Ask for a solar quote and one number tends to dominate the conversation: payback. How many years until the system's paid for itself. It's an intuitive number, and it's also a genuinely incomplete way to judge a project.
Simple payback, and what it actually tells you
Simple payback divides the capital cost by the annual saving, giving a straightforward "years to break even" figure. It's easy to calculate and easy to communicate - and it treats every year of the system's life identically, ignores what happens to that saving over time, and says nothing about the value the project delivers after the payback point is reached.
NPV and IRR - the same project, a fuller picture
Net Present Value accounts for the time value of money across the project's whole life, not just the years until break-even. Internal Rate of Return expresses the investment's return as a percentage, comparable against other uses of the same capital. Neither is more "correct" than simple payback in isolation - they're answering different questions, and a serious investment decision usually wants more than one of them.
Self-consumption changes everything
A unit of solar generation used directly on site is worth the avoided import cost. The same unit exported is worth whatever the export rate happens to be, usually considerably less. Two systems with identical generation and identical simple payback can have very different actual value if one serves a site that uses most of its output directly and the other serves a site that exports most of it.
Export rates aren't fixed for the system's life
A payback calculation built on today's export rate is making an assumption about the next ten, fifteen or twenty-five years that may not hold. Export rates move - sometimes considerably - and a project's real value over its full life depends on more than the rate available on the day the quote was written.
Future demand matters more than it's usually given credit for
A site's demand today isn't necessarily its demand in five years. Electrification of heat or transport, growth, or a change in operating pattern can all shift how much of a solar system's output actually gets used on site rather than exported - which changes the real economics without changing anything about the panels themselves.
Electricity price inflation is doing more work than people assume
A payback calculation that holds the electricity price flat for the system's entire life is implicitly assuming inflation doesn't exist. Even a modest, realistic assumption about rising electricity prices materially improves a solar project's lifetime value compared to a flat-price calculation - which is worth knowing, because "worse than advertised" and "better than the flat-price number suggests" are both easy mistakes to make depending on which assumption a quote quietly used.
Three projects, one payback figure
Take three genuinely different projects - different sites, different demand profiles, different export assumptions - and it's entirely possible for all three to show an identical simple payback figure while representing very different lifetime value. The number that looks decisive on a single page rarely is, once the assumptions underneath it are actually examined.
Payback is a useful headline, not a complete answer. If you want a solar proposal properly tested against its own assumptions - not just its payback figure - get in touch.