Six points to check when calculating solar power generation while considering degradation rate

When calculating solar power generation, looking only at the output immediately after installation can lead to expectations and actual results diverging after several years or a decade or more. Solar power systems are long-lived equipment, and the condition of PV modules and peripheral equipment gradually changes over time. Therefore, in annual generation calculations, it is important not only to consider irradiance, tilt angle, azimuth, shading, temperature, and various losses, but also how to account for the degradation rate. In this article, we explain the concept of degradation rates that practitioners should check when performing generation calculations, divided into six points to verify.

Table of Contents

• Confirm the purpose of including the degradation rate in power generation calculations.

• Treat the decline in the first year separately from the decline from the second year onward

• Clarify the reference value for annual power generation.

• Do not apply a uniform degradation rate; verify it against the equipment conditions.

• Check the difference between actual data and calculated values every year.

• Reflect in long-term financial and maintenance plans.

• Summarize the precautions when using deterioration rates

• Summary

Confirm the purpose of including the degradation rate in power generation calculations

The purpose of taking degradation rate into account when calculating solar power generation is to avoid overestimating future output. Solar power equipment does not maintain the same performance from the moment it is installed. Photovoltaic modules are exposed outdoors to ultraviolet radiation, temperature fluctuations, rain and wind, snow accumulation, humidity, and other influences. Wiring, connections, mounting structures, power conversion equipment, and measurement instruments also change condition over time. Therefore, if generation is calculated using the same value as immediately after installation for many years into the future, long-term projections can end up higher than the actual performance.

In practical generation calculations used in professional practice, it is common to first estimate the first-year annual energy production and then reflect how much it will decline from the second year onward. For example, calculations typically assume the expected first-year production as a baseline and then apply a fixed percentage decrease each year. However, degradation rates are not exactly the same for every installation. The observed decline in actual energy production varies depending on module type, installation environment, construction quality, frequency of operation and maintenance inspections, the effects of soiling and shading, and whether there are system shutdowns.

What is important here is not to confuse the degradation rate with the failure rate or downtime rate. The degradation rate mainly represents the assumption that equipment performance gradually declines over time. On the other hand, power generation stoppages, equipment malfunctions, communication failures, snowfall, sudden shading, heavy soiling, and similar events need to be treated as factors separate from degradation. If all causes of low power generation are lumped into the degradation rate, calculation accuracy will suffer and it will become difficult to distinguish the causes.

In calculating solar power generation, you first consider how much can be generated under ideal conditions, then estimate how much loss will occur under actual installation conditions, and finally take into account how much performance will decline over the long term. The degradation rate is a factor used to refine this long-term estimate. It plays an important role in pre-installation simulations, investment payback assessments, maintenance planning, and future reassessments of power generation.

Especially when considering generation over long periods such as 20, 25, or 30 years, even small annual declines accumulate into significant differences. Differences that may appear as mere errors in the first year can affect financial performance and equipment valuation in long-term calculations. Therefore, degradation rates should not be treated as simple correction factors but must be carefully set as assumptions for long-term operation.

Treat the first-year decline separately from declines in subsequent years

When incorporating degradation rates into power generation calculations, it is important to consider the first-year decline and the decline from the second year onward separately. In solar power systems, there is an approach that treats the initial output drop that occurs during the initial period immediately after installation separately from the subsequent gradual long-term decline. These do not necessarily occur in the same way for every system, so when carefully estimating long-term energy production, you need to confirm whether it is appropriate to apply the same rate to the first year and to the years that follow.

In the first-year calculation, determine the reference annual energy production by including annual solar irradiance, installation tilt angle, azimuth, temperature effects, shading, soiling, conversion losses, wiring losses, downtime, and so on. At this stage, the production should not be derived directly from the simple rated maximum output, but should be a practical value that reflects site conditions. If the reference value is overestimated here, then no matter how correctly degradation rates are applied later, the future energy production will still be projected too high.

