NPV, IRR, payback and LCOE
Annual savings
Savings = Σ_hours (self-consumption + battery discharge) · purchase_price(h)
+ Export income
With simplified compensation, the monthly export income is limited to the cost of the energy imported that month. See Compensation and export.
Payback (payback period)
Years until the cumulative flow becomes positive, interpolated within the year. If the investment is not recovered within the service life, the report says «not recovered».
The payback is simple (it uses nominal flows with inflation and degradation, without discounting).
NPV (net present value)
NPV = Σ_{n=0..N} Flow_n / (1 + rate)^n
It is the profit of the investment in today's euros, discounting at the chosen rate. NPV > 0 means the installation yields more than the minimum required return.
IRR (internal rate of return)
The discount rate that makes the NPV equal to zero (by bisection between −50 % and +100 %). It is the annual return of the investment. If it does not exist in that range (for example, always-negative flows), «n/a» is shown.
LCOE (levelised cost of energy)
Cost per kWh generated over the lifetime:
LCOE = ( CAPEX + discounted OPEX + discounted replacements ) / Discounted energy generated
Energy is discounted at the same rate and reduced by degradation. Use it to compare the cost of your solar electricity with the grid price: if the LCOE is lower than the purchase price, producing is cheaper than buying.
How to interpret
| Indicator | Good when… |
|---|---|
| NPV | It is positive and high |
| IRR | It exceeds the discount rate (and the client's alternative investment) |
| Payback | It is well below the service life and the module warranty |
| LCOE | It is well below the electricity purchase price |
Verdict
The results summary shows a verdict («Profitable project under the conditions analysed», or another) based on these indicators.
Sensitivity
Profitability depends heavily on the electricity price, energy inflation and real consumption. Compare scenarios with different assumptions before committing to a figure.