Solar ROI Calculation Formulas
PV Yield uses a transparent yearly cashflow model. The formulas below describe the main calculation flow and the assumptions users should check.
Capacity and initial investment
When capacity is entered directly, project capacity equals the entered kWp. When roof-area mode is used, capacity is estimated as usable roof area multiplied by capacity density. Initial EPC investment is capacity multiplied by installed cost per kWp.
Initial investment = capacity kWp x EPC cost per kWp.
Reference generation and losses
Monthly POA irradiation is converted into reference energy and then reduced by loss assumptions. Losses can include shading, soiling, thermal loss, mismatch, wiring, inverter conversion, and availability. The calculator applies loss rates as screening assumptions, not site measurements.
First-year energy = reference energy x (1 - total loss rate) x tilt factor.
Degradation
PV output normally declines over time. PV Yield applies a first-year degradation value and an annual degradation rate for later years. This makes later cashflows lower than first-year cashflow when all other inputs stay constant.
Year n energy = first-year energy x degradation factor for year n.
Revenue and operating cashflow
Generation is split into self-consumed electricity and exported electricity. Self-consumed energy is valued at avoided retail tariff. Exported energy is valued at feed-in tariff or export credit. Annual operating cost is subtracted before after-tax cashflow is calculated.
Annual revenue = self-use kWh x retail tariff + export kWh x feed-in tariff.
Operating cashflow = annual revenue - operation and maintenance cost - tax estimate - debt service.
Payback, NPV, IRR, and LCOE
- Payback is the point where cumulative after-tax cashflow becomes positive.
- NPV discounts yearly cashflows with the user-entered discount rate.
- IRR is the discount rate that makes NPV approximately zero.
- LCOE divides discounted lifecycle cost by discounted lifecycle generation.
Sensitivity analysis
Sensitivity checks change one driver at a time, such as system cost, tariff, generation, loss, or self-consumption. This shows which input has the greatest effect on NPV and payback. A project that changes from good to poor after a small assumption change needs better local data before commitment.
These formulas are suitable for screening. They do not replace tax modeling, structural engineering, interconnection review, or lender-grade project finance.