by Andrew Sendy, SolarReviews
As a general rule, solar power has a lot of advantages. It’s good for the environment, increasingly affordable and provides a modicum of freedom from utilities.
But all those factors, while important, aren’t the main reasons people install solar on their homes. What ultimately matters is solar’s return-on-investment (ROI), including the amount of time the system will take to pay for itself—more commonly known as the payback period.
The payback period depends on multiple factors such as federal, state, local and utility incentives, average electricity costs and amount of insolation in your area (the amount of sun your array gets over time).
Fortunately, the payback period is just that—a finite period limited by the overall cost of the PV installation. Once you’ve paid off the system off, the ROI begins to increase—and the full value of solar reveals itself.
For some real-world examples, let’s examine three different cities with varying levels of average monthly electricity costs: Charleston, S.C. ($173), Reno, Nev. ($129), and Albuquerque, N.M. ($90):*
An average solar-electric system in Charleston, S.C., where the average monthly electric bill is $173, would cost $13,000 after government incentives pay for between 30 percent and 65 percent of the installation. Over the 20 to 25 year lifetime of the system, you would save $45,000.
You would pay off your solar system in approximately 5.7 years—and it would increase the value of your home 3 percent. In Charleston, with an average home price of $283,000, that would bring you a nearly $8,500 increase in value.
In Reno, where the average monthly electric bill is $129, a rooftop-solar system will cost approximately $18,000, and you would save $19,000 over the 25 year life of the system.
At the end of 10.5 years, you would completely own your system. If you sold your house the next day, you would increase your home value nearly $10,000 on an average home price of $320,600.
After federal, state, local and utility incentives, an average solar system in Albuquerque, N.M., costs approximately $11,000. Over the 20 to 25 year life of the system, it would save you $18,000—and after 8.1 years, you would own the system outright and your ROI would truly start to grow quickly.
For an average home in Albuquerque, the 3 percent increase would be around $5,600 on a price of $187,900.
As you can see, the payback times and ROIs are as varied in the United States as the cities in them. What is inarguable, however, is that prices for solar installations continue to fall as the main components (modules, racking and inverters) continue to drop. So do careful research on your specific area to see how much solar energy can save you on your home.
But let’s be clear: No matter what the payback times and ROIs, most experts agree that solar installations are a good investment for homeowners. After all, the electricity savings will provide homeowners a better ROI than a five-year certificate of deposit (CD) at current interest rates. In fact, a Reuters report said that this is true in nearly 90% of all states.
The wild card in all this is, of course, the current trade case before the U.S. International Trade Commission (USITC). Brought by two module manufacturers, it alleged they couldn’t compete because of international competition.
Last month, the USITC found the manufacturers had been injured, and now the solar industry is waiting for the commission to recommend what penalties should be levied against the foreign competition.
Most industry observers believe the most likely penalties will be tariffs, which could essentially double the price of modules overnight if the penalties the petitioners seek are imposed without modification (though few expect them to be imposed that way).
Still, the sheer volume of solar installations in the United States, especially in the residential market, should hold off the worst of those price spikes from affecting them—and current data says solar installations are still one of the best home improvements you can make—bar none.
How does solar compare to other investments in terms of return?
Forbes reports that in many cases, with the federal, state and local incentives, homeowners can recover almost 97% of their investments and increases the value of homes. In contrast, a luxury kitchen remodel only brings a 60% payback.
A report by the National Renewable Energy Laboratory found that in most areas, the payback period is often four years or less—meaning that installing solar panels provide 100 % ROI. According to the website Modernize, a home-improvement advice site, “you won’t find that for cost-comparable home improvement projects, such as installing a garage, adding an addition, or remodeling your kitchen.”
Clearly, solar is a better investment than granite countertops—meaning you should start exploring your solar options today.
After all, why shouldn’t you control electricity future and save money in the process?
*All data is based on owning the system outright. Other financing methods may change the payback calculations.
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If loss of utility power happens very often adding a home battery like Tesla or Sonnen to your solar installation would be profitable. It would give the effect of net metering and remove the need for a backup generator.