In calculations for years after the first year, there are methods such as applying a fixed degradation rate to the previous year’s power generation, or reflecting the cumulative degradation over the elapsed years in the first year’s baseline value. In practice, you choose the method that is most convenient depending on the purpose of the calculation. If you multiply the previous year’s value by the same rate each year, the decline will be compounded. On the other hand, for a simplified calculation you may estimate the decline over the number of years from the first year’s power generation. Whichever method you use, it is important not to mix calculation methods partway through.

One point to note is that setting the degradation rate more precisely than necessary can actually make it harder to explain the calculation assumptions. Power generation calculations are strongly influenced by annual variations in solar irradiance and weather conditions. Even if generation in a given year is lower than the previous year, you cannot determine whether this is due to degradation, weather, soiling, or outages without separating and analyzing the data. Therefore, treat the degradation rate as an assumption for future projections, and when evaluating actual performance, verify it together with other sources of variation.

Separating the first year from subsequent years makes it easier to explain long-term simulations. For example, in pre-installation study materials, it is helpful to separately record the assumed power generation in the first year, the degradation rate from the second year onward, the calculation period, and the assumed loss items so that the information is easy to review later. If it is clear which year’s generation was calculated under which assumptions, it becomes easier to explain internally and to share with maintenance personnel.

Also, when reviewing equipment warranty or performance guarantee documents, it is important to check how the first year and long-term degradation are treated. However, guaranteed values do not necessarily guarantee the power generation itself; they may represent the expected output or performance under certain conditions. Because power generation is influenced by solar irradiance and the installation environment, you should not use the figures in the guarantee documents directly as the annual degradation rate of yearly generation, but rather organize them in a form suitable for calculation purposes.

Clarify the reference value for annual power generation

To use the degradation rate correctly, you first need to clarify the baseline annual energy production. In energy production calculations, if it is unclear what the degradation rate is being applied to, the meaning of the calculation results becomes ambiguous. The results will differ depending on whether you use the rated output of the photovoltaic module as the baseline, the first-year energy production reflecting installation conditions, or actual measured values as the baseline.

In common practice, degradation rates are used to project future annual energy production, so the assumed annual production in the first year is often taken as the baseline. This first-year production is determined by considering the installed capacity, local solar irradiance conditions, panel tilt and azimuth, shading effects, temperature-related output reduction, the efficiency of power conversion equipment, wiring and connection losses, soiling, downtime, and so on. Simply applying a fixed coefficient to the installed capacity may not adequately reflect site-specific conditions.

When creating baseline values, it is important to first standardize the units used in calculations. Since system capacity is often expressed in kW, generated energy in kWh, and solar irradiance in kWh/㎡, be careful not to confuse which figures represent power (output) and which represent energy. Output is a value indicating capacity at a given moment, whereas generated energy is the amount of electricity produced over a certain period. The quantity to which degradation rates are applied is, in many cases, the electric energy expressed as annual generation.

Also, the way the meteorological year is handled also affects the reference value for annual energy generation. Whether you use past average solar irradiance, meteorological conditions close to recent actuals, or conservative conditions will change the calculation results. No matter how carefully you account for degradation rates, if the baseline solar irradiance is too optimistic, future generation will also appear higher. In practice, clarify whether the calculation’s purpose is a pre-installation assessment, an evaluation of operational performance, or a review of long-term cash flow, and choose a reference value that matches that purpose.

A useful way to make baseline values clear is to keep the calculation assumptions documented in writing. For example, record which equipment capacity the first-year expected power generation was based on, which installation tilt and azimuth were used, how much shading and soiling were assumed, whether downtime was included, and from what point the degradation rate was applied. Without this documentation, when comparing with actual results several years later you will not be able to tell what the original calculations meant.

