C&I Energy Storage ROI: Key Formulas Cheat Sheet
This table summarizes the essential formulas for a preliminary Return on Investment (ROI) analysis of a Commercial & Industrial (C&I) energy storage project.
| Concept | Formula | Description |
|---|---|---|
| 1. Simple Payback Period | Payback Period (Years) = Net Project Cost / Annual Net Savings | The most straightforward metric. Shows how many years it takes for the savings to pay for the initial investment. |
| 2. Peak Shaving (Demand Charge Savings) | Monthly Savings ($) = Peak Demand Reduction (kW) × Demand Charge Rate ($/kW) | Targets utility “demand charges.” The battery discharges to lower the site’s peak power draw from the grid, saving significant fixed costs. |
| 3. Energy Arbitrage (Cost Savings) | Daily Savings ($) = Energy Discharged (kWh) × (Peak Electricity Rate ($/kWh) - Off-Peak Electricity Rate ($/kwh)) | The core of “price shifting.” Charge the battery when energy is cheap, use it when energy is expensive. |
| 4. Net Project Cost | Net Project Cost ($) = (Hardware + Installation + O&M) - (ITC & Rebates) | The true upfront cost after accounting for all incentives, such as the Investment Tax Credit (ITC). Critical for accurate calculation. |
| 5. Annual Net Savings | Annual Net Savings ($) = (Demand Charge Savings + Energy Arbitrage Savings + Other Revenue) - Annual O&M Cost | The total yearly financial benefit generated by the system. “Other Revenue” can include grid services payments. |
| 6. Return on Investment (ROI) | ROI (%) = (Lifetime Net Savings - Net Project Cost) / Net Project Cost × 100% | The overall percentage return on the initial investment over the system’s lifetime. A more comprehensive view than simple payback. |
How to Use These Formulas:
- Gather Data: You will need 12 months of utility bills (to find your peak demand and electricity rates) and project quotes (for costs).
- Calculate Annual Savings: Use Formulas #2 and #3 to estimate your yearly savings from demand charge reduction and energy arbitrage.
- Determine Net Cost: Use Formula #4 with your project quote and applicable incentives.
- Estimate Payback & ROI: Use Formulas #1 and #6 for a high-level financial assessment.
Important Considerations:
- Battery Degradation: Savings will slightly decrease each year (e.g., 1-2%) as the battery’s capacity declines.
- Electricity Inflation: Factoring in a yearly increase (e.g., 2-4%) for electricity rates will make future savings more valuable, improving long-term ROI.
- Internal Rate of Return (IRR) is a more robust metric than simple ROI as it accounts for the time value of money, but it requires more complex financial modeling.
This cheat sheet provides the foundation for a sound initial financial analysis.
