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Solar payback, NPV and IRR explained

Published 8 October 2026. About 7 minutes to read.

Clients want to know whether solar is worth it. Payback is the number they ask for, but it leaves out most of the story. Net present value and internal rate of return fill in the rest, and both are easier to explain than they sound.

Simple payback

Simple payback is the system cost divided by the saving in the first year. A R150,000 system that saves R30,000 in its first year has a simple payback of five years.

It is easy to understand, but it assumes electricity prices never change, and it says nothing about what happens after payback.

Payback with tariff increases

Electricity prices rise over time, and every increase makes the solar saving larger. In the same example, with tariffs rising 10 % a year and the panels losing 0.5 % of their output each year, the yearly savings grow from R30,000 to about R32,800, R35,900, R39,300 and R43,100. The total passes R150,000 during the fifth year, after about 4.3 years.

The tariff increase you assume matters a great deal. Use a rate the client recognises from recent years, and show what happens with a lower one.

Net present value (NPV)

Money saved in year ten is worth less than money in hand today, because today's money could be earning interest elsewhere. NPV discounts each year's saving back to today's value at a chosen rate, adds them up and subtracts the cost.

NPV = −cost + saving₁ ÷ (1 + r)¹ + saving₂ ÷ (1 + r)² + … + savingₙ ÷ (1 + r)ⁿ

The discount rate r is the return the client could reasonably get elsewhere, or the interest on a loan used to pay for the system. Over ten years at 8 %, the example above has an NPV of roughly R145,000. A positive NPV means the system beats the alternative; a negative one means the money would do better elsewhere.

Internal rate of return (IRR)

IRR is the discount rate at which the NPV is exactly zero. Think of it as the interest rate the system effectively earns on the money put into it. The example works out at about 23 % a year over ten years, which is easy to compare with a savings account, a bond rate or the interest on a solar loan.

What to include

• The full cost: panels, inverter, battery, mounting, cabling, labour and any approvals.
• Fixed charges: daily or monthly charges that stay the same with solar, or change when the client switches tariff.
• Export credit: what surplus solar earns, if anything. Zero-export systems earn nothing for surplus.
• Maintenance and replacements: cleaning, and an inverter or battery replacement if the period is long enough to need one.
• Degradation: panels lose a little output every year.

Keep it honest

All of these are estimates built on assumptions about the weather, the tariff and how the household uses electricity. Show the assumptions next to the results, and avoid presenting a single payback figure as a promise.

Return on investment in Lekker Sun

The Finance page takes the cost from the bill of materials and works out year-one savings, payback, NPV and IRR over up to ten years, with tariff and fixed-charge increases, export credit or zero export, degradation and maintenance. The report lists every assumption alongside a cumulative cash-flow chart, so the client can see what the numbers rest on.

This guide is general information to help you plan and compare options. It is not engineering, electrical or financial advice. Always follow the equipment manufacturer's instructions and your local wiring rules, and have a qualified installer check the design.