CFOs now view energy management as a key corporate strategy to boost efficiency, mitigate risk, and drive growth.
As corporate sustainability demands escalate, CFO’s are increasingly pivotal in strategic decisions on energy procurement and energy efficiency technologies. This guide dives into solar energy’s role in this dynamic, emphasizing its benefits not just in cost reduction but also in financial stability and enhancing long-term business value.
Solar energy is the top solution for companies integrating renewables into their operations. From the CFO’s perspective, solar offers predictable, stable energy costs, financial risk management, and new revenue opportunities.
This CFO guide to energy savings provides advanced insights into the strategic role of solar in energy management and highlights how solar’s benefits extend far beyond cost reduction to enhance financial stability and long-term business value.
By the end of this guide, you’ll learn:
- The CFO’s role in energy management
- How to assess the financial impact of solar investments
- Strategies to align energy decisions with corporate goals
Aligning solar investments with financial goals
Solar energy is one of the most effective ways to reduce operational expenses (OpEx), since energy savings directly lower operating costs. Solar investments mitigate peak demand charges, fees imposed by utilities for the highest level of electricity usage during a billing cycle that can make up nearly 50% of a commercial electricity bill.
Solar creates energy cost reduction and enhances resilience across diverse industries and facilities, each with unique energy demands. For manufacturing, solar stabilizes costs by offsetting high machinery energy use, reducing peak demand charges, and controlling production expenses. For warehousing, solar powers climate control, lighting, and conveyor systems, ensuring stable supply chains even during grid disruptions. For office buildings, solar supports digital infrastructure and operational continuity.
Beyond cost savings, renewable investments can significantly reduce a company’s cost of capital. Many businesses gain access to renewable energy financing options with lower interest rates—often 10–20 basis points below traditional loans—due to the perceived lower risk associated with sustainable investments.
Adopting solar is particularly valuable for companies with global supply chain partners and overseas investors. Stakeholders increasingly demand strong sustainability practices. Solar-powered operations reinforce a company’s brand, social responsibility, and long-term financial positioning. As a result, this solar ROI becomes more than an energy solution—it’s a strategic asset within financial modeling for energy projects.
ROI calculations for energy investments
The Return on Investment (ROI) for a solar energy project is a direct measure of the financial benefit of going solar. Calculating ROI for a solar energy project involves examining various financial and operational factors: upfront costs and capital expenditures, maintenance and operational costs, energy yield and performance, and energy pricing trends. Earnings stem from lower electricity bills, and incentives, that allow savings to accumulate over time. The 30% Federal Tax Credit mitigates the initial costs. The Modified Accelerated Cost Recovery System (MACRS) allows for further depreciation benefits, significantly reducing effective project expenses and improving overall return on investment. A simplified and straightforward estimate of return on investment can be calculated as follows:
Commercial solar installation cuts electricity costs up to 60–80% for many users, depending on location, electricity rates, and system performance. Solar panel systems typically degrade at an average rate closer to 0.8% per year, though some systems can achieve degradation rates as low as 0.5%. Businesses should factor this range into their financial projections to ensure realistic performance expectations. CFOs can use advanced tools, like the National Renewable Energy Laboratory’s (NREL) System Advisor Model (SAM), to model the financial lifecycle of solar projects by factoring in local conditions, energy yields, and economic assumptions to derive accurate ROI calculations and net present value (NPV) assessments.
Key metrics for measuring solar energy ROI
Understanding the ROI on solar panel installation requires evaluating several key financial metrics, each providing insights into different aspects of solar’s financial performance.
Net Present Value (NPV)
When a business installs a solar energy system, it receives multiple benefits that contribute to the present value of energy cash inflows. These inflows primarily come from savings on energy bills, tax benefits, and various incentives. Each factor significantly contributes to offsetting the initial cost of the solar investment and improving the project’s overall financial return. Net Present Value (NPV) represents the difference between these cash inflows and the initial investment cost. A positive NPV indicates a financially viable and profitable project. CFOs typically factor in elements like the 30% Federal Tax Credit and ongoing energy savings when using NPV calculations to assess a project’s financial viability. Tools such as NREL’s System Advisor Model (SAM) can simplify and streamline solar panel ROI calculations.
