Net Present Value (NPV)

 Scenario: Warehouse Solar Upgrade

• Upfront cost: $85,000 (panels + installation, net of any remaining incentives)
• Annual electricity savings (net of maintenance):
  • Year 1: $28,000
  • Year 2: $29,500
  • Year 3: $31,000
  • Year 4: $32,500
  • Year 5: $34,000
• Discount rate: 9% (company’s cost of capital — conservative in today’s market)
• Forecast period: 5 years (systems typically last 25+ years)

NPV in Plain EnglishNPV tells you whether the future savings are worth more today than the money you spend now.
Formula: NPV = –Initial cost + Sum of (Each year’s savings ÷ (1 + discount rate)^year)Here’s the breakdown (using precise discount factors):

• Year 1 savings → $28,000 today’s value: ≈ $25,688
• Year 2 → $29,500 → ≈ $24,830
• Year 3 → $31,000 → ≈ $23,938
• Year 4 → $32,500 → ≈ $23,024
• Year 5 → $34,000 → ≈ $22,098

Total present value of savings ≈ $119,578
NPV = –$85,000 + $119,578 = +$34,578
(Using full precision: +$34,577 — still solidly positive.)
What This MeansA positive NPV of ~$34,600 means the solar system is expected to deliver returns above the 9% required rate. In other words:

• The project creates real economic value.
• It should more than cover the cost of capital.
• After roughly 5–7 years, you’re generating “free” electricity for the remaining 20+ years of the system’s life.

Even with conservative assumptions, the numbers look strong. In many 2026 cases — with higher utility rates, better roof exposure, or extra incentives — NPV can be even higher.Bottom Line for Business OwnersIf your annual electricity bill is substantial, your roof is suitable, and you can get a solid quote, run your own NPV using your actual figures. A positive result is usually a green light (assuming no better competing projects).Solar isn’t magic, but in today’s environment, it’s often one of the smartest capital investments a business can make.