Internal Rate of Return, or IRR, is the discount rate (%) that makes the Net Present Value of the system equal zero (0). Or, in other words, IRR is the amount of profit you gain by investing in a renewable energy system. It is a percentage. An IRR of 10% means you make 10% profit per year on the money invested in the project.
To calculate IRR, we take the Net Purchase Cost (after rebates and incentives) of your solar system, and the estimated annual utility savings or other cash in-flows, for each year, then find the rate of return on your money that makes the cash flow zero over the system`s life.
Utility Savings Assumptions: For residential (individual) situations we assume utility savings are in Gross Income dollars ("pre-tax" or what you earned).
Operating Cost Assumptions: For solar electric (PV) systems we assume the power inverter is replaced at year 15 in the systems life. No other operating or maintenance costs are assumed..
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