Where commercial solar savings come from
Most of the value comes from avoiding electricity purchases. If your business would otherwise buy a kilowatt-hour from the grid for 25 cents and solar supplies that kilowatt-hour instead, the avoided purchase is worth about 25 cents before considering other tariff effects.
Exported solar is different. It is worth the export rate or other agreed value, which can be much lower than the cost of importing electricity. This is why self-consumption matters so much in commercial solar.
Some businesses also have demand charges. Solar may reduce them, but only if it reduces the measured demand that actually sets the charge. A blanket claim that solar will cut demand charges by the same percentage as energy use is not a safe assumption.
A simple commercial solar calculation
The cleanest first-year model separates solar used on site from solar exported.
Assume a system produces 100,000 kWh in a year. The business uses 80,000 kWh of that solar on site and exports 20,000 kWh. If imported electricity is worth 25 cents per kWh and exports are worth 5 cents per kWh, the first-year energy value is about $21,000.
80,000 × $0.25 = $20,000 avoided imports. 20,000 × $0.05 = $1,000 exports. Total = $21,000 before maintenance, finance, degradation, tax and any demand-charge effect.
If the net project cost after confirmed incentives were $100,000, a simple payback using those assumptions would be about 4.8 years. That is not a forecast for a Melbourne business. It is an example of how the arithmetic should be presented.
A proper investment model can also show net present value, internal rate of return and cash flow over the expected operating life. Those measures are more useful than simple payback when comparing solar with other capital projects.
Demand charges need their own analysis
Commercial tariffs can charge for the site's highest measured demand over a billing period or another defined window. The exact structure depends on the network tariff and retail contract.
Solar helps most when the site's demand peak regularly occurs during strong solar production. If the peak happens at 6 pm, early in the morning or during a short process spike, rooftop solar may have little effect on that charge.
A battery can sometimes target demand peaks more directly, but the battery needs enough power, usable capacity and control logic to catch the relevant events. That is a separate business case from simply storing excess solar.
Five ways payback gets overstated
- Using the import tariff for every solar kilowatt-hour. Exported energy normally has a different value.
- Assuming today's electricity price rises rapidly every year. Escalation assumptions should be visible and stress-tested.
- Ignoring panel degradation. Production changes over time and the model should reflect the equipment warranty and expected performance.
- Ignoring operating costs. Monitoring, maintenance, cleaning where required, inverter replacement risk and insurance can matter over a long project life.
- Counting demand-charge savings without interval evidence. The timing of the site's demand peak decides whether those savings are plausible.
Finance can also change the result. A cash purchase, equipment loan, lease, power purchase agreement and environmental upgrade finance arrangement are not economically identical even if the same panels end up on the roof.
How to compare two commercial solar proposals
Ask both providers to model the same period of interval data and the same tariff. If one proposal uses an 80 per cent self-consumption assumption and another uses 95 per cent, the payback figures are not directly comparable until that difference is resolved.
Compare the annual generation estimate, self-consumption percentage, export volume, import and export rates, demand savings, degradation rate, maintenance allowance, system life and net installed cost.
Then run a conservative case. Lower the export value, remove uncertain demand savings and test lower electricity-price escalation. A project that still works under conservative assumptions is much easier to defend internally.
Sources and further reading
Source labels identify who published each reference, not an independent endorsement. Confirm current requirements and exact product terms before purchasing.
- Government source
- Government source