Solar Financial Benefits
Solar Electric Payback
By zeroing out your electric bill you may never have to pay an electric bill again. Payback is computed by dividing your annual savings into your system investment. However simple payback fails to take into account future energy savings after system investment has been recouped. These future savings are substantial and account for most of the lifecycle savings. Cumulative expenses normally paid to the utility can be avoided with solar. Lifecycle payback ratios are computed by dividing system investment into the lifetime savings. This is a good method to evaluate the financial benefits of solar since it takes into account lifetime savings. For instance: in the graph below this customer saved $160,926 over the course of 25 years in avoided electricity purchases. Where the system investment amount was $30,000. Thus the lifecycle payback is 536% (computed as $160,926 / $30,000 X 100 = 536%). In other words, the system paid for itself 5 times over the course of a 25 year period (future savings are realized at the future energy price inflation rate). This is a conservative financial analysis, as systems are designed to last 40+ years.
Solar System Financial Payback Chart : 6.1 kW PV Example
• Designed for 14,400 kWh a year electric load (equates to $316 a month old electric bill in PG&E territory)
• PV system generates 10,501 kWh per year
• 536% lifecycle payback over 25 years
• $160,926 lifetime savings over 25 years (in avoided electricity purchases)
• $30,000 System investment after rebates and tax credits
• 94% of $316 per month electric bill is offset (remaining bill $18 per month with solar)
• $3,569 per year annual savings in first year (5% yearly electric price inflation assumed for remaining years)
• Offsets 411,836 pounds of CO2 over 25 years
• View all Annual Savings Before and After Payback chart assumptions here
Solar Cash Flow example for above with a 15 year loan @ 5%
Comparing electric bill with and without solar
Solar Protection from PG&E Rate Increases!
A properly sized solar electric system, designed to zero out the electric bill protects the owner from rising electric costs. As electric rates inevitably rise, so do the credits generated during the day as the meter spins backwards. Photovoltaic system owners can essentially be independent from electric rates and effectively save more and more money over time, due to electric rate inflation. Residential electric rates in PG&E territory have increased, on average about 6% per year over the past 37 years. (PG&E Historical Rate Chart). PG&E customers who use the most electricity (in the highest rate tiers) are hit the hardest by rate hikes. Systems sized to offset part of electrical bills will reduce the electric costs in higher rate tiers first, offering a faster payback. Even if your roof space limits your ability to eliminate all your electric usage, it is still beneficial to install a smaller system to reduce your usage to the lower billing tiers. For those with a high electric bill or limited roof space, we offer the extremely efficient SunPower and Sharp solar modules that generate the most power in the smallest area.
Solar Power Increases Your Home's Value!
A report published in April 2011 by Lawrence Berkeley National Laboratory, "An Analysis of the Effects of Residential Photovoltaic Energy Systems on Home Sales Prices in California", has concluded that homes with PV systems sold for an average price premium of $17,000 compared to similar homes without PV (average size of PV system is 3.1 kW DC for California homes sold between 1999 and 2009). This report is based on a large number of comparable sales for about 72,000 homes, about 2,000 of which had PV systems. Executive Summary (2 pages) or Full Report (60 pages).
Homes with solar electric systems have lower monthly operating costs, making them more desirable to prospective buyers. According to the October 1999 issue of the Appraisal Journal, every dollar saved in annual utility costs increases a home's value by $20. (1999 Appraisal Journal, "More Evaluation of Rational Market Values for Home Energy Efficiency.pdf).
A 3 kW photovoltaic system will save the average PG&E electric user about $1,000 a year in electric expenses. Theoretically this makes such a home worth $20,000 more ($1,000 X 20 = $20,000). The installation cost after rebates and tax credits is about $15,000* for a 3 kW system, which means the homeowner has instantly realized a $5,000 gain from this investment. Currently, there is not enough market data to back up this theory, as most of the grid-tied solar electric systems were installed after 2001 and there has not been enough market turnover of these homes to provide needed data of comparable home sales. Solar homeowners tend to stay in their homes longer than average and may be reluctant to sell, since they expect to save money as electric rates rise.
Thus when its time to sell, the solar home may command a price premium higher than the initial solar investment (compared to a similar home without solar), and in the mean time the electric bill was offset, yielding an effective income stream and providing a valuable investment for the owner. The value added to the property will depend on when the home is sold relative to the value of electricity at that time, the current performance and remaining estimated useful life of the system (estimated to be about 40 years).
*solar rebates in California are required to decline on average 7% per year according the the newly approved California Solar Initiative that has a 10 year incentive program to promote solar energy. Thus these after rebate system investment amounts will vary due to current incentives and solar module prices that are set by the market and silicon availability.
Solar Power is a Low Risk Investment
Solar electric systems are a conservative, high-yielding investment. They are a low maintenance, tangible asset that generates clean electricity every day. Solar panels are warranted for 25 years with a design life of over 40 years. Photovoltaic systems pay for themselves over time in avoided electric costs and belong to an elite category of goods that actually pay for themselves.
To compute payback, compare how much money one saves in annual operating costs relative to the investment: the normal method to compute simple payback is to divide the net system investment by the annual savings (e.g. $15,000 investment ÷ $1,000 per year savings = 15 years simple payback). The tax free return on investment (ROI) for such a system is over 6% without factoring in electricity price inflation. One way to compute ROI is to divide the annual savings by the investment ($1,000 annual savings ÷ $15,000 investment = 6.7%. Residential solar electric system paybacks are usually between 7 to 15 years when one considers energy cost inflation the investment may be even more attractive. Solar electric system paybacks for businesses tend to be better, due to depreciation, federal tax credits and economies of scale realized for larger systems. Refer to comparative Solar Payback Chart.
Buying vs Renting Electricity
Generating your own power with a PV system is like owning a home compared to renting one. A PV system increases in value over time as the price of electricity rises. Solar homeowners have control over their electric bills and are protected from rate hikes, just as a homeowner is independent from rent increases. PG&E electric rate increases have averaged higher than the general inflation rate over the past 30 years and this trend will likely continue especially as fossil fuels are depleted.
Solar creates a Positive Cash Flow
For homeowners paying more than $95 in monthly electric bills, tax deductible monthly loan payments for financed systems are typically less than the electric bill. The more you pay for electricity, the more you can save each month with solar. A correctly sized system can eliminate or significantly reduce your monthly bill. Higher income households save more money in loan interest income tax deductions than lower income households, since home loan interest is tax deductible. Homeowners who typically save the most money are those in the upper income tax brackets (over $80,000 per year) and those who use the most electricity. Residential billing for PG&E customers is tiered, so electricity used above baseline rates is progressively more costly.
For those who use more than the average amount of electricity, it is usually less expensive to finance a PV system than it is to continue to pay the utility for energy. As electric rates rise, your effective savings increase proportionally and once the system is paid for the future monthly savings in avoided electric costs will be substantial, since electric rates tend to rise over time faster than the consumer price index (i.e. inflation rate). Every situation is unique and there are many factors that need to be considered to determine your cash flow advantages from going solar. Horizon Energy Systems will do a free site analysis, system design estimate and cash flow analysis upon request and you can decide how to proceed.
Financial Tip: it may be financially preferable to pay cash for a system, compared to borrowing money since no interest payments will be made.
Solar power may be less expensive than PG&E Electric Retail RatesThe cost per kWh of a solar electric system when amortized over a 30 year economic lifetime (after factoring in current California financial incentives) is typically less expensive than current PG&E retail electric rates. This is especially true when factoring in electric price inflation. For more information regarding billing related issues with solar power view our Net Metering page which discuss PG&E electric rate schedules.
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