Solar Power Costs and Solar ROI In Your Residential Solar Plan
When determining whether your solar power costs will justify your solar ROI, you need to have a clear idea of all the initial costs, ongoing maintenance, and you need an effective way to figure out how to estimate the money you will save. You can then just extrapolate over time to see when your break even point is. After that year, you are making money.
Your net cost is easy to figure. This is your solar investment, all solar power costs you have incurred, minus any federal and local tax rebates and tax incentives, and any other allowances your municipality may reward you. This will function as your Net Cost. Bear in mind that bank loans may or may not be tax deductible. Know this before arranging financing, and shop around for an offer that is.
Some cost factors that you need to keep in mind are equipment, installation costs (if you think this is “0” for DIYers, you are not keeping close enough records!), trash and refuse disposal, maintenance long term, taxes, permits and fees, and any other thing that makes you pull out your wallet.
You might be lucky enough to recoup some of your solar power costs immediately with subsidies and other local incentives. If so, remove whatever amount of cost you got returned to you by the reward. You are already realizing a solar ROI! Remember, if you are doing any solar remodeling to your home business or office, contact your tax man and see what you can recoup.
Then you need to take into consideration appreciation. Usually, you will see an appreciation of around 10 % of the total cost of all your solar power costs but keep in mind the following factors to get a truer accounting: how much energy savings you get (compare old and new bills), rising energy costs and home cost rising due to popularity of the solar work done. All these will cause your home to appreciate.
Let's look at a real world example, and give you some formulas you can use yourself. Let's say you are thinking about installing a solar hot water heater. You want to follow the formula below, and you can use this for any appliance you are trying to replace.
1 – Get an energy audit. Let's say your kWh's are costing you $0.20 each. This is one of the easiest solar power costs to figure. (You can also find this on your monthly electric bill) Then, look at your total monthly electric bill. If the audit states that your monthly electrical usage is 1,000 kWh's monthly, and your water heater consumes 20% of your total bill, then mark your water heater as using 200 kWh's per month.
2 – You need to guesstimate here. Talk to contractors and other users of solar appliances, and figure how much of your total monthly energy use will be saved by your new solar water heater. An estimate would be that your solar heater is 75% more efficient than your old electric hot water heater.
Therefore, if you take 75% of those kWh 200, you can see that your new solar water heater will save about 150 kWh's per month.
3 – Multiply the rate you pay ($0.20 per kWh) times the total kWh's saved (150 kWh) and you get $30.0 each month in solar savings from your water heater.
4 – Take all the solar power costs you figured for the solar water heater install. Let' say you installed it yourself, and after all costs, you spent $3000 (which does not account for government incentives).
5 – Divided the figure in step 4 ($3000) by the figure you got in step 3 ($30.00) and you get 100. That means that in roughly 100 months, or 8 years, you will have broken even, and your solar ROI will begin to be greater than your solar power costs. But guess what? This is actually a lot sooner, because it’s not assuming rising energy costs. I think we all know which direction that’s going!
This is a very simplistic example, and the numbers used were invented, but it gives you a workable formula to judge the efficacy of any solar home project you may undertake. Power rates only go up every year, so your savings will actually be greater.
There are also many online resources where you can literally plug in numbers and get a result. There are a few listed at the bottom of this page.
Now that you have an idea of how to figure solar power costs versus solar ROI, lets look at risk and decreasing efficiency of your solar power plan and annual energy rate increases.
Repair and maintenance are just going to happen. And it is impossible to look into the future and see just what you will need to do, and what your solar power costs are going to be, but you can get a handle on a good estimate, and use that to see when a particular solar appliance or module is costing you more than it is saving.
Being outdoors for years is tough on your solar panels, collectors, cells, frame and piping, and therefore on your solar ROI. You could extend the life by getting an extended warranty, but the reason why manufacturers offer them is they have figured out what to charge so they make money. All in all, extended warranties are usually worthless.
But your solar system's efficiency will decrease over time, adding to your solar power costs , so when is it more expensive than thrifty? A good estimate usually used is 10% decline in efficiency every 10 years. And after some point, everything made by man just gives up the ghost, and PV panels are no different. Sure, standard PV systems and panels are usually warrantied for 25 years, but panel warranties only promise 80% of the original production after 25 years, and how the heck can you quantify that? Don't worry though, they usually last this long at least.
So that means that every year we can expect approximately 1% loss in efficiency. To figure out our yield every year, just use the same formula above, subtracting 1% per year from the $22.50 per month savings in step 5. But the good news is, we haven't figured for rate increases! A lot of analysts say we can figure on rate increases of 10% a year in the near future, which really offset our solar costs, so if you place this 10% raise in cost against only a 1% decrease in performance every year, you can see we will be saving money almost till the water heater system dies altogether., and we will save more money every year!
The real bottom line is what your system is producing. If you have watched production plummet 10 years in a row, and there is newer, more efficient technology available for an attractive price, make the move.
In the example above, we hedged our water heater's utility bill cost from price increases. If the energy price for electricity keeps rising, we are happy because we have replaced 75% of that bill every month with solar energy. The more rates go up, the more we save. This is especially attractive to those on fixed incomes who have tight budget every month. So, in this case, solar costs were recouped by a nice solar ROI.