When calculating future power generation based on actual performance, you need to confirm whether the year in question was a normal operation year. If you use as a baseline a year that experienced typhoons, heavy snowfall, long-term outages, communication failures, equipment replacements, severe soiling, or changes in the surrounding environment, factors unrelated to the degradation rate will be carried forward into future calculations. When revising the degradation rate for equipment in operation, review power generation results over multiple years and take measures so that an extreme year is not used directly as the baseline.

Do not apply a uniform degradation rate; compare it with equipment conditions

Degradation rates should not be mechanically applied as the same value to all solar photovoltaic systems. In practice, a typical annual rate is sometimes used for a simplified calculation, but if it is used without cross-checking against the actual equipment conditions, the projected power generation can diverge from on-site expectations. The degradation rate is one factor in power generation calculations and needs to be checked together with the equipment specifications, installation environment, and operating conditions.

The first thing to check is the specifications of the solar photovoltaic modules. Long-term output degradation trends can vary depending on the module type and construction. If the datasheet or warranty documents specify assumptions about long-term output, review those details. However, the conditions stated there are based on test conditions or warranty terms and do not directly represent the actual annual energy production. When using them for energy production calculations, treat them separately from the site’s meteorological and operating conditions.

Next, check the installation environment. Roofs that tend to get hot, locations with high humidity, areas exposed to salt-laden winds, regions prone to snow accumulation or freezing, and areas affected by strong winds or sand and dust can change the stresses on the equipment. These conditions cannot be directly or simply converted into degradation-rate figures, but they provide a basis for deciding whether to view long-term power generation conservatively or on a standard basis.

The quality of installation is also important. Faults in wiring routing, treatment of connection points, rack fixation, ensuring drainage and ventilation, checking for shading, equipment layout, and so on can cause reductions in power generation. However, if reductions in power generation caused by installation defects are treated as a degradation rate, there is a risk of overlooking problems that should be corrected. The degradation rate is intended to account for the gradual decline due to aging, and it is preferable to manage it separately from losses arising from design or installation.

Maintenance and inspection regimes also affect long-term power generation. Facilities that regularly check generation performance, equipment condition, soiling, shading, wiring, connection points, and anomaly histories are more likely to detect problems early. Conversely, facilities with infrequent inspections may leave declines in generation caused by factors other than degradation unaddressed for long periods. If such declines are treated as a calculated degradation rate, the actual condition of the facility cannot be accurately assessed.

When setting degradation rates, don’t just apply a standard value — verify whether it’s appropriate to use that assumption for this equipment. For example, if the installation environment is harsh, consider a conservative assumption, and if there is sufficient performance data, compare it with past trends. Conversely, if operation has not yet started and there is no track record, it is more realistic to separate and compare standard and conservative assumptions rather than assign overly precise figures.

Verify the difference between actual data and calculated values annually

A power generation calculation that accounts for degradation rates is not something you make and forget. After operations begin, it is important to compare each year’s actual data with the calculated values and verify the reasons for any differences. Because solar power generation is influenced by the weather, it is risky to judge degradation based on a single year’s increase or decrease. Even so, by continuously reviewing data over multiple years, it becomes easier to spot a faster-than-expected decline or anomalies unrelated to degradation.

When verifying performance, do not rely solely on annual power generation. Even if annual generation is low, that year may have experienced low solar irradiance. Conversely, even if generation is close to expectations, high irradiance may have concealed problems. Therefore, when possible, check solar irradiance, monthly power generation, equipment operating status, downtime, and weather conditions together. Correcting generation for solar conditions makes it easier to identify trends than simple year-to-year comparisons.

Checking monthly data is also useful. Decreases in power generation due to degradation are typically seen as a gradual long-term trend rather than a sudden drop confined to a single month. If power generation is significantly low in a particular month only, suspect other factors such as shading, soiling, snow accumulation, equipment outages, communication failures, construction, or changes in the surrounding environment. By examining month-to-month differences, you can more easily notice variations that cannot be explained by the degradation rate alone.

