Use NPV, not only payback, to value solar

Short answer #

NPV discounts every future net cash flow to today and subtracts investment. It captures timing, life and later benefit. Positive NPV means the scenario mathematically beats the selected discount rate.

Important variables #

• Annual net cash flows
• Life and residual value
• Discount rate
• Degradation and replacement cost

Worked example #

€1,500 in year 15 is worth less today than €1,500 in year one at a 3% discount rate. Simple payback treats both equally; NPV does not.

Break-even: What changes the result? #

A higher discount rate reduces the value of later cash flows. Longer life helps only if the system continues to generate net benefit.

Common mistakes #

• Hiding the discount rate
• Deducting incentives twice
• Treating IRR and NPV as identical

Sources & assumptions

• IEA PVPS — Photovoltaic Power Systems Programme (2026-08-17)
• RATIOXA — Methodology and formulas (2026-08-17)