You may have different options to finance the purchase, but each of them has a cost. If you are investing cash then you lose its future interest; if you borrow the money then you pay a financing cost. Either way, there is a cost of financing the purchase that can be represented by a so-called “discount rate”. The normal cost of borrowing may be reduced if local banks offer low interest loans for the purchase of solar PV systems. Alternatively, your bank might allow you to extend your home loan or mortgage; this may be the cheapest form of standard borrowing.
The economic return on your investment is the value of the electricity that you generate. This will, as a minimum, displace electricity that you would have otherwise bought from your utility or energy service provider during the day. Through certain schemes, it may be separately metered and rewarded at a defined rate (possibly related to the domestic tariff or set by a national or state program). Market incentive programs in certain countries offer some or all of the range of benefits from grants or rebates and low-interest loans to preferential electricity purchase rates. Your local Retailer (also known as “dealer”) should be able to advise if any incentives are available to you.
After you’ve calculated how much money you spend for electricity throughout an entire year, then you can treat that as “money saved” by installing solar panels. For example, if you paid $2,000 per year, you would deduct that number by the overall costs incurred for going solar. If it costs $10,000 for overall installation after all incentives and taxes are calculated, then the solar panels would pay for themselves in roughly 5 years. In fact, because utility electricity rates consistently rise each year, this speeds up the timeline further for when the panels will pay for themselves. This is called the “break-even point”. If you plan to sell your house sometime soon, the shorter the break-even point, the better.
For people expecting to own their home for a long time, calculating the lifetime savings after the break-even point is where the gold is. Solar panels are typically under warranty for 25 years, so that’s the standard figure used for the lifetime of a system (although it’s often much longer). If your break-even point is reached within 5 years and you expect to save at least $2,000 a year for electricity, assuming you purchased the system with cash, then you benefit from around 20 years of no electricity bills (about $40,000). In addition to this, there is also an increase in the value of your home. In fact, solar panel systems can increase a home’s market value by $30,000!
Adding Up Your Solar “Soft Costs”
To really get a full picture of your system’s price, you need to factor in the so-called solar “soft costs.” These include items like sales tax, permitting fees, and installation costs—things that might not necessarily be included in your system’s price tag, but are nonetheless necessary before you can hit the switch on solar.
These costs vary a lot depending on where you live and how amenable the local government is towards solar. For instance, some states, like New York, have enacted statewide legislation that exempts solar energy systems from sales tax. Other areas may overlook permitting fees as well. However, soft costs can still be fairly expensive. The Department of Energy estimates that they make up as much as make up as much as 64 percent of a system’s cost, so they’re definitely no small matter.
Eligible Subsidies and Incentives
For example, The USA federal government puts a significant dent in some of those costs, however. The USA federal Residential Renewable Energy Tax Credit returns solar homeowners 30 percent of their system’s initial cost, which includes the price of equipment, labor costs for installation, and the cost of wiring needed for interconnection.
However, a number of statewide and local credits may be yours for the taking, as well. These might include flat-rate rebates from your local government or utility, or metered incentives that depend on your actual energy generation.
The rules and amounts differ vastly from location to location, so listing them all here would make this article pretty unmanageable. Thankfully, you can use the Department of Energy’s Database of State Incentives for Renewables and Efficiency to get the full scoop on your eligible incentives.
Your Home’s Energy Consumption
Here’s where the savings really come into play. Tax credits can shave a big hunk off your initial down payment, but your return on investment is really earned back from reduced utility spending over time.
To calculate this, you’ll need to take a look back at your past energy bills and figure out about how much you spend per year on electricity. Divide your system’s cost—after incentives—by the average cost per year, and you’ll have a rough estimate of the time it takes to earn back the investment you made on your system.
Aside from only financial benefits, there are also more ambiguous, qualitative benefits that homeowners would benefit from in the long term. Some of these benefits, although difficult to measure, potentially include less stress from unpredictable electricity bills that rise 2-5% each year and feeling good about going green by contributing to solar panel adoption.
Measuring the ROI of installing solar panels in your home doesn’t have to be cryptic and confusing. It’s actually quite simple. If you keep in mind that investments like these take a little bit of time to come to fruition, it becomes a lot easier to go solar (not to mention the intangible benefits). Even if you don’t feel that you’ll benefit much from going solar today, if you plan to pass down your house to your children, other family members, or even sell it to a stranger, you’ll benefit financially in the long-run.
You can calculate your annual returns by dividing the financial benefits you receive each year by your initial investment in your solar power system. Many factors can impact your solar panel ROI, including:
Electricity Rates: How high are your current electric bills? This determines your savings over the life of your system. The higher your rates, the more you can save with solar.
Financial Incentives: Are there local or state tax programs or rebates in your area that encourage solar adoption? Are you a business or other organization that can take advantage of depreciation tax benefits, including accelerated depreciation? Higher incentives mean lower upfront costs and a shorter payback period.
Solar Renewable Energy Certificates (SRECs). Does your state or utility have a market where you can sell the SRECs associated with your solar energy system’s electricity? What kind of income can you earn by selling these SRECs? New income from SRECs will help you break even on your solar investment more quickly.
Cost. Did you compare your options to find the right price? Were you able to take advantage of rebates and tax incentives that offset the cost of your installation? Lower costs mean a shorter payback period.
