If we apply a discount rate to the cost or savings in each year of a community solar subscription, and add those values up, we get the
net present value
(NPV). The NPV allows us to compare subscriptions that offer different amounts of total savings at different times.
Consider a pay-as-you-go subscription that offers savings of $100/year alongside a pre-pay subscription that costs $14,000 upfront, but offers savings of $1000/year. The pay-as-you-go option offers total savings of $2,500, while the pre-pay offers savings of $11,000 -- but the pay-as-you-go offers savings early, and the pre-pay offers more savings, but much later on in the subscription. How do you know which option is better?
Calculating the NPV of each subscription allows us to make an apples-to-apples comparison of these two very different subscriptions. If we assume a discount rate of 5%, the NPV of the pay-as-you-go plan is $1,473, and the NPV of the pre-pay plan is $730.
What does this mean for me?
If discount rates and the net present value of an ongoing agreement make sense, you should use them when evaluating your community solar options. SolarMatch allows you to calculate the NPV using the discount rate of your choice; you can find this feature at the bottom of the Savings Detail section of the quote detail.