Discount Rate
The interest rate used to calculate the present value of future cash flows. In solar economics, it reflects the homeowner's opportunity cost of capital — what return they'd earn elsewhere.
Why It Matters
A lower discount rate makes solar's long-term savings more valuable in present-value terms. Typical residential analysis uses 5-8% real discount rate.
Related Topics
Related Terms
Net Present Value (NPV)
The total value today of all future solar savings minus the initial investment, discounted at a chosen rate. A positive NPV means the investment is financially worthwhile.
Internal Rate of Return (IRR)
The annualized rate of return on a solar investment accounting for all cash flows over the system's lifetime, including tax credits, energy savings, and maintenance costs.
Levelized Cost of Energy (LCOE)
The total cost of generating electricity from a system divided by its lifetime energy production. Used to compare energy sources.