Power Return on Investment – How to Calculate It?

Investment is a vital phenomena in everyone’s life. We all invest in many different things: Liquid assets, solid assets, Homes, Gold and other items.

Solar investment is no different than a regular investment; however the unique factor about solar investment comes from the fact that the risk vs. gain ratio is so low to high.

Any investment will have the following 3 attributes

1. Cost
2. Gain/value
3. Risk

Usually a high paying investment comes with a slightly higher risk, however in case of solar the risk is not high while the gain or the value returns from that investment is very high.

Such concept of high return value investments are called Hedging, where by investments reduces the risk.

Return of investment is the amount of time it will take for one to recover the cost spent on an investment.

Usually ROI is calculated to be = net costs/total monthly savings.

How to calculate the total savings on an investment:

Step 1 : Calculate the Net Costs:

The net cost is just not the direct cost to install and maintain solar, it comprises of many components such as:

1. Installation costs
2. Interest paid towards taking a loan to buy the equipment
3. Repairs & maintenance costs
4. Taxes paid during the year.

Add all the individual cost dominoqq components in step1 and call it Net Costs

Step 2: Calculate the Gains & Incentives:

The various gains could come from the following ways:

1. The rebates one may get from the solar vendor
2. State and federal incentives
3. Appreciation on the house value due to Solar
4. Monthly savings in energy bill due to Solar

Add all the components in Step 2 and call it Overall Gain

Total Savings over a period of time = Net Costs – Overall Gain

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