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 DSIRE.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.