Internal Rate of Return (IRR)
IRR measures the annualized return generated by a solar project, helping CFOs understand how solar compares to alternative investments. For solar energy, a higher IRR typically reflects strong returns driven by energy cost savings and incentives. IRR is particularly valuable for companies considering long-term investments, as it accounts for savings throughout the solar system’s lifespan, often 25+ years.
Simplified average payback period
The payback period indicates the duration required to recover the initial project cost. For most commercial solar projects, the payback period typically ranges between 5–7 years, depending on electricity rates, location, available incentives, and how well the system is maintained. However, it shouldn’t be the sole determinant of value. Projects with longer solar panel payback periods still offer substantial ROI over their lifetime, especially when assessing environmental and brand benefits.
Financing & cash flow
Many solar projects today can be structured to generate immediate positive cash flow, with post-incentive loan payments lower than monthly utility savings. This improves net operating income, enhances free cash flow, and contributes to EBITDA—without requiring upfront capital. It also increases the asset column by raising property value through the addition of income-generating infrastructure. However, not every project qualifies due to variables like site conditions, utility tariffs, and incentive eligibility. At PPM Solar, we specialize in evaluating these factors to determine financial viability. Contact us to find out if your facility can achieve this level of performance.
Levelized Cost of Energy (LCOE)
LCOE evaluates the total cost of producing energy over a system’s lifespan. For solar energy, this includes installation costs, maintenance, and financing costs divided by the total energy generated. A lower LCOE means more cost-efficient energy production, making it easier to compare solar with traditional energy sources. For commercial buildings, traditional utility electricity typically costs between 10–14 cents per kilowatt-hour (kWh), while solar energy, after applying incentives, can drop to around 4–6 cents per kWh. This makes solar energy 2–3 times cheaper than utility electricity over the project’s lifetime, significantly enhancing financial returns and stability.
By combining these metrics, CFOs can create a comprehensive picture of solar ROI, guiding decision-making and ensuring investments align with broader financial goals and sustainability strategies.
Evaluating the impact of solar incentives on ROI
Solar incentives enhance the financial returns of renewable energy projects, offering CFOs powerful tools to maximize ROI on solar panels.
The Investment Tax Credit (ITC) allows businesses to claim 30% of eligible solar project costs as a direct tax credit, immediately reducing the financial burden. MACRS enables businesses to depreciate solar investments over five years, offering substantial tax benefits during the early years of a project. Additionally, Renewable Energy Certificates (RECs) can be sold in certain markets, generating additional revenue streams for companies investing in solar.
Consider a $700,000 solar project. The ITC reduces this cost by 30%, resulting in a $210,000 credit. This leaves $490,000 as the post-ITC basis for depreciation. Under MACRS, 95% of this post-ITC cost ($465,500) is depreciable. At a 25% corporate tax rate, the depreciation benefit adds $116,375 in tax savings. Combining the ITC and MACRS benefits yields $326,375 in incentives, cutting the project’s net cost by nearly half and accelerating the solar payback period. Additionally, selling RECs can further offset costs, depending on market conditions.
Total Cost of Ownership (TCO) in energy management
To increase the resolution of financial modeling, CFO’s should incorporate TCO into their projects. Here, we outline key aspects of solar system health and maintenance decisions that enhance production and value of their solar investments. TCO not only affects immediate financial decision-making but also has a significant impact on ROI and long-term business strategy.
Components of TCO in Solar Investments
TCO in solar projects comprises three primary components:
- CAPEX (Capital expenditures) include upfront costs such as installing solar panels and inverters. Federal incentives like the ITC and MACRS can offset a large portion of CAPEX, significantly reducing initial expenses.
- OPEX (Operational expenditures) for solar power systems are generally lower than those of traditional energy sources, as sunlight is free. Costs include inverter replacements (every 10–15 years), system monitoring, and occasional repairs.
- Solar systems require minimal maintenance, typically from $15 to $25 per kilowatt annually. Regular cleaning and inspections are the primary ongoing needs, keeping efficiency high and ensuring long-term savings.
Lower OPEX and maintenance costs directly enhance profitability, particularly compared to traditional energy sources that incur ongoing fuel costs and frequent maintenance. A solar system’s upfront CAPEX is balanced by its lower lifetime TCO, making the long-term ROI compelling. Solar eliminates the volatility of fuel prices, allowing CFOs to project stable energy costs and align financial planning with operational goals.
