Commercial solar payback — calculated honestly.

Simple payback vs discounted payback

Simple payback divides upfront capital by year-one annual saving. It's quick, intuitive, and slightly optimistic — it ignores electricity price inflation (which makes future savings worth more) and the time value of money (which makes future savings worth less). For commercial solar in the UK in 2026, those two factors roughly cancel out, so simple payback is a reasonable first-order metric.

Discounted payback applies a discount rate (typically the company's WACC, often 7–12% for trading SMEs) to future cash flows and counts when cumulative discounted cash flow turns positive. It's the more rigorous measure for capital allocation decisions. Discounted payback is typically 0.5–1.5 years longer than simple payback for commercial solar.

The five inputs that matter

1. Capital cost (turnkey, all-in)

   Not the headline £/kWp figure. Include site survey, structural works, DNO connection, switchgear upgrades, scaffolding, and commissioning. Most £700/kWp quotes become £850/kWp once these are added.

2. Self-consumption rate

   The percentage of generated kWh that is consumed on-site (vs exported). Self-consumed kWh save the full grid retail rate (23–30p); exported kWh earn the SEG rate (4–15p). A 10% change in self-consumption can shift payback by 0.5–1.0 years.

3. Effective electricity rate

   Your blended cost per kWh — not the unit rate alone, but the total electricity bill divided by total kWh consumed. Includes standing charges, capacity charges, and DUoS where they vary. Many businesses underestimate by 2–5p per kWh because they look at unit rate alone.

4. Annual generation

   UK commercial solar typically generates 850–1,050 kWh per kWp per year, depending on latitude, orientation, tilt, and shading. South-facing optimum-tilt: 1,000+ kWh/kWp. East-west on flat roof: 850–950 kWh/kWp. Always model with site-specific irradiance data, not national averages.

5. Tax position

   For profitable corporation-tax-paying companies, the 50% First Year Allowance plus AIA (where available) reduces effective capital cost by 20–25%. Post-tax payback is typically 0.5–1.5 years shorter than simple payback. Charities, public-sector bodies, and loss-making companies don't benefit from these reliefs.

Common payback calculation errors

• Using £/kWp without site-specific costs. A 50kWp system on an easy single-storey building costs different per kWp than a 50kWp system on a 12m-high warehouse with cabling complications.
• Assuming 100% self-consumption. Almost no commercial site achieves it. Even 24/7 operations have weekend and holiday troughs where solar exceeds demand.
• Forgetting inverter replacement. String inverters typically need replacement at year 10–15. Budget £80–£120 per kWp at today's prices. This is a real cost on the 25-year IRR.
• Quoting electricity inflation that doesn't match reality. Long-run UK commercial electricity prices have risen at roughly RPI + 1–2%. Models that assume RPI + 5% are aggressive; models that assume flat prices are too conservative.
• Confusing IRR with payback. Payback tells you when capital is recovered. IRR tells you the rate of return. A 4-year payback project might have a 22% IRR or a 15% IRR depending on what happens in years 5–25.

Realistic 2026 UK payback ranges