Does Installing Solar Energy Make Sense?

Does installing solar make sense?

Production

Most consumers have been persuaded by political rhetoric making solar a non-viable energy solution to the north and northeastern United States. For instance, Ohio averages about 4.5 hours of viable solar energy per day. This may not sound as good as southern California at nearly 7 hours per day. However, the solar energy chart published by the NREL (National Renewable Energy Laboratory) does not tell all. Though the sun may shine on some states longer than others does not equate to an automatic ROI verses exclusion to a ROI. Granted Ohio and many other States in the north and north east may not get as many hours of sun, however these states do not get the high temperatures associated with deep south positioning to the equator. Heat is the number one enemy to photovoltaic production. This one condition de-rates energy production as much as 30%. Converse to this condition is extreme cold conditions, which is a great asset. The colder the panel the greater the out put of voltage. Whereas heat is the most common liability to the southern states, temperatures averaging close the STC (standard test condition) of the photovoltaic modules the northern states experience greater efficiency rates. All manufactures test the energy output of photovoltaic modules at 77 F. Most northern states average just 3-8 F above STC. Summer electric production may exceed manufactures label efficiency rates in northern states and may out produce winter electric production of southern states during the shortest days of the year. Thus a module in upstate New York or Maine may produce as much energy as sunny California.

ROI

How does the ROI work in northern states in comparison to the southern states? Most consumers view ROI based on the actual production of a system verses the actual cost to install. Though this may be one means to determine ROI, but this may be short sighted. For example, a house value is not determined by purchase price to market value. You may purchase a house for 120k and in 30 years the house may be worth 360k. However the purchase price plus the interest paid will exceed the market price in 30 years making the investment by all accounts a loss. Though this may be one way of calculating ROI on a home purchase this would also be short sighted. The value is based more on securities and taxes deferred as well as according to need and savings from owning opposed to renting. Though we can see the difference of owning a house and property, solar energy may be more difficult to ascertain.

Consider first the ownership of electric as opposed to renting electric. Currently Americans by majority rent electric from a Utility supplier with little or no control over rates per kWh. The average rate nationwide?

The average cost of residential electricity was 12¢/kWh in the U.S. in June 2010, and ranged from 8¢ in Kentucky to 28¢ in Hawaii. (From the DoE, which also has historical rates) But average rates are misleading, because most utility rates are tiered, meaning that excessive use is billed at a higher rate. This is important because your savings are also figured for the highest tier you’re in. For example, let’s say you pay 9¢/kWh for the first 500 kWh, and then 15¢/kWh for use above that. If you normally use 900 kWh a month, then every kWh you save reduces your bill by 15¢. (once you get your use below 500 kWh, then your savings will be 9¢ kWh.)

Most systems are installed around 17¢ kWh. In many states this is already below the average utility cost. This is not withstanding the rising cost of energy we are facing nationwide at an average of 30% yearly for the last two years and forecasted to not change in the next 5 years. Break even on a system is currently at this standard 17 years.

We cannot leave ROI at this point. The federal tax credit is 30% uncapped for residential systems until 2016. The average system cost reduced 30% lowers the kWh installation price to 12¢ making the system investment very competitive. Further, decreasing the break even from 17 years to just less than 12 years. Make sense to invest in solar energy? Not yet the real numbers are not yet disclosed. Paying for all your electric for the next 25 years one lump sum may not make sense. However, locking in your electric rate at 12¢ is a good idea.

The real ROI is seen in lowering the break even time to 7 years or less. You may at this point be looking at other incentives and thinking a person can get there easy. Though some incentive programs exist they are not available to everyone and they may come with chains and not strings attached to them. Understand that any incentive other than tax relief is not free. The money comes from somewhere and charity is not the program. However for the person who has no incentives available the ROI can be lowered much further.

SREC programs.

September 2010, SREC (Solar Renewable Energy Credit) trade toped $300. SREC’s are a credit that is metered by the amount of solar energy generated by an owner of a solar energy system. One SREC equals 1000kWh of production. In the north the average system will produce about 9 SREC per year. This is equal to an additional $2700 annual income.

If a system base cost is $56k and the homeowner receives a 30% tax credit the systems is reduced to $39200. Take the $2700 per year in SREC production and subtract out the max taxes and you keep $1890 multiplied by 25 years and $47250. At this point the SREC exceeds the cost of installation. Further the savings of the system in utility bills over the warranted life of the system exceeds $100k.
Look at these stats:
System Return on Investment

First Year Utility Savings $1,507
System production x $.12

First Year Return on Investment 3.82%
First year utility savings / Final system cost
“Lifetime” Utility Savings $118,530
First-year utility savings x 25 yrs x 8.5% annual utility increase.
Lifetime Return on Investment 300.78%
Total 25 year utility savings rate.
Average Annual Return on Investment 12.03%
Lifetime return in investment / 25 years.
Increase in Property Value $30,134
Twenty times first year utility savings. Source:
The Appraisal Journal (October 1999)
Increased Property Value Return on Investment 76.47%
Property value increase / Final system cost

Add in the SREC values

System Return on Investment

First Year Utility Savings $3,410
System production x $.12 +SREC production
First Year Return on Investment 8.65%
First year savings / Final system cost
“Lifetime” Utility Savings $166,106
First-year utility savings x 25 yrs x 8.5% annual utility increase.
Lifetime Return on Investment 421.50%
Total 25 year utility savings rate.
Average Annual Return on Investment 16.86%
Lifetime return in investment / 25 years.
Increase in Property Value $68,195
Twenty times first year utility savings. Source:
The Appraisal Journal (October 1999)
Increased Property Value Return on Investment 173.05%
Property value increase / Final system cost

For most homeowners the increase in property value is not an ROI. However the investment of solar can yield nearly 17% annually over the next 25 years. Check out the numbers and consult a Solar designer and installer for the numbers concerning the production and cost of a system. Most installers may not have SREC information and prices, however they will know the nuts and bolts of a systems and how much power it will produce for your location. Don’t leave the leave ROI to be calculated by politicians or Utility providers! They are installing systems but not telling you the real savings!

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