Traditional energy systems are subject to rising energy rates, regulatory charges, higher maintenance demands, and the volatility and unpredictability of fossil fuel markets. In contrast, solar energy offers stable, predictable costs, lower operating expenses, and zero fuel dependency. Additionally, the declining costs of solar technology and improvements in system efficiency in recent years have further enhanced its competitive advantage. As a result, solar energy’s total cost of ownership (TCO) over a 20-year period can be significantly lower than fossil fuel alternatives, delivering measurable long-term savings and greater financial predictability.
Energy management tools and software for CFOs
Advanced management tools and software have become essential for CFOs navigating the complexities of energy strategy. These platforms streamline energy tracking, optimize consumption, and ensure accurate ROI assessment for solar and other investments.
Popular energy management platforms
Several platforms are designed to meet the needs of enterprises seeking greater control over energy data. Johnson Controls’ OpenBlue platform offers software solutions to manage various aspects of energy consumption, from HVAC and lighting to security and fire protection. This allows for a holistic approach to building efficiency. EnergyCAP specializes in utility bill management and reporting, giving CFOs a clear view of energy expenses and trends. Facilio offers real-time energy monitoring and analytics for facilities, making it easier to manage energy across large portfolios.
CFOs can identify inefficiencies, track cost-saving opportunities, and monitor the financial performance of solar installations for business in real-time using these tools for strategic energy management. These resources also provide predictive analytics, helping businesses forecast energy needs and model future ROI, ensuring solar investments deliver maximum value.
Modern energy platforms integrate seamlessly with existing financial systems, ensuring solar energy data, such as production rates and savings, is automatically reflected in financial models. Pairing solar data with ERP systems allows CFOs to align energy investments with corporate financial performance, demonstrating how solar contributes to broader operational and sustainability goals.
Key actions a CFO can take to maximize solar investment returns
- Gather data: Analyze utility bills and energy expenses to fully understand your organization’s energy usage patterns and needs.
- Choose a reliable solar partner: Partner with a credible provider to ensure the best solar solutions.
- Review proposals: Evaluate solar investment proposals thoroughly, focusing on ROI and other essential financial metrics.
- Engage your CPA: Involve your CPA to verify and validate applicable tax incentives. Your solar partner should assist by providing the necessary documentation and details to simplify this process.
- Finance and legal: Authorize and execute legal agreements, finalize the chosen financing method, and initiate the construction phase.
- Integration: Work closely with internal teams and your solar partner to integrate the solar system effectively into existing energy infrastructure, ensuring minimal disruption and maximum operational alignment.
- Monitor outcomes: Implement a monitoring program to track system performance and plan for ongoing costs like cleaning and inspections to ensure that your solar investment continues delivering expected value.
Facilities teams, who carry the responsibility of maintaining uninterrupted production, may view solar integration as a risk rather than an opportunity—especially in high-output manufacturing environments where downtime is catastrophically expensive. CFOs should build alignment and trust with their facilities teams, discussing openly how solar implementation can occur without impacting critical operations.
Conclusion
Solar energy system investments are no longer just about reducing energy costs—they represent a strategic opportunity for CFOs to align financial performance with facility resilience and corporate responsibility goals. By leveraging tools like TCO analysis, advanced ROI metrics, and energy management platforms, CFOs can evaluate solar’s impact across CAPEX, OPEX, and long-term operational resilience. ITC, MACRS, and RECs further enhance the financial case for solar, accelerating payback periods and boosting ROI.
Beyond the numbers, solar strengthens a company’s position in a competitive, sustainability-driven market. It enhances operational resilience, builds investor trust, and positions businesses to meet evolving global standards. Additionally, solar energy provides a predictable fixed cost, shielding businesses from the erratic pricing structures set by utility companies. This financial stability allows for better forecasting and budget management, reducing exposure to unpredictable rate hikes.
A modern approach to solar’s strategic value
Companies now evaluate traditional financial ROI alongside newer strategic considerations. Investors focus on sustainable practices in today’s market and prioritize solar energy investments. Studies by Deloitte have shown that a 10-point increase in a company’s ESG score is associated with approximately a 1.2x higher EV/EBITDA multiple, indicating a positive correlation between strong ESG performance and market valuation.
Another key motivator is that utility companies themselves recognize the value of solar energy and are heavily investing in it. This trend further reinforces the case for businesses to invest in solar, as staying ahead of the curve ensures long-term competitiveness and energy independence.