When making comparisons, it's also important to fix the assumptions used for the calculated values. If you arbitrarily change the reference generation, loss rate, degradation rate, or solar irradiation conditions every year, you won't be able to tell what the gap with actual performance means. Keep the initial calculated values as the baseline and record the differences from actual results. If you revise the conditions, manage the before-and-after versions separately and document why the change was made.

When reviewing performance data, also verify the reliability of the measurements themselves. If there are time offsets, missing data, communication outages, or differences in aggregation units in the equipment or recording systems that acquire generation output, the reported generation can appear different from the actual situation. In particular, if the values viewed remotely differ from the displays on local devices, it is necessary to decide which will be used as the official actual performance value. For verifying degradation rates, it is desirable to use data that have been collected continuously under as consistent conditions as possible.

During the annual checks, we do not immediately judge degradation just because the measured values fall below the calculated values; instead, we systematically isolate causes. We check for insufficient solar irradiance, downtime, shading, soiling, equipment malfunctions, measurement errors, output control, grid-side influences, maintenance work, etc., and only if a long-term downward trend continues do we consider the possibility of degradation. By proceeding in this way, the degradation rate becomes easier to use as a practical management indicator.

Reflect in long-term revenue/expenditure and maintenance plans

Calculating power generation with degradation rates taken into account is not only about predicting future output but also relates to long-term profitability and maintenance planning. Because solar power systems are operated over long periods, judging them based only on first-year generation can lead to misestimating future revenue, electricity bill savings, timing of equipment replacement, and inspection schedules. Reflecting the degradation rate in long-term plans makes operational decision-making easier.

For self-consumption systems, a decline in power generation can lead to an increase in purchased electricity. Even if the first year shows the expected reduction in electricity bills, as generation falls over the years the savings will gradually change. Of course, the actual savings are also affected by electricity consumption, usage time periods, contract terms, electricity unit prices, and how surplus power is handled, but it is important to anticipate long-term declines on the generation side. For calculation purposes, separating generation and usage makes forecasting easier.

Even for systems that include electricity sales, degradation rates affect long-term cash flow. If you assume that power generation declines slightly each year, future amounts of electricity sold and self-consumed will also change. In long-term cash flow calculations, rather than keeping first-year generation fixed, adjusting each year’s generation by the degradation rate and listing them produces a more realistic forecast. In particular, when considering equipment replacement or maintenance costs, it is important to view the decline in generation together with inspection results.

In maintenance planning, the degradation rate can also be used as a criterion for detecting anomalies. If power output has dropped more than the assumed degradation rate, it may not be mere aging but could indicate issues such as soiling, shading, equipment faults, poor connections, or increased downtime. Conversely, even if actual performance is better than expected, you should verify whether this is due to higher solar irradiance or genuinely good equipment condition. By comparing calculated values with actual performance, it becomes easier to prioritize inspections.

The degradation rate also factors into decisions about equipment renewal. The appropriate response depends on whether the output decline is due to progressive degradation of the solar modules or problems with the performance or operating condition of the power converters and peripheral equipment. Rather than immediately deciding on a major equipment replacement simply because generation is low, confirm which factors are affecting output and by how much. If you have calculated values that include the degradation rate, it becomes easier to distinguish between the decline that can be normally expected and the decline that requires inspection.

When using it for long-term planning, it can also be effective to prepare multiple scenarios. By comparing calculations using a standard degradation rate, assuming a conservatively higher decline, and revising based on actual performance data, you can understand the potential range of power generation. However, when presenting this in articles or internal documents, it is important not to let the numbers stand alone—always include the underlying assumptions. The degradation rate is not a figure that determines the future, but an assumed value for considering long-term operation.

Points to note when using deterioration rates

When using a degradation rate to calculate solar power generation, you need to clarify several points to keep in mind. First, the degradation rate is not a figure that explains all decreases in power generation. Causes of reduced solar power generation include bad weather, insufficient solar irradiance, shading, soiling, snow accumulation, equipment shutdowns, wiring faults, abnormalities in power conversion equipment, output curtailment, measurement errors, and other factors. If you lump these into the degradation rate, you risk overlooking problems that should be addressed on-site.

