IRR, NPV, and Payback: How to Underwrite Solar Like Any Other Real Estate Asset

Two scenarios, two IRRs

Zero-capex (PPA). IRR is effectively infinite — you put in $0 and receive net NOI from year one. The right metric here is NOI/unit/year and contract term risk, not IRR.

Owner-financed (loan or cash). This is where IRR matters. A typical 24-unit property with $180K in owner-financed solar equipment (post-ITC net cost ~$126K) generating $28K/yr of gross owner revenue produces an unlevered IRR of ~14–18% over 20 years, depending on utility escalation assumptions.

NPV at a 7% discount rate

On the owner-financed case above, NPV over 20 years lands around $140K–$180K — meaning the project adds that much to the building's present value beyond the equipment cost.

Payback

• Zero-capex: n/a (positive from day 1).
• Owned, cash: 6–8 years in most Sun Belt markets, 9–11 years in cheaper-power states.

The one variable that swings everything

Utility rate escalation. Underwrite at 3% and the numbers are conservative; underwrite at 5% (closer to the 10-year US average) and IRR jumps 300–400 bps. Pick a rate you can defend with your local utility's rate case history.

Want to see what your roof could earn? Estimate your NOI lift or talk to our team.