Technology. How efficient is your system, i.e. is it producing electricity at optimal levels? A more efficient system will offset a greater percentage of your monthly electric bill.
Property Characteristics. How sunny is it where you are? Which way does your roof face? What is the pitch of your roof? All of these factors can affect your production levels.
Property Value Increases. How much does the value of your property increase when you install a solar panel system? Solar panel system ownership tends to increase your property resale value, while third party ownership (e.g. leasing) does not.
Business Benefits. How much will your profits increase because of your lower costs? What is the value of the goodwill your solar power system generated? What level of revenues is attributable to your green credentials? All of these factors can increase your company’s return on solar investment
Solar Panels: Harvesting the Energy from our Sun
Using renewable energy to power your home can reduce or completely eliminate your utility bills, and the tax incentives for installing renewables can make them even more cost effective. Here are seven different ways to power your home with renewable energy.
Rooftop Solar Panels.
This is probably the most common and obvious method, if you’re looking into renewable power. Solar panels typically go on your roof, although you can also install them in your yard. Depending on your latitude and the orientation of the panels, you could generate 10 or more watts per square foot. A typical house consumes at least a kilowatt of power, so a few square feet of solar panels should be enough to power most or all of your needs.
If your current roof is nearing the end of its lifespan, you could also consider investing in solar shingles. Where standard rooftop solar panels are mounted on top of your current roof, solar shingles actually take the place of your roof tiles. Elon Musk’s SolarCity recently announced a plan to start producing solar shingles, and other companies like SunTegra have been making them for years.
Of course, one big weakness of solar power is that it only works when the sun is up. If you want to power your home when the sun is down, you’ll need to pay for grid electricity or invest in a second type of renewable energy.
Endless energy from the sun looked like a long-term solution for running our homes. But now the state has pulled the plug on the subsidies that made panels affordable for many. What happens now?
Virtually unlimited power is available from our nearest star, the Sun. In just one hour, our planet receives more energy from the sun than the entire world uses during an entire year. Electricity-producing solar panels have only been around for the last 60 years, yet they have completely transformed how we harness solar energy
In 1839, a nineteen year-old French physicist named Alexandre-Edmond Becquerel discovered the operating principle of the solar cell, known as the photovoltaic effect. It wasn’t until 1876 that this effect materialized into a viable method of producing electricity with the work of William Grylls Adams. He discovered that by illuminating a junction between selenium and platinum, a photovoltaic effect occurs; electricity could now be produced without moving parts.
Revolutionary as they may have been, the selenium solar cells were not efficient enough to power electrical equipment. That ability occurred in 1953 when a Bell Laboratories employee Gerald Pearson had the bright idea of making a solar cell with silicon instead of selenium. The New York Times heralded the discovery as “The beginning of a new era, leading eventually to the realization of harnessing the almost limitless energy of the sun for the uses of civilization”.
Just in time for the space race, the first solar panels made their debut in the satellite industry. Vanguard I, the first solar-powered satellite celebrated its 53rd birthday this year, setting mileage records and holding the title of being the oldest artificial satellite still in orbit.
The first solar modules were only efficient enough for space applications, where the Sun’s radiation is much stronger. Eventually satellite research paved the way for Earth-based technology. The 1990’s were pivotal years for photovoltaic technology. Innovations in solar cells allowed for greater efficiency while lowering the cost of production. Germany and Japan led the way with long-term solar power incentive programs helping lower the cost to the public, and spurring the growth of a robust Photovoltaic industry in both countries.
Wind turbines electricity
Wind turbines are most commonly found in windfarms or floating offshore, but if you have enough real estate you can install a small wind turbine on your property to power your home.
There are a few downsides to a wind turbine that make them less popular in residential areas. They can be ugly and make a lot of noise. They take up space, and depending on where you live, local laws and zoning regulations may outright forbid it.
But if these disadvantages don’t apply to you or don’t bother you, wind power may be a great asset. Wind power is more stable than solar, and a good-sized wind turbine can easily generate most or all of your electricity needs. Depending on your area, wind might be a better renewable investment than solar.
Your investment in a solar power system doesn’t just benefit you. Your whole community will enjoy the environmental benefits that solar provides. Businesses who go solar may also experience a top-line benefit in the form of increased sales from customers who are attracted to the company’s “green” credentials and demonstrated commitment to sustainable practices such as solar power.
Sometimes your solar energy system may be so productive, though, that you’re actually generating more energy than you need to meet your home’s demand. In this case, that excess energy usually goes to the utility company—but don’t worry, they’re probably not getting it for free. One last thing we need to discuss is net metering, an incentive offered in many states whereby utilities are required to credit solar households for excess energy they return to the grid.
A useful exercise to fully understand the situation is to calculate – roughly -the amount of time it will take to for your solar energy installation to make back the initial cost of having it installed. In order to do so, you should consider the complete cost of the installation, taking into account equipment, fitting, tax, and rebates. Once this is done, you will need to calculate roughly how much electricity your installation will make. It may help at this point to talk to an expert, as every situation is different. Once you know how much electricity you can expect to make, multiply it by the rates of electricity you pay, and that is your golden number.
Solar panels have been known to make back the investment made in them in as little as four years, and additional components can be added to the system to increase performance, making the savings even greater. If any of the maths or number behind this process cause you problems, try speaking to an expert, such as the people selling you the panels, or fitting them, for that matter. The more people who get behind this technology, the better it is for the environment, and for all of us.