Business & Contracting calculator
ROI Calculator
Calculate project ROI, simple payback, NPV, and IRR for electrical work, energy upgrades, equipment purchases, and system modernization. For example, a $10,000 project with $2,500 annual savings and $500 maintenance has $2,000 net annual savings, 5.0-year payback, $0 NPV at 0% discount, and 20% annual ROI.
Updated July 16, 2026
How to Use
Electrical Project ROI: Making the Business Case for Upgrades
Every electrical upgrade is a capital investment. Whether you're proposing a $5,000 LED retrofit or a $500,000 solar installation, the decision-maker needs to see the numbers. This calculator provides the four key financial metrics used in electrical project justification.
The Four ROI Metrics Explained
| Metric | Formula | What It Tells You | Good Target |
|---|---|---|---|
| Simple Payback | Investment ÷ Annual Savings | Years to recover initial cost | <3 years for efficiency upgrades |
| ROI % | (Net Savings ÷ Investment) × 100 | Percentage return over project life | >100% over equipment life |
| NPV | Σ (Cash flow / (1+r)ⁿ) − Investment | Present-day value of future savings | Positive = profitable |
| IRR | Discount rate where NPV = 0 | Effective annual return rate | >company hurdle rate (8–15%) |
Worked Example: LED Lighting Retrofit for 50,000 sq ft Warehouse
A warehouse is replacing 200 × 400W metal halide high-bay fixtures with 200 × 150W LED high-bay fixtures. Operating hours: 4,380 hrs/year (12 hrs/day, 365 days).
| Parameter | Metal Halide (Before) | LED (After) |
|---|---|---|
| Total wattage | 200 × 400W = 80 kW | 200 × 150W = 30 kW |
| Annual energy | 80 × 4,380 = 350,400 kWh | 30 × 4,380 = 131,400 kWh |
| Annual energy cost ($0.10/kWh) | $35,040 | $13,140 |
| Annual maintenance cost | $4,000 (lamp replacement) | $500 (cleaning only) |
| Total annual savings | $25,400/year ($21,900 energy + $3,500 maintenance) | |
- Total investment: 200 fixtures × $350 = $70,000 installed
- Utility rebate: 200 × $75 = $15,000. Net cost = $55,000
- Simple payback: $55,000 ÷ $25,400 = 2.17 years
- 10-year NPV (at 8% discount rate): $25,400 × 6.71 (PV annuity factor) − $55,000 = $115,434
- IRR: approximately 44% — far exceeds any typical hurdle rate
Typical Payback Periods by Project Type
| Project Type | Typical Investment | Annual Savings | Payback |
|---|---|---|---|
| LED retrofit (high-bay) | $250–400/fixture | 60–65% energy reduction | 1.5–3 years |
| VFD on HVAC fan motor | $150–300/HP installed | 30–50% energy reduction | 1–2 years |
| Power factor correction (capacitor bank) | $25–50/kVAR | Eliminate PF penalty + reduce losses | 1–3 years |
| Commercial solar (ground/roof) | $2.50–3.50/W installed | Offset 60–90% of electricity | 5–8 years |
| Battery energy storage | $500–800/kWh | Demand charge reduction + TOU arbitrage | 5–10 years |
| Panel upgrade (200A to 400A) | $5,000–15,000 | Enable EV charging, expansion | Capacity investment, not savings-driven |
Incentives and Rebates
- Utility rebates: Treat confirmed rebates as reductions to initial investment before calculating payback.
- Tax credits or deductions: Model only incentives that apply to the project and have been confirmed with the current program rules.
- Pre-approval: Many utility programs require approval before purchasing equipment or starting installation.
- Scenario review: Compare the project with and without incentives when approval is uncertain.
Common Applications
More applications. Open to review 5 additional use cases.
Frequently Asked Questions
What is the typical payback period for an LED lighting retrofit?
LED retrofits typically pay back in 1.5–3 years depending on operating hours, existing fixture type, and electricity rate. Replacing 400W metal halide with 150W LED high-bays (62.5% reduction) at 4,380 hrs/year and $0.10/kWh saves approximately $110/fixture/year. At $350 installed minus $75 utility rebate ($275 net), payback is 2.5 years. Higher electricity rates ($0.15–0.25/kWh in CA, NY, NE) reduce payback to 1–1.5 years. Adding maintenance savings (no lamp/ballast replacement) improves payback further. LED fixtures have 50,000–100,000 hour lifespans, so post-payback savings continue for 10–20 years.
How do I calculate NPV for an electrical project?
NPV (Net Present Value) discounts future cash flows to today's dollars: NPV = Σ (Annual Savings / (1+r)^n) − Initial Investment. Use a discount rate (r) equal to your company's cost of capital or hurdle rate (typically 8–15%). For a $55,000 LED retrofit saving $25,400/year over 10 years at 8% discount: NPV = $25,400 × 6.71 (10-year annuity factor at 8%) − $55,000 = $115,434. Positive NPV means the project creates value. Include energy cost escalation (3–5%/year) for more accurate results — rising energy costs increase future savings and improve NPV.
What discount rate should I use for electrical project ROI analysis?
Use your company's weighted average cost of capital (WACC) or the minimum required rate of return (hurdle rate). Typical ranges: large corporations 8–12%; small businesses 12–20%; government/institutional 3–6%; residential homeowners use mortgage rate or opportunity cost (5–8%). Higher discount rates favor projects with faster payback (LED retrofits, VFDs) over slower-payback projects (solar, battery storage). When comparing projects, use the same discount rate for all options. If using borrowed money for the project, the loan interest rate is a reasonable discount rate proxy.
How do utility rebates and tax credits affect electrical project ROI?
Utility rebates directly reduce the initial investment, dramatically improving payback. Federal ITC (30% for solar/storage through 2032) reduces net cost by nearly a third. MACRS 5-year accelerated depreciation saves an additional 20–25% for taxable entities. Combined effect for a $100,000 solar system: $100,000 − $30,000 ITC − ~$22,000 depreciation benefit = $48,000 effective cost. Apply for utility rebates BEFORE starting the project, as most require pre-approval. Stack incentives: federal + state + utility rebates are typically additive. The calculator deducts incentives from investment cost before calculating payback and ROI metrics.
How should I account for energy cost escalation in ROI calculations?
Energy prices have historically risen 3–5% annually, and this trend is expected to continue or accelerate with grid modernization costs and renewable energy transitions. For conservative analysis, use 3% escalation; for aggressive, use 5%. This means year-1 savings of $25,000 become $32,500 in year 10 at 3% escalation, or $38,700 at 5%. Over a 20-year project life (typical for solar), cumulative savings with 3% escalation are approximately 35% higher than flat-rate projections. Always show the analysis both with and without escalation to present a range of outcomes. The calculator supports custom escalation rates for each cost component.
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