We took a deep dive to understand all the factors influencing the payback period, and breakeven point of a commercial solar installation over the last ten years. The answer is that the break even on a medium size commercial building (e.g. a 3,000 m2 roof), have been falling consistently for almost ten years, and are now lower then they have ever been. This is owing to a combination of (a) the plummeting cost of solar panels, (b) the grid import price of electricity increasing, and (c) the export price of selling into the grid increasing. This chart combines all these factors to model the break-even point:

To elaborate on these factors:

1. Solar panel price: since 2010 the cost per Watt of a solar panel has dropped by 90%. The larger the solar installation, the higher proportion of the cost is solar panels, given other costs are fixed or semi-fixed. This trend of price decrease has been consistent since 2010 and so the costs of large solar projects have fallen commensurately.
2. Import price of electricity: The biggest saving from solar is from self-generating electricity. In 2022, the price of electricity more than doubled. Although it has now come down moderately, it is still over twice the average of during the 2010s (and the price cap increased today). With the prices of electricity increasing so much, it makes the returns from solar much better as you’re offsetting a higher p/kWh with free solar electricity
3. Export revenue of electricity: In the 2010s, the government provided the Feed-In-Tariff (FiT) which paid “generators” per kWh for the solar electricity they generated. This is why in the chart, despite panels being 10x more expensive in 2010, the breakeven was only 8 years. The FiT tariff was very generous and so the government reduced it until it was pretty negligible by 2015-17 (e.g. 40p/kWh in 2010 to about 2-3p/kWh in 2016). Hence why the breakevens were so high in that period of >15 years). However, since 2020, the Smart Export Guarantee that replaced it has been increasing, due to point #2, and has contributed to the break-even time decreasing.

With these factors combined, the break even on a commercial building of the size of Markian House is extremely good at well below four years.

As such, for a tenant on a 8+ year long term lease, it would make sense for them to install solar. Even if they moved out at the end of the lease, they would still have four years of generating electricity for free after they’ve fully paid for the system.

We are currently in an unprecedented “sweet spot” for medium-to-large commercial solar installations. This is something that not many companies have realised yet, but it makes for a very compelling overall proposition.