Where exactly are power outages that often? I’m in central TX and it’s maybe…48 hours a year of power outage. Those batteries are quite pricey for on the grid systems I think, but to each’s own.
More helpful to me was my solar company showing me the annual return on my investment based upon annual savings. This rate of return is about equal to the average performance of my portfolio.
Good info, thanks.
How about Pittsburgh, with electricity at 12c
I’m not sure if it would be worth it at those rates of return. That is a long time to get your money back. If you’re doing it for purely financial reasons, I don’t think that’s a great investment.
You not factoring in the reliability of the inverters, also the life span of the panels themselves. Output of these panels decrease over time. People will buy into these systems not knowing all the facts. After warranty periods are over. The owner of systems has to pay for the parts plus installation.
The power inverters can be covered in the cost, they’re often guaranteed for 12 years, so throw in another one at about $150? Output does decrease, but panels like the LG series are often guaranteed for 80% efficiency after 25 years, and in most places you would have paid that off already in less time. Not sure what other costs you’re referring to? Especially if the home owner has been seeing a return of investment for years already.
According to Greenzu.com. “Replacing an inverter is usually the most expensive aspect of a solar system, with replacement costs ranging between $3,000 and $20,000 each time.” If the ROI was a good deal, there would be no need for federal, state and local rebate incentives to install them.
There are a number of problems with this comment.
First, you are conflating two things: The ROI of a PV system, and the cost of replacing an inverter.
That quote is probably taken out of context; replacing inverters is the most expensive part of PV system O&M, but definitely not the most expensive part of installing a solar array. For residential solar, the most expensive aspect by far is the soft costs of sales, installation, permitting, etc. In terms of equipment costs, modules are the most expensive.
Also, those costs that you are citing including a range of inverters, including the larger ones that are installed on commercial, industrial and large-scale solar farms. If the inverter for your rooftop solar array on your home cost $20K, then I have bridges for sale.
But to get back to your main claim about PV system incentives and costs. Here’s the fundamental problem: Homeowners who buy PV systems where the electricity is exchanged under net metering or similar systems have to wait years to get the return on their investment. Incentives shorten the payback time. It’s not that rooftop solar isn’t a good deal most anywhere over the life of the project, it is how long homeowners feel like putting capital in before they get the payback.
This is such a well-researched article. I like the way how you have actually taken real life scenarios here, to explain the cost-effectiveness of solar energy. There are also options for solar financing, such as solar lease, Power purchase agreement or even Peer-to-peer lending. It is high time that we take the threat of climate change seriously and do our bit to save the planet.
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By all means. Go ahead.
One of the most obvious reasons to invest in solar power is because it’s a renewable energy source. This means that we’re able to continually harvest the energy from the sun. Forever.
Name any home appliances that last 25 years with ZERO maintenance. Now subtract maintenance and repair costs from your savings. How much do you spend on maintenance on your air conditioner? your furnace? your hot water heater? over a period of the time this blurb assumes you install it and forget it. Experience on the listed appliances shows that you will pay half their cost over 25 years then replace with one that costs twice the original.
Except that unlike these appliances (and nuclear power), solar gets cheaper as time goes on.
Those appliances that you list are mechanical. Solar is not. Fewer moving parts means less to maintain. Furthermore, maintenance is built into third-party solar, and the cost is not half of system ownership.
I understand that those working in the nuclear industry will come up with just about any argument, no matter how little basis in fact, to make people believe that solar is impractical. This is because we are going to wipe your industry – along with coal and gas – off the face of the earth, and there isn’t a thing you can do about that.
In 1973 I built, installed, and maintained a solar hot water heater for my home. Supplied HW for a family of five. After five years the cost of the repair parts convinced me that I was wasting money. And I and I alone was taking care of all maintenance. How does a typical family afford that.
Ten years later I tried PV. Another HUGE waste of money. Useless when it snowed. Had to wash at least once a month to get peak performance. Useless for emergency power other than minimal lights and a single TV. NO refrigerator, NO furnace, NO freezer. Had a dozen NEW gulf cart batteries. Would only be able to handle SHORT outages. Hint during the worst storms, there is NO sun. Try living like you now do with no connection to the Grid and get back to me.