Next, it is also important not to scrutinize the degradation rate value too closely. Even if the difference in annual rates looks small, it can have an impact over the long term, but at the same time year-to-year variation in solar irradiance is a major factor. Even if a year’s power generation was low, poor weather that year does not necessarily mean degradation has progressed. In power generation calculations, the degradation rate should not be evaluated in isolation but should be considered together with solar irradiance conditions and operating status.

Also, pay attention to the difference between installed capacity and energy generation. When looking at information about output degradation of photovoltaic modules, check whether it refers to rated output or to actual annual generation. A decrease in rated output will affect generation, but annual generation is also influenced by solar irradiation, temperature, conversion efficiency, downtime, and so on. If you treat the degradation rate of output directly as the reduction rate of annual generation, be aware that this assumes other conditions do not change significantly.

When you include a degradation rate in calculation materials, make clear when it is applied. Whether you reflect the decline immediately from the first year of operation’s generation, from the second year onward, or assume a different decline in the first year, the results will differ. In long-term calculations, this difference accumulates. If multiple people in the company perform the calculations, standardizing the start year for application makes comparisons and handovers easier.

Also, care is needed with rounding. When calculating annual power generation, rounding numbers too much along the way can cause differences in long-term totals. Even if you format numbers for display with a readable number of digits, it is safer to retain as much of the original precision as possible during the calculation process. In particular, when these figures are used for long-term financial projections or equipment comparisons, standardizing rounding rules for power generation, degradation rate, loss rate, and operating rate will make later verification easier.

Finally, the degradation rate should be used on the premise that it will be reviewed periodically. The degradation rate set before commissioning becomes easier to validate as operational performance data accumulates after the start of operation. Based on several years of generation performance, solar irradiation conditions, inspection records, and equipment replacement history, confirm whether the initial assumptions match the field. However, if you revise it hastily based only on short-term results, it can be unduly affected by weather and temporary stoppages. Revisions should ideally be made on the basis of sufficient data and confirmation of the underlying causes.

Summary

When calculating solar power generation while accounting for degradation rate, simply inputting an annual percentage is not enough. First, clarify the purpose of using the degradation rate and treat first-year generation separately from the decline from year two onward. Then set the baseline annual generation to match site conditions and cross-check it against equipment specifications, the installation environment, installation quality, and maintenance practices. After commissioning, compare calculated values with actual data each year and, while isolating the effects of weather, downtime, and similar factors, verify long-term trends.

Power generation calculations handle many factors, including solar irradiance, tilt, orientation, shading, temperature, and loss rates. Among these, the degradation rate is an important factor for realistically assessing future power generation. In particular, year-by-year generation estimates that include degradation rates are useful for long-term financial projections, estimates of electricity bill savings, forecasts of electricity to be sold, maintenance planning, and decisions on equipment replacement. On the other hand, trying to attribute all decreases in generation solely to degradation rates can delay measures against soiling, shading, equipment faults, and measurement errors.

What operational staff should be aware of is not to treat the degradation rate as a fixed answer, but to record it as an assumption for calculations and verify it against actual results. If you align the first-year expected generation, the degradation rate to be applied, the start year of application, loss items, irradiance conditions, and rounding rules, it will be easier to make judgments when reviewing later. To improve the accuracy of generation calculations, not only the calculation formulas but also a mechanism to continuously check on-site data is indispensable.

To perform solar power generation calculations in a way that is closer to actual operations, it is important to link and manage desktop simulations with on-site generation data. When verifying long-term generation including degradation rates, identifying deviations between expected and actual performance, and streamlining inspection decision-making, it is effective to consolidate equipment specifications, inspection records, generation performance, and solar irradiance conditions in a centralized way and establish procedures that allow stakeholders to verify based on the same assumptions.