HOW MUCH WILL IT COST TO INSTALL SOLAR ELECTRIC (PV) IF MY GOAL IS TO ELIMINATE MY ELECTRIC BILL (“NET ZERO”)?
Putting it all together… we’ll use an example addressing everything we discussed in our last blog post (See Part 1), using the following assumptions: your kWh usage over the last 12 months was 15,325kWh’s and you don’t anticipate any change in your future usage; you live on a small acreage and have room for a ground mounted system; your roof is shade free, faces southwest (225 degrees from north) and has a 20 degree pitch; you have plenty of roof space but want to know the cost difference between a ground mounted solar system and roof mounted system; and of course you want to get as close to “net zero” as possible.
Using our power production tools (based on 30 years of solar irradiance data collected in Colorado) we can determine that an 11.5kW system on your roof will produce approximately 15,425kWh’s per year (based on the above assumptions); whereas a 10kW ground mount array built at a 40 degree tilt and 168 degrees from north (100% optimal) will produce 15,286kWh’s. As you can see, this ground mount array will produce approximately the same amount of power (within 139kWh’s) as the roof mounted array but is much smaller in size (10kW vs 11.5kW).
An 11.5kW roof mounted solar PV system installed by Alt E would cost around $43,000 ($3.75/watt), at today’s prices, whereas a 10kW ground mounted system would cost around $40,000 ($4.00/watt). As you can see the cost per watt for a ground mount system is a little more than the roof mount system but the total cost is much less since the ground mount system is 100% optimal and produces about the same amount of power as the less optimal roof mounted system. Therefore the return on investment is much higher for the ground mount system since the price is lower!
Taking the next step, let’s assume you decide the ground mount system is the way to go. Using $40,000 as the price, you will receive a federal tax credit of $12,000, thereby bringing the cost down to $28,000. Now let’s assume your electric utility pays you a REC payment of $.13/kWh and your electric rate is $.105/kWh (this is Xcel Energy’s current REC payment price for “small solar PV systems” and its current residential electric rate). Your solar system will save you $1605/per year at today’s electric rates (15,286kWh’s produced x $.105/kWh = $1605.03 annually), PLUS Xcel will pay you under contract $1987 annually (15,286kWh’s produced x $.13/kWh REC payment = $1987.18) for each of the next 10 years (paid monthly)!! Therefore the total annual financial benefit to you is $3592 ($1605 in annual savings + $1987 in REC payments = $3592).
To do a very simple payback analysis, simply divide the net cost (after your federal tax credit) of $28,000 by the annual financial benefit (savings and REC payment) of $3592 to determine that the payback timeframe is 7.79 years. However, we all know that electric rates are only going up (average annual electric rate increase over the past 30 years has been 6.7% annually – doubling about every 11 years), so if you factor in this rate increase going forward, then your actual payback time frame is more likely around 6 years. This equates to an approximate 17% annual return on your investment!
However, if you want to calculate your true return on investment then it’s important to take into consideration the tax ramifications. Since savings on your electric bill are not taxable, in order to compare the true R.O.I. with other investments, which are taxable, you must ask yourself, “What would I need to earn on a $28,000 investment in order to net $3592 annually from that investment, after I pay taxes?” To answer that question, let’s assume you are in a 25% tax bracket. If that were the case then you’d need to earn $4789 from that $28,000 investment in order to net (after taxes) the same $3592 from your solar system ($4789 less 25% tax of $1197). Looking at it this way (which is the proper way of calculating actual R.O.I. on your solar investment), then a simple calculation shows a payback timeframe of 5.85 years ($28,000 divided by $4789 = 5.85 years). Once again, factoring in electric rate increases, your actual payback timeframe is under 5 years or an annual return on investment of OVER 21%… where else are you going to get a risk free (a contract with a utility company is about as safe of an investment as there is) return on your investment that’s anywhere close to that?!!! WHY ISN’T EVERYONE DOING THIS???
One last thing to note on solar costs… it rarely, if ever, makes good financial sense for the consumer to lease a solar system. While there are a lot of solar companies out there that really push this approach (because it’s solely in their best interest) it is almost never in the best interest of the consumer. They will lock you into a 20 year contract (most with annual rent payment escalators) and tell you that your “rent payments” will be less than your electric bill and they will take care of all maintenance. Well, first of all, if you calculate the total kWh’s that your system will produce over the 25 year warranty period (our proposal shows you this), then you will see that by purchasing the system your price/kWh produced is far, far below the cost/kWh that you’re paying the utility; and far, far below the cost/kWh to lease the system. Secondly, the panels and even some inverters come with a 25 year warranty, so even if there is a problem with your system (very unlikely) the warranty will cover the cost of the new part and the manufacturer will even pay for the labor to replace it. Honestly, it really irritates me when I hear these larger installers use these as main sales points in pushing a lease! It’s simply and completely misleading… to their benefit and the consumers detriment! However, their main sales pitch is that “you don’t have to come up with any money up-front” or “we have a ‘zero down’ lease plan”. Again I call BS… there are several lenders out there who will finance a solar PV system with no money down (we work with two such lenders). Some also sell a “Prepaid Lease Plan”, where they make it look like it cost less up front than it does to purchase a comparable system. Again, do the math (or call us so we can show you exactly how the numbers work) and it becomes crystal clear that a lease is definitely only in the best interest of the installation company! Also, it’s very important to understand that if you lease a solar PV system you will not receive the tax credits or the utility rebates and it will not increase the value of your property! In fact it may make your home harder to sell since the buyer will now be obligated to assume the lease for the reminder of the contract! If you are interested in monthly payments and/or no down payment, please don’t fall for the lease sales pitch, financing a solar system can achieve those same goals and you’ll be far better off financially. Call us… we’re happy to walk you through the numbers of both approaches so you can see for yourself!
Stay tuned for our next blog post which will address… HOW MUCH WILL IT COST TO INSTALL SOLAR ELECTRIC (PV) IF I WANT TO MAXIMIZE MY AVAILABLE ROOF SPACE BUT DON’T HAVE ENOUGH ROOM TO ELIMINATE MY ELECTRIC BILL? In the meantime, please check out our website at www.altewindandsolar.com and our Facebook page at http://www.facebook.com/pages/Alt-E-Wind-Solar-Ltd/196202797091314 or give us a call at 970.482.SOLAR (7652).