NPV (Net Present Value) for solar

Written and checked by the Energy Merchants desk · Reviewed 3 October 2026

NPV stands for net present value. It answers a more careful question than simple payback: after allowing for the time value of money, is this investment worth more than it costs?

A dollar saved in year ten is worth less than a dollar today, because the money could have earned a return elsewhere. NPV discounts each year’s saving by a chosen rate, adds them up and subtracts the upfront cost. Positive means the project beats that rate. Negative means it does not.

A worked example

The figures are illustrative, not a quote. A business pays $60,000 for a solar system after the STC discount. It saves $9,000 a year in electricity. Use a 7% discount rate over 10 years and ignore degradation, inflation and maintenance.

The present value of 10 years of $9,000 at 7% is about $9,000 x 7.02 = $63,200. NPV is $63,200 minus $60,000 = about $3,200, so it narrowly beats a 7% return. Simple payback is 60,000 / 9,000, which is 6.7 years. Both are true, and they answer different questions. See simple payback period.

In practice

Commercial customers and finance teams often want NPV, or the related internal rate of return, because they are comparing solar with other uses of cash. A good model includes electricity price assumptions, panel degradation, inverter replacement, tariff structure and the STC discount at installation. Change the assumptions and the answer moves a lot, so show the inputs, not only the output.

The STC discount helps NPV in the most direct way: it reduces the upfront cost on day one. For larger systems the discount depends on the deeming period and, from 1 October 2026, mid-scale solar between 100 kW and 1 MW can create STCs with a five-year period. See mid-scale solar STCs and the STC calculator.

Common confusion

NPV is not the same as total savings. Adding up 25 years of bill savings and ignoring discounting overstates value. And a higher NPV on a larger system does not automatically mean a better project, since the capital needed also rises.

The discount rate is a choice, not a fact. A customer who can borrow at 6% and a customer who expects 12% returns from their business should use different rates.

See also what is an STC worth in 2026 and the glossary.