A solar proposal lives or dies on its cash flow, not its sticker price. The incentives, escalating utility rates, panel degradation, and financing all interact over 25 years in ways a simple payback estimate misses. This calculator builds the full year-by-year cash-flow vector and reduces it to the three numbers that matter: net present value, internal rate of return, and payback period.
How it works
Year-one production is the system size times the local specific yield. Each year production degrades and the value of each kilowatt-hour escalates with utility rates:
production(t) = kW × yield × (1 − degradation)^(t−1)
rate(t) = utilityRate × (1 + escalation)^(t−1)
energy_value = production(t) × rate(t)SREC income, O&M cost, and any loan payment are added to each year. The ITC and state incentive land in year one:
ITC = itc% × grossCost (year-1 tax credit)
net(t) = energy_value + srec − om − loanPayment
NPV = Σ( net(t) / (1 + discount)^t )
IRR = rate where NPV = 0 (solved by bisection)What NPV and IRR each tell you
NPV answers: “Is this worth doing at my required rate of return?” A positive NPV at your chosen discount rate means the project clears that hurdle. The NPV is directly comparable across projects of different sizes — you can add NPVs — which makes it the right metric when choosing between a 6 kW and a 10 kW system.
IRR answers: “What annual return does this investment deliver?” It is scale-neutral and comparable across investment types. An IRR of 9% means the project earns 9% per year on invested capital over the 25-year period, which you can directly compare to other investments without knowing your personal discount rate.
Payback period answers: “When do I get my money back?” It is the most intuitive metric for homeowners but ignores what happens after the payback year — a project that pays back in 8 years and runs for 25 is far better than one that pays back in 6 years and then needs an expensive inverter replacement.
Key assumptions and their sensitivity
| Input | High sensitivity | Note |
|---|---|---|
| ITC / incentives | Very high | Removes ITC → payback often extends 3–5 years |
| Utility rate escalation | High | Even 1% less escalation meaningfully affects NPV |
| Self-consumption ratio | High | Applies when retail savings vs. export rate matters |
| Panel degradation | Medium | Half-percent/year loss is typical; 0.3% is top-tier panels |
| O&M costs | Low–medium | Inverter replacement at year 10–12 is the main event |
| Discount rate | NPV only | IRR is unaffected; higher discount rates suppress NPV |
Worked example
An 8 kW system at 1,300 kWh/kW/yr produces about 10,400 kWh in year one. At a $0.16 utility rate that is roughly $1,660 in first-year savings. On a $24,000 gross cost with a 30% ITC ($7,200 year-one credit), a 3% rate escalation, and a 5% discount rate, the model typically produces a mid-teens payback and a positive 25-year NPV.
Run the cash purchase and financed cases side by side: cash usually gives a higher IRR because loan interest dilutes returns, while a loan preserves capital for other uses. Whatever the headline numbers, confirm incentive eligibility and tax treatment with a qualified installer and tax adviser before relying on the output.