Hey All,

Personal finance newbie here, but face-punches for being deep in the pool of ignorance welcome.

I'm trying to calculate the ROI on solar panels. The challenge I'm having is with inflation. I don't know how to take it into account.

Here's the calculation:

ROI = (Gain - Cost)/Cost.

Gain is the energy savings for 25 years. (I'm assuming a 25 year solar panel lifetime.)

I've factored in for example, performance decreases on the panels, electricity price rises and the likes. But for simplicities sake:

If the solar panels save $800 a year, every year for 25 years, assuming 3% inflation, I take off 3% every year to the cumulative earnings.

Year 1: 800

Year 2: (Year 1+800)*0.97

Year 3: (Year 2 +800)*0.97

Year 4: (Year 3+800)*0.97

...

Year 25: (Year 24+800)*0.97

My question: Is this the right way to factor in inflation?

It seems to me that by Year 25, I shouldn't be adding in $800, because it will be able to buy a lot less goods, so it should be lower if inflation adjusted. Or maybe I'm overthinking things.

I'd really appreciate any help!

Cheers!

Iain