Commercial & small business

Commercial solar IRR calculator

Find the exact discount rate where your system's savings break even against its net cost. Compare that number directly against your hurdle rate or your cost of capital.

Your numbers

1 Project details Optional
Shown on your exported report. Leave blank to skip.
2 Your system
From your installer's proposal, or the size by square footage tool.
US commercial systems typically run $1.10 to $1.80 per watt before incentives.
Typical commercial O&M runs $15 to $25 per kW per year.
3 Production, rate, and horizon
Use your installer's estimate, or the capacity factor calculator.
Your blended commercial rate, from a recent utility bill.
US and Canadian utility rates typically rise 2% to 4% a year.
How many years of savings to include in the IRR calculation.
Your minimum required return. We'll compare your IRR against it.
4 Incentives
Check the ITC calculator if you're unsure which rate applies.
Leave blank if your state or utility doesn't offer one.

How it works

Three steps to an IRR

Step 1

Nail down your net upfront outflow

An installer quote gives you total system cost, and the ITC calculator confirms your exact credit rate. IRR treats that net figure as the single upfront outflow the whole calculation is measured against.

Step 2

Build out your annual savings projection

Enter your expected annual production, blended rate, and a realistic rate escalation over your chosen analysis period. If you'd rather see the dollar value first, run the NPV calculator before coming back here.

Step 3

Compare IRR against your hurdle rate

Enter your hurdle rate, and we'll show how far above or below it your project lands. Pair this with the payback calculator for a simpler break-even number alongside the rate of return.

Understanding your commercial solar IRR

What IRR actually measures

Internal rate of return is the exact discount rate at which the present value of your savings equals your net system cost, so NPV lands at zero. A 15.4% IRR means your solar investment performs the same as an alternative investment earning a steady 15.4% a year, which is a strong result against a typical 5% to 8% cost of capital. If demand charges are a big part of your bill, the battery storage size calculator in our Battery & Storage section can show whether a battery would shave your peak enough to pay for itself.

Why IRR beats a single discount rate assumption

NPV requires you to pick a discount rate before you start, while IRR works backward from your actual cash flows to find the rate itself. That makes it easier to compare solar against very different opportunities, like paying down debt or expanding into new equipment, each with its own required return. Run the ITC calculator and MACRS depreciation calculator first if you want to sharpen the year-zero cost side, and NREL's own tutorial on LCOE and IRR for PV projects walks through this exact methodology in more technical depth than a typical calculator page can. Roof condition decides a lot here. The roof inspection cost before solar estimator in our Solar + Roofing Integration section can help you check inspection and replacement costs before you size the system.

IRR versus NPV versus payback period

These three numbers answer different questions about the same investment. Payback tells you when you break even, NPV tells you the dollar value created at a chosen discount rate, and IRR tells you the return rate itself. Compare this result against the NPV calculator and payback calculator for the complete financial picture, or the 25-year lifetime savings calculator in our savings and payback section for the same math from a residential-scale angle.

What moves your IRR the most

Installed cost per watt and your blended electricity rate do the heaviest lifting. A system at $1.20/W instead of $1.80/W, or a site with a $0.16/kWh rate instead of $0.10/kWh, can shift IRR by several points on its own. The demand charge reduction estimator can help you build a more accurate blended rate if demand charges are a large share of your bill, and the rebate plus ITC combined calculator in our rebates and incentives section can help sharpen the installed-cost side of that equation.

What this calculator doesn't account for

This is a simplified cash flow model that solves for IRR using electricity savings only. It doesn't include MACRS depreciation tax savings, panel degradation, or loan interest if you're financing instead of paying cash. Pair this with the payback calculator, which builds in year-one depreciation benefits, and the Department of Energy's guide to going solar for the broader cost and savings factors any cash flow model like this one is built from, for the fuller tax-adjusted view.

Questions

Frequently asked

Most commercial solar projects return an IRR between 10% and 18%, well above the 5% to 8% cost of capital most businesses use as their hurdle rate. A 150 kW system with a $163,000 net cost, generating 215,496 kWh a year at $0.11/kWh with 2.5% annual escalation, returns an IRR of about 15.4% over 25 years.

NPV gives you a dollar amount of value created at a discount rate you choose, while IRR gives you the discount rate itself, the exact rate at which NPV equals zero. IRR is useful for comparing solar against other investments with different required returns, without having to pick a single discount rate up front.

Compare your IRR against your hurdle rate, the minimum return you'd accept on a project of similar risk. If your IRR is 15% and your hurdle rate is 8%, the project clears the bar by a wide margin. Most businesses set a hurdle rate 2 to 4 points above their cost of capital to leave a margin of safety.

IRR technically assumes each year's cash flow gets reinvested at the same rate the project earns, which can overstate returns on projects with very high IRRs. For most commercial solar projects in the 10% to 18% range this isn't a major distortion, but it's worth cross-checking with NPV at your actual cost of capital.

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Keep evaluating this system

Commercial solar NPV calculator Commercial solar ROI calculator Commercial solar payback calculator Commercial solar 25-year TCO calculator Commercial ITC calculator MACRS depreciation schedule calculator Solar vs. grid-only, 10-year comparison All commercial & small business tools