For finance teams evaluating a solar proposal, IRR is often the number that matters most. Here is a quick framework.
Typical ranges
Commercial solar typically delivers an internal rate of return in the range of 12–18%, annualised over the project's twenty-five year lifetime. Well-matched sites with strong daytime demand often exceed that; we have delivered projects above 30%.
To put the base range in context:
- Fixed-term bonds: typically 2–3%
- Commercial property investment: typically 4–6%
- Commercial solar: typically 12–18%
And that is before accounting for the risk profile. Solar generation is predictable.
The sun does not default.
The four inputs that move the number
- Current electricity tariff. The higher the unit rate you are displacing, the faster the return.
- System size and roof orientation. Determines how much you generate and when.
- Self-consumption ratio. Usually the single biggest lever. Units used on site are worth your full retail rate; exported units are worth a fraction of it.
- Component quality and degradation rate. A half-percent annual difference in degradation compounds significantly across twenty-five years.
Beyond IRR
Two things are frequently left out of the model and both help. Capital allowances can deliver year-one tax relief on the full cost. And every year of energy price inflation improves the return on a system whose fuel cost is fixed at zero.
The numbers look different for every building. But the starting point is the same: a clear feasibility model built on your own half-hourly data.
Wondering what your own roof could support? We will model it against your half-hourly data and tell you straight.
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