How to calculate the return on investment of a solar system

The return on investment of a solar system is estimated with a simple formula: the total cost of the system divided by the estimated annual savings gives an indicative number of years. That result is only an estimate: it depends on your actual consumption, the price per kWh, sunshine and how all of these change over time. Here is the method, so you can run the numbers yourself or understand the ones in a quote.

The basic formula

Indicative payback (in years) = total system cost ÷ estimated annual savings

This is called "simple payback". It ignores inflation and the cost of money. Analysts also use more detailed methods (net present value, internal rate of return), but the simple formula is enough to compare options with each other.

What goes into the total cost

• equipment: panels, inverter, batteries, mounting structure, cables, electrical protection;
• labour and commissioning;
• any grid connection procedures;
• maintenance over the period studied;
• foreseeable replacements: batteries or an inverter may need replacing before the panels reach the end of their life, depending on technology, use and the manufacturers' indications.

What goes into the savings

1. Self-consumed energy

This is the energy your panels produce and you use at home, directly or through the batteries, instead of buying it from the grid.

Saving = kWh self-consumed per year × price per kWh you would have paid

A kWh (kilowatt-hour) is the unit of energy on your bill. Panel power is expressed in kWp (kilowatt-peak): the power measured under standard test conditions, not what the panels produce at any given moment.

Energy that is produced but not used (full batteries, empty house) saves nothing, unless a net metering scheme applies. Its conditions must be checked with the distribution company (EDENorte for Samaná province), the CNE and the SIE, in their current version: see our net metering guide.

2. Generator fuel you no longer burn

If you run a generator during power cuts, count the fuel it will no longer use, plus part of its maintenance. A record of your fuel purchases over several months gives a realistic baseline.

3. The cost of avoided outages

Spoiled food, damaged appliances, lost business, a cancelled rental: these costs are real but hard to put a number on. Keep them separate in your calculation so you do not overstate the result.

What changes the result

Factor	Effect on payback
Actual consumption and habits	The more you use while the sun shines, the higher your self-consumption
Price per kWh and how it changes	It may depend on your consumption bracket and change over time
Sunshine	Varies with season, weather and year
Shading (trees, buildings, hills)	Reduces production, sometimes sharply
Orientation and tilt	Change annual production
Panel degradation	Output declines slowly over the years, per the manufacturer's datasheet
Battery or inverter replacement	Adds a cost along the way
Maintenance and cleaning	A regular cost that helps preserve production
Changes in the household	A pool or extra air conditioning changes the calculation

For a solar installation in Samaná, reference sunshine data, such as that from the PVGIS tool, gives a starting point; the site visit adjusts it to the actual shading and orientation of your roof.

A fully fictional example

Fictional example, for teaching purposes only. The numbers are round and expressed in abstract "money units": they do not correspond to any real price, currency or existing installation.

Suppose:

• a system with a total cost of X = 10,000 units;
• 4,000 kWh self-consumed per year, valued at 0.25 units per kWh, i.e. 1,000 units;
• generator fuel avoided worth 250 units per year.

Estimated annual savings: 1,000 + 250 = 1,250 units. Payback: 10,000 ÷ 1,250 = 8 indicative years.

Now change one assumption:

• if self-consumption is lower and savings fall to 1,000 units a year, the result becomes 10 years;
• if a 2,000-unit battery replacement has to be counted, the cost rises to 12,000 units and the result becomes 9.6 years.

The example shows one thing above all: changing a few assumptions moves the result by several years. Think in ranges rather than a single figure.

Common mistakes

• counting all production as savings, including energy that is never used;
• forgetting battery or inverter replacement;
• using a price per kWh that does not match your bill;
• ignoring the shade of a tree that will keep growing;
• comparing two quotes with different power (kWp) and battery capacity (kWh).

For an off-grid villa in the Dominican Republic, or a grid-connected one, air conditioning and the pool pump often weigh heavily: when they run makes a big difference to self-consumption, and therefore to the result.

What to prepare for the site visit

• your electricity bills for the last twelve months, if possible;
• your generator fuel spending;
• a list of large appliances (air conditioning, pump, pool, water heater) and when they are used;
• your plans (extension, renting out, more air conditioning).

The technician will check orientation, shading and the condition of the roof. The detailed quote then lets you redo the calculation with real amounts. To read it well, see our guide on choosing an installer and reading a quote.

This calculation is an indicative estimate that does not replace a site visit or a quote. For a first look at your project for solar panels in Las Terrenas, try our solar calculator and see how we calculate. When you are ready, get your proposal.