energy

Engineering Formula

  • Net CAPEX = CAPEX − Subsidy
  • Savings(t) = E₁ × (1−d)^(t−1) × Tariff × (1+e)^(t−1) − O&M
  • Payback = first year where Σ Savings ≥ Net CAPEX (interpolated)
  • ROI = (Σ Savings − Net CAPEX) / Net CAPEX × 100

Cash-flow model: generation decays with module degradation while the avoided grid tariff escalates. Cumulative net savings are compared to net CAPEX to obtain the simple payback; ROI is lifetime net gain over invested capital.

Step-by-step Calculation

  1. 1.Net CAPEXCAPEX − subsidy500,000
  2. 2.Annual O&MCAPEX × om%5,000
  3. 3.Year-1 savingsE₁ × tariff − O&M107,000
  4. 4.Cumulative savingsΣ t=1..253,667,890
  5. 5.PaybackΣ Savings = Net CAPEX4.5 yr

Design Assumptions

  • • 100% of generation is self-consumed or credited at full tariff.
  • • Constant O&M as a percentage of CAPEX (no inverter replacement modelled separately).
  • • No discounting — this is a simple (undiscounted) payback.

Engineering Tips

  • ◆Add an inverter replacement in year 12–15 (≈ 8–12% of CAPEX) for a realistic model.
  • ◆For bankable studies use IRR/NPV with a discount rate rather than simple payback.
  • ◆Verify subsidy eligibility and net-metering caps before quoting payback to a client.

Warnings

  • ▲Escalation above ~6%/yr flatters payback — keep it conservative.
  • ▲Export-only plants often earn a lower feed-in rate than the retail tariff.

Standards & References

IEC 61724-1 (yield measurement)IEC 62548IS 16221 (PV safety)