Why on Earth would I try to live with no connection to the grid? The power grid is a societal benefit that Americans spent generations paying for, and solar works best when grid-tied. Incidentally, when coupled with batteries and the proper software it also enhances the resilience of the grid!
No one in their right mind serious proposes running our society solely on solar. For northern latitudes wind + solar + batteries + hydro (where available) are best.
Also, sounds like your PV system was under-sized for what you were trying to do with it.
“wind + solar + batteries + hydro (where available) are best.”
If all of that FREE wind/solar is so good, WHY do the countries with the highest installed capacity per capita have the HIGHEST cost of electricity? E.g. Germany and Denmark over $30 per kwh. Both with 1,000 watts per capita, about the average amount used in most American homes, factoring in occupancy of the home. What is $0.30 per kwh going to do to the American economy? One of the largest costs of manufacturing is energy costs. However, fuel costs are nowhere near the top of the list for expenses in electrical power generation. one half of your electric bill is TAXES. Federal taxes, State taxes, Property taxes, License fees for vehicles, etc.
Then, you advocate using the GRID as your UPS. That means that the entire fossil/nuclear electrical power generation infrastructure needs to remain just to be YOUR backup power source.
Averages do not work with power generation. FERC REQUIRES all electric utilities to have a 10% spinning reserve. That means that enough plants are operating at power with enough capacity to instantly handle 10% of the expected, predicted, maximum load for that date and time. If a utility does not meet that demand they get fined. And then YOU pay more Taxes called a fine.
So until you come up with a majical, instantaneous, source of power that is also as free as wind and solar, you are going to pay two, three or four times as much for that FREE renewable energy.
Wow. What an interesting collection of mythologies and outdated ideas. Let’s see if I can get through all of this Gish Gallop without wasting too much time.
1) Places with high electricity rates… like Iowa? And Texas? In general, in terms of the relationship between high costs of electricity + high rates of renewable energy, correlation is not causation. In fact, in the United States it usually goes the other way around – states that already have high electricity costs deploy renewables because they save more money. Though these days renewables are just generally cheap, so they are being deployed near everywhere. Also, another point is that Denmark and Germany deployed wind and solar when they were still expensive, building economies of scale that benefitted all other users. When you see a sub 3-cent per kWh contract for solar, thank a German.
2) On that same note, many big electricity users like data centers are now either signing contracts with solar and wind projects or insisting that utilities supply them with power from these facilities, because they are cheap. So cheap, large-scale wind and solar are benefitting the American economy, thank you very much. This is one reason why so many companies have pledged to go 100% renewable, and why they locate in states with lots of renewable energy.
3) In terms of using the grid as your backup, every form of generation does that. Including nuclear power plants when they go offline. So don’t pretend this is unique for wind and solar.
4) Nuclear isn’t useful as a backup source for wind + solar, because it is inflexible. In fact it is in the way. Natural gas is a great backup for certain geographies (namely northern latitudes that lack hydro), especially in the winter, but I’m expecting that by the time we get to very high penetrations of renewable energy we’ll also have better long-duration storage options and/or other sources of flexible generation like hydrogen (DNV GL’s latest Energy Transition Outlook covers the latter in detail). So right now there is limited dependence on gas in some places, but it’s not certain that will last.
5) Any study of wholesale power prices shows that wind and solar are making wholesale electricity cheaper, not more expensive, and in California rooftop solar is saving consumers billions on avoided T&D costs (read our coverage for more details).
6) Reserves = of course we need that. Spinning reserves? That won’t be necessary. I encourage you to have a look at what advanced inverters can do in terms of supplying grid services.
Well, that’s all the time I have for debunking myths. But one more FYI: ALL CAPS just makes you sound like an unhinged crank.
I’m glad you pointed out that since the prices for the main components of solar panels have been dropping, the price to have them installed has been dropping as well. I’ve been looking for ways to be more environmentally conscious, but solar panels have been a large expense for me to swallow. Now that I know the prices have been dropping, I’ll definitely do some more research about my area specifically!
