Understanding how to calculate the Return on Investment (ROI) for a solar power plant is essential for anyone considering a solar energy project—whether it’s a rooftop setup or a large-scale commercial installation. ROI helps assess the long-term financial performance of your solar investment, taking into account costs, energy savings, incentives, and ongoing maintenance.
This guide walks you through the step-by-step process of ROI calculation, with a practical example to help you make informed decisions.
Step-by-Step: How to Calculate ROI for a Solar Power Plant
Assess Total Initial Investment (CAPEX)
This includes all upfront costs required to install the system:
- Solar Equipment & Installation: Panels, inverters, batteries (if any), mounting structures, and labor
- Permits & Compliance: Government or utility approval fees and inspection charges.
- Financing Costs: Interest or fees if the system is financed through a loan or lease.
Estimate Annual Energy Savings & Income
This is the amount of money the solar system will help you save or earn each year:
- Electricity Bill Savings: Multiply the system’s annual energy generation (in kWh) by the local electricity tariff.
- Government Incentives: Include subsidies, tax credits, or capital subsidies from central/state governments.
- Export Earnings (Optional): If you’re exporting surplus power to the grid, calculate income via feed-in tariffs or Power Purchase Agreements (PPAs).
Account for Annual Operating Costs (OPEX)
Although solar systems are low-maintenance, they do involve ongoing costs:
- Maintenance & Cleaning
- Inverter Repairs or Replacements
- Insurance Premiums
- Monitoring Services (if any)
Subtract these recurring expenses from your annual savings to get the net benefit.
Determine Net Annual Returns
- Net Annual Returns = Annual Savings + Earnings – Operating Costs
- This value shows the actual yearly financial gain after all expenses are deducted.
Project Returns Over the System’s Lifetime
Most solar plants operate efficiently for 25–30 years. Multiply the annual net return by this lifespan to calculate total returns.
Final ROI Calculation
Now plug your numbers into the ROI formula:
- ROI (%) = [(Total Net Earnings – Initial Investment) / Initial Investment] × 100
- This gives you the percentage return you can expect over the lifetime of the system.
Realistic Example
Let’s consider a mid-sized commercial solar plant:
Initial Investment:
- Equipment + Installation: ₹8,000,000
- Permits & Regulatory: ₹150,000
- Financing Cost: ₹250,000
- Total CAPEX = ₹8,400,000
Annual Benefits:
- Energy Savings: ₹3,500,000
- Govt. Incentives: ₹200,000
- Grid Export Revenue: ₹100,000
- Total Annual Revenue = ₹3,800,000
Annual Operating Expenses:
- Maintenance: ₹100,000
- Insurance: ₹40,000
- Miscellaneous: ₹10,000
- Total OPEX = ₹150,000
Net Annual Earnings:
₹3,800,000 – ₹150,000 = ₹3,650,000
Lifetime Returns (25 years):
₹3,650,000 × 25 = ₹91,250,000
ROI:
- ROI = (₹91,250,000 – ₹8,400,000) / ₹8,400,000 × 100
- ROI = 985% over 25 years (or ~39.4% annualized)