Return on Investment


The government has aimed at a return on investment (ROI) of between 5% and 8% for projects once all cost factors have been taken into account. To provide some guidance on likely return on investment and other financial indicators we have prepared the following examples using the industry standard RETScreen tool. All examples are calculated using method 1 using the following parameters:
  • Inflation Rate - 3%
  • Electricity Inflation Rate - 5%
  • Interested Rate - 7%
  • 50% borrowing of total project cost for PV, 75% for wind
  • Loan period of 10 years
  • Maintenance costs - none for solar PV, £1000/year for wind
  • 100% of energy is exported
  • Exported energy is worth 4.64p per kWh, with 50% exported
  • No grant funding

Small Solar PV System


This is a typical 4kWp retrofit system for a large house, small school or small commercial building. Average installed cost is £6,000. For simplicity the PV system the maintenance costs are assumed to be 0, however the PV modules will need cleaning at least once a year, the inverters will require replacing during the life of the system, we have allowed £1000 for this in year 10. The ROI is based on an operating life of 25 years, with a tariff life of 20 years.
RETScreen 4kW PV
  • Pre-tax IRR - equity = 13.2%
  • Pre-tax IRR - assets = 6.2%
  • Simple payback = 9.6 yrs
  • Equity payback = 8.9 yrs

Large Solar PV System


This is a large 50kWp system for a large warehouse or ground based system. Average installed cost is £55,000. For simplicity the PV system the maintenance costs are assumed to be 0, however the PV modules will need cleaning at least once a year, the inverters will require replacing during the life of the system, we have allowed £5000 in year 10. The ROI is based on an operating life of 25 years, and a tariff life of 20 years.
RETScreen 50kW PV
  • Pre-tax IRR - equity = 18.7%
  • Pre-tax IRR - assets = 10.9%
  • Simple payback = 8.1 yrs
  • Equity payback = 6.8 yrs

Mid-sized Wind Turbine


This is a typical 50kW wind turbine system installed on a farm. Average installed cost is £4,000 per kW. For a wind turbine an annual services is typically required at a cost of approximately £500. A working life of 20 years is common. The cost of decommissioning the system are not included.
RETScreen 50kW Wind
  • Pre-tax IRR - equity = 14.2%
  • Pre-tax IRR - assets = 7.1%
  • Simple payback = 10.0 yrs
  • Equity payback = 9.4 yrs

Conclusion


This examples are using basic assumptions. Once you factor in real life scenarios such as maintenance, wind speed, decommissioning etc the return on investment is unlikely to look as attractive. It is important to perform a detailed analysis before assuming a project is viable or otherwise.

If you would like use to calculate a project specific ROI for you please contact us via the Feedback Form.