The Dollars and Cents (Sense) of Grid-Tie Solar

Analyzing the financial implications of going solar.

 

  1. Simple Payback. Consider the amount of energy predicted to be produced by the system per year, multiply this amount by the value of power from the utility. Divide the total out of pocket expense of installing a system after incentives and rebates by this amount to get the simple payback.  Typically, this results in a time period of 15 to 17 years to pay off a system through savings. What’s missing in this equation is that power prices historically have risen 6.7% per year and are predicted to experience inflationary pressures due to limited supply and increasing demand that will result in even higher inflation. Using 6.7% as a basis for energy inflation, simple payback on the system will be reduced to ~8 to 12 years. After this time, energy produced by the system will be free while rates for power will continue to grow. Every time utility rates increase, the value of the power from the PV system increases.
  2. Cost of Energy. The life of these systems will exceed 30 years. If one were to multiply annual energy production for the PV system by 30 years to get the total system energy production, then divide by the installation cost, the result will be the price per unit of power generated by the system. This calculation results in power from the PV system costing roughly ½ of today’s rates, and as noted above, today’s utility rates are lower than expected future rates. A PV system allows the consumer to essentially lock in their home’s electricity rate for the next 30+ years.
  3. Return on Investment (ROI). Simple ROI is calculated by dividing the renewable energy system’s cost into the value of one year’s worth of utility energy that the system offset.  For instance, a PV system that produces 5000KWHr of electricity per year at the utilities rate of .15/per kwhr generates about $750 per year worth of electricity at today’s rates. If the system’s net cost to install was $16,000, the simple return on investment is 4.7%.  As power prices rise your return on investment continues to grow. Considering that treasury bonds yield around 3.5%, a PV system is an investment that in the first year exceeds the financial benefits of bonds, CDs, and many mutual funds. Every time utility rates increase, your ROI improves.  And in light of economic instability, it’s an investment that is tangible and can be depended upon.
  4. Equity/Utility. Home values increase with the installation of solar just as other house improvements like new flooring, roofing, or kitchen counters likewise provide. But with PV, not only are you increasing the value of your home, you are actually simultaneously realizing a real economic benefit without  having to sell the home to get the money out of the investment in the home’s equity.

PV is a consumer item that actually has positive ROI and payback figures, yet we have to consider in our daily economic lives how often do we actually calculate payback. Does an avid angler calculate the payback on a new bass boat? Cost per lb of fish would be extraordinary! Even home improvements are seldom considered in respect to payback.  Have you ever calculated the payback on new counters or a swimming pool?

Comparisons based on energy costs, ROI or net present values all indicate that it’s a rational financial investment to install a grid-tied PV system. Beyond the measure of money, there are a multitude of other logical reasons to invest in a system such as energy security, a cleaner environment, the satisfaction of producing your own energy, and adding renewable energy to the grid for community benefit.