How Much Is a Solar Business Worth?
A solar business is worth the earnings it could keep making in ordinary conditions, after a market wage for the owner and a realistic cost for warranties, not the earnings of its best year. Demand and margins in the sector swing with government incentives, equipment prices and the cost of winning customers, so a valuer asks how much of the profit would survive a change in any of them. The worked example below uses illustrative figures.
- A peak year, especially one lifted by a rush ahead of an incentive change, is not treated as maintainable.
- Earnings are tested against reduced demand or margin, because the sector’s results have swung with policy and prices.
- Warranty and service obligations stay with the business, so a realistic annual cost is deducted from earnings.
- Work that arrives through referrals and the brand carries less risk than work bought one lead at a time.
- Commercial work and maintenance agreements are weighed as a steadier stream, separate from installation margin.
What decides the value of a solar business?
The earnings it could keep making in ordinary conditions, not the earnings of its best year. Demand and margins have swung with government incentives, panel and battery prices and the cost of buying leads, so a valuer asks which part of the profit would survive a change in any of them.
An owner who started as an electrical tradie and now sells, designs and manages crews is replaced at a market cost, as in any trade. Warranty obligations that stay with the business are treated as a cost a buyer inherits. The wider list of factors is on our page on solar business valuations. Every figure below is illustrative. None is a benchmark, and none describes a real business, incentive or date.
Why is the latest year not enough for a solar business?
Because it may be the peak. Demand can rush ahead of an incentive change, stall after one, or lift when equipment prices fall, and a single year captures only one of those. We look at several years of installs, margin and lead cost, and we ask whether the cost base and the way the business sells have changed enough to make older years less relevant.
| Year | Reported EBITDA | What happened |
|---|---|---|
| Year 1 | $150,000 | An ordinary year |
| Year 2 | $240,000 | Demand lifted by a government incentive |
| Year 3 | $110,000 | Orders slowed after the incentive was reduced |
| Year 4 (latest) | $480,000 | A rush of orders ahead of a further incentive change |
| Four-year average | $245,000 |
Illustrative figures only. No real incentive, date or business is described.
A simple average is one way to find a maintainable level. It is not the only way, and we also test whether older years still reflect how the business operates. Here it brings $480,000 down to $245,000 before any other adjustment.
Illustrative solar installer: maintainable earnings and value
Illustrative- Average reported EBITDA, four years
- $245,000
- Less: owner’s role at market cost ($150,000 less $70,000 already paid)
- $80,000
- Less: warranty cost lifted to a realistic annual level
- $30,000
- Add: family member paid above market
- $20,000
- Maintainable EBITDA
- $155,000
- Multiple chosen for illustration
- 2.5 times
- Illustrative enterprise value
- $387,500
- Comparison: latest year with the same adjustments ($480,000 less $80,000 less $30,000 plus $20,000)
- $390,000
- Comparison: value if the peak year were treated as maintainable, at the same multiple
- $975,000
Illustrative figures only. The multiple is chosen for illustration and is not a market figure. The comparison rows show the effect of the choice and are not a valuation.
Treating the peak year as maintainable would multiply the answer by about two and a half times. That is the difference between a valuation that holds when a buyer’s adviser tests it and one that does not. We chose a modest multiple for illustration because the earnings swung so widely. A real multiple depends on the evidence, and our guide to EBITDA multiples for trade businesses explains what a multiple represents.
The sector’s history matters too. Some businesses grew quickly when incentives or prices were favourable and then failed when conditions changed, often leaving customers without warranty support. A buyer will look hard at earnings that look volatile, so we look at how the business behaved when conditions turned and not only at how it performed when they were good.
How do government incentives affect the value of a solar business?
To the extent your earnings depend on them. Government incentives for small-scale systems and batteries lower what customers pay, and so support demand. We do not forecast policy. We look at how much of each sale depends on an incentive, how the business handles any certificates it creates and sells, and what earnings would look like with demand or margin reduced.
Rules have changed in the past and can change again, sometimes with little notice. A valuation reflects what was known at the valuation date, and a rush ahead of a change or a pause after it is treated as a distortion to be smoothed, not as a trend. Signed jobs not yet installed show demand, but they also carry customer deposits and delivery obligations, so we look at the size and age of the backlog.
How do warranties and lead costs change the answer?
The installer usually gives a workmanship warranty and attends faults long after the job, while product warranties sit with manufacturers who may no longer be operating. The cost falls on the business, and a buyer inherits it. We look at the claims history, the age of the installed base and whether the accounts hold a reasonable provision, which is what the warranty adjustment in the example represents.
Lead cost is the other large variable. Many residential installers buy leads from aggregators, and the same lead is often sold to several competitors, so cost per sale can rise without the business doing anything wrong. We look at spend, leads, conversion and cost per sale by channel, and at how much work arrives through referrals, repeat customers and the business’s own search visibility. Work that arrives through the brand is cheaper to win and transfers more readily than work bought one lead at a time.
Commercial work changes the picture. Maintenance, monitoring and cleaning agreements on commercial systems repeat each year and tend to be steadier than installation margin, so we weigh them as a separate stream. Our guide on how much an electrical business is worth covers the solar exposure of an electrical contractor.
Delivery matters as well. Many installers use subcontracted crews paid per system, so we look at the rates, whether the crews also work for competitors, how rework is managed and whether the arrangements are genuine contracting that would continue under a new owner. Systems also need connection approval from the local network operator, and delays can hold up installs and the cash that follows.
What reduces and what increases the value of a solar business?
- Increases: commercial work and maintenance agreements with a history of renewal. They repeat without a new sale.
- Increases: customers who arrive through referrals, reviews and the business’s own brand. The cost of winning them is lower and they stay with the business.
- Increases: a stable install team and accreditations held by more than the owner. Requirements differ by state and by regulator, so we check who holds what.
- Increases: a clean claims history and a reasonable warranty provision.
- Reduces: earnings that depend on one incentive or one rush of orders.
- Reduces: heavy reliance on bought leads and commission-only sellers. Cancellations and complaints arising from sales practices are a liability a buyer will price.
- Reduces: an owner who sells every job. The selling is hard to transfer.
- Reduces: stock bought ahead of a price fall, or exposure to a distributor failing.
- Reduces: an unquantified warranty book, especially where suppliers have stopped trading.
What should a solar business owner prepare for a valuation?
- revenue split between residential solar, batteries, commercial work and maintenance, for as many years as you have
- a lead source report showing spend, leads and sales by channel
- a sales backlog with deposits held and expected install dates
- a warranty register, claims history and the basis of any provision in the accounts
- installer and designer accreditations and electrical licences, with the holder of each
- subcontracted crew agreements and rates
- inventory, supplier terms and any deposits paid
- complaints and cancellations for the last three years
An independent valuation then sets out each adjustment and the evidence behind it, and a draft report is provided before it is finalised. Whether accreditation or licences transfer on a sale is a question for the regulator or your lawyer. When your records are together you can start online.
This guide is general information, not legal, taxation or financial advice. Examples are illustrative. The appropriate valuation approach depends on the circumstances and purpose of each engagement.