I am building a home and Clean Energy Corp. is contacting me about putting solar panels on my roof. The unit retails for $26,700 but with builder discounts and fed/state/local tax credits, the payout will be approximately $5,000. They say that the system will generate a reduction in my electrical bill by between 68-80% on an annual basis. Provided all of that is true, concerns have been raised that the government is considering adding a “use tax” since we are getting “free use” of the delivery system (i.e., grid). What do you know about this that could help me in my determination as to whether solar is a good fit for me?
The “use tax” would mean some form of change to your compensation under net metering. This happens at the state level, not the federal level. What state are you building your home in?
It is in Lewes, Delaware (19958).
Well, you have net metering in Delaware: http://programs.dsireusa.org/system/program/detail/43
However, in many places utilities have tried to weaken net metering, often by setting unfavorable rate structures for owners of PV systems. I don’t believe we’ve covered anything like that in Delaware, but as we cover 50 states plus DC and federal actions we don’t catch everything.
North Carolina Clean Energy Technology Center’s 50 States of Solar pretty much covers all state-level action related to solar: https://nccleantech.ncsu.edu/our-work/policy/the-50-states-reports/
You can also ask MDV SEIA: https://mdvseia.org/
Very good written article. It will be supportive to anyone who utilizes it, including me. Keep doing.
Seems to me that Southern California would be ideal as electricity rates are astronomical and they get a lot of sunshine. Why is this not going gang busters in Southern California? I am considering a system for my house in Houston, TX. Our electricity costs are very low……4.5 cents per kwh and 4.5 cents for transmission. I can’t see saving more than $1,300 a year in electricity costs. If the average system is $20,000 installed that’s a 15 year ROI (without any repair costs); and there is no guarantee if I go to sell my house it will sell for more than market value because it has a solar unit, so the payoff comes out of my appreciation on the sale of the home. What if the person buying it does not want to maintain a solar system or doesn’t like how it looks. I’m struggling to justify this as a good investment.
Understood regarding Texas. I think a lot of studies have shown that solar *does* increase the value of your house, but you are right in that some buyers won’t want to take care of it or pay extra for your having that.
You are also correct that the economics of rooftop solar are largely determined by electricity rates, and that in that regard Texas and the South don’t make this as good a deal as it is in California.
However, California *is* going gangbusters with solar. The state got 14% of this power from in-state solar last year – the highest portion of any state – and about 1/3 of that was rooftop.
If rooftop solar deployment has slowed in California, it is largely because of net metering 2.0 and specifically the move to mandatory time of use rates, which make it a lot more complicated to calculate payback times. My understanding is that solar is still a good deal, but sales people have had to retrain on how to sell it, and at this point most of the easy customers already have solar on their roofs.
Alot of good points brought up thus far. Large (Utility) scale solar is already cheaper than any other source of energy (natural gas, coal, etc.). Residential solar is a trickier proposition. It is HIGHLY dependent on what you pay per kWh from your utility.
I am thinking about getting a 15 kWh solar system and after looking at several quotes and doing the math (energy generation by the solar system vs. loan payments) I’d be paying roughly 9.5 cents for the electricity that the solar system generates not counting maintenance over time. But, since I currently pay 9 cents a kWh here in Texas through an Co-op, it doesn’t make much sense for me. My payback period would be like 13 years.
But, in California, the average rate is like 19.39 cents a hWh!!! it makes CRAZY good financial sense to consider solar if you live there. The national average is close to 14 cents a kWh so even if your costs are close to the national average solar starts to make sense.
As solar continues to get cheaper by the year, the numbers will continue to look better and better even in states that are closer to the national average of 13.75 cents per kWh. At that point, the solar story will change from “HEY! Hug a tree! Go Solar!” will change to “Hey! You’ll pay less for your energy from day one!!” not 4, 7, 13 years down the road but today! The state of residential solar is not there yet. But, it will be some day. Even when that day comes, there would still need to be innovation on the solar home battery front to go completely off-grid. But, residential solar today DOES help utilities from having to invest in costly expansion (due to population growth) as well as having to expand capacity to meet peak demand in the summer months.
Also, another thing to consider is inflation in the cost of energy from a utility where as with a solar system you have “largely” locked in your cost at the time of installation (e.g. 9.5 cents kWh).
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