Economic Payback on Solar Power Systems

You’ve probably considered installing a solar
power system on your home so you can start producing renewable energy.
One of the most commonly asked questions about solar is ‘When it will
pay for itself?’

If you were to just go out and buy a system,
install it, and then count the energy savings, most systems would pay
for themselves in about 40 years. Unfortunately that’s also how long
you can expect most solar panels to last. So, recognizing this and the
need for alternative energy sources, governments and utilities have
started to offer rebates and credits for renewable energy systems. In
some areas, such as Louisiana, California, New Jersey, and Colorado,
you can get as much as 80% of your system paid for through rebates.
This obviously brings your payback time way down and makes it much more
feasible.

Let’s walk through a typical solar rebate scenario.
Let’s say that we’re going to spend $20,000 on a system, including
equipment and installation. This would pay for about a 2,000 watt, or
2.0 kilowatt, system. This would be a great starting place for most
homes. Now, we know that we can get a 30% tax credit from the federal
government for a photovoltaic (PV) system. We then proceed to look at
the DSIREUSA.org website to find out about other incentives. We learn that
our local utility offers a $3/watt rebate for PV. We investigate
further and find out that the state will credit us $1000 on our
property taxes for a new system.

System cost, installed +$20,000
Federal credit (30% x $20,000) -$ 6,000 Utility rebate ($3/watt x 2,000
watts) -$ 6,000 State property tax rebate -$ 1,000 System cost after incentives $ 7,000

OK!
This is looking pretty good! Now, how much will we save on our power
bill? This is a trickier question, and one that has to be answered by a
solar expert that has some information on our home. But for our
purposes, lets say that we live in the Midwest and have a south-facing
roof. A 2.0kW system under these conditions would produce somewhere
around 3,500 kilowatt hours of power per year. Now, looking at our
power bill, we determine that our power costs $.12/kilowatt hour. So
our system will produce 3,500 kw-hrs per year that we wont need to
purchase and therefore we will save:

3,500 kw-hrs/yr x $.12/kw-hr = $420 per year power savings

Then we’ll take the $7,000 we spend on the system and divide by the $420 in savings:

$7,000 system cost / $420 power savings per year = 17 years

So
it will take about 17 years to pay off the system. A couple things that
you need to keep in mind, though. For one, if President Obama
institutes a cap and trade system as he has promised, the price of
electricity will go up significantly. This will help our payoff time
come down. Also, we can increase the efficiency of our panels and
therefore produce more electricity, if we adjust them for seasonal
shifts of the sun and keep them clean. The resale value on your house
will go up. Plus, you’ll have that green feeling knowing you’re
producing clean, renewable energy for decades to come.

Now if you
had a $100 power bill before the system, what would it look like after?
The $420 is an annual savings, so if we take the 420 divided by 12 we
have a $35 monthly savings, and our monthly bill would now be $65.