NEXT STEPS pricing and paying >>
Does it Pay?
Figuring the financial
value of a solar or wind
energy system
By anDY BlaCk
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how lonG will it take for a new solar
or wind electric system to pay for itself? That
depends on your local climate, utility rates and
incentives. in sunny or windy states or places
with expensive electricity, the payback is faster
than in calm or cloudy states or where power is
relatively cheap.
The most important factors for making solar
an attractive investment include high electric
rates, financial incentives, net-metering policies and good sunlight (almost all of the continental united states is within plus-or-minus
20 percent of Miami’s sunlight level).
where net-metering laws exist ( 42 states),
solar energy offsets the retail cost of the electricity generated. in some regions, solar systems are allowed to operate on a time-of-use
rate schedule that enables users to sell electricity back to the utility at peak rates, which
can be even more valuable. time-of-use rates
vary electricity price by time of day. The set-up
allows generators to receive higher rates from
the utility during times of power shortage
(for instance, when air-conditioning loads are
high). These higher electric rate periods often
occur in the heat of the day, when solar systems
are most productive.
Direct incentives can include tax benefits
such as credits or depreciation. The most celebrated recent incentive is the federal tax credit
for solar systems that was expanded on jan.
1, 2009. The credit covers 30 percent of the
system cost and can be coupled with state,
local and utility incentives. The Database of
state incentives for renewables and efficiency
( dsireusa.org) lists state and federal incentives
around the country for all types of renewable
energy and energy-efficiency projects.
some states have rebates of up to $4.50
per watt (up to 50 percent of system cost),
cutting the upfront expense. others have
performance-based incentives (PBis) that
pay from 10 to 40 cents per kilowatt-hour
for power produced over three to 10 years.
some states also use solar renewable energy
credits (sreCs, also called green tags), which
are similar to PBis in that they produce value
based on system performance.
sreCs represent the bundle of legal rights
to the green part of each kilowatt-hour pro-
duced by a solar system. sreCs are valuable
to utilities in certain states, such as new jersey,
Maryland, Pennsylvania and 11 others, because
those utilities must comply with renewable
portfolio standards that require a certain per-
centage of the electricity they sell to come from
solar sources. new jersey sreCs are currently
the most valuable and have recently traded in
their auction market for as high as 65 cents
per kilowatt-hour, thus earning five times the
price of the electricity savings they are also pro-
ducing. in most other states, sreC values are
much more modest.
a feed-in tariff (Fit) is yet another type
of performance-related incentive, but one
that foregoes the net-metering benefit. The
customer continues to pay the regular electric
bill but gets paid for all electricity fed back to
the grid. Gainesville, Fla., has an Fit of 32
cents per kilowatt-hour for 20 years, but the
program is so popular, it’s currently sold out.
What’s It Worth?
The investment value of a solar installation depends on the cost of electricity and its inflation, the cost
of a solar system with incentives, how well the system performs, interest rates and the customer’s
tax situation. Calculations for some sample situations show a wide range of results. See ongrid.net/
papers/PaybackOnSolarSERG.pdf for the assumptions and a full discussion of the inputs and results.
Utility
Source: ongrid.net
AZ - APS
CA - PG&E
CA - PG&E
CA - PG&E
CA - SCE
CA - SCE
CA - SDG&E
CA - SDG&E
CO - Xcel
C T - Ut’d Illum
FL - FPL
GA - GA Power
HI - HECO
MD - BGE
NC - Progress
NJ - JCPL
NY - ConEd
PA - PPL
Pre-Solar
Bill
$97
$74
$258
$499
$85
$413
$97
$455
$71
$183
$89
$88
$164
$131
$79
$143
$134
$95
kWh
Usage
per
Month
800
550
1,100
1,650
550
1,650
550
1,650
800
800
800
800
800
800
800
800
800
800
PV System
Size &
Rating
5 k W STC
3 k W CEC
6 k W CEC
9 k W CEC
3 k W CEC
9 k W CEC
3 k W CEC
9 k W CEC
5 k W STC
5 k W PTC
5 k W STC
5 k W STC
5 k W STC
5 k W STC
5 k W STC
5 k W STC
5 k W STC
5 k W STC
Final Net Cost
w/ Tax Benefits,
Rebates, PBIs
(excl SRECs)
$18K
$17K
$33K
$48K
$16K
$45K
$17K
$47K
$17K
$25K
$16K
$22K
$26K
$25K
$22K
$24K
$16K
$22K
Cumulative
Savings Over
First 25 Years
(inc. inflation)
$29K
$24K
$105K
$205K
$30K
$164K
$38K
$196K
$11K
$48K
$21K
$17K
$53K
$30K
$16K
$55K
$29K
$20K
Lifecycle
Payback
Ratio
1.6x
1.4x
3.2x
4.3x
1.8x
3.6x
2.2x
4.1x
0.6x
1.9x
1.3x
0.8x
2.1x
1.2x
0.7x
2.3x
1.8x
0.9x
Years To
Payback
19
20.1
10
7. 8
16. 9
9
13. 3
8.1
36. 2
16. 3
21.1
30. 2
15. 5
22. 4
31. 3
10. 3
17. 4
27. 4
Pre-Tax
Compound
Annual
Return (IRR)
9.1%
8.9%
18.7%
23.8%
11.6%
20.9%
13.8%
23.1%
1.8%
10.8%
6.3%
5.8%
13.7%
6.3%
6.3%
17.3%
13.0%
3.9%
Net Monthly
Cash Flow
Compared to
8% 30-yr Loan
in First Year
$-10/mo
$-12/mo
$103/mo
$264/mo
$4/mo
$187/mo
$19/mo
$245/mo
$-36/mo
$1/mo
$-24/mo
$-32/mo
$25/mo
$-38/mo
$-28/mo
$140/mo
$12/mo
$-47/mo
Net Monthly
Cash Flow
Compared to
8% 30-yr Loan
in Fifth Year
$-16/mo
$-19/mo
$112/mo
$298/mo
$-1/mo
$208/mo
$17/mo
$276/mo
$-49/mo
$-1/mo
$-26/mo
$-67/mo
$10/mo
$-49/mo
$-66/mo
$70/mo
$-3/mo
$-58/mo
Annual
Savings
$808
$672
$2,798
$5,414
$818
$4,374
$1,029
$5,173
$466
$1,315
$611
$512
$1,446
$850
$486
$2,833
$815
$599
Appraisal Equity/
Resale Increase
in First Year
$16K
$13K
$56K
$108K
$16K
$87K
$21K
$103K
$9K
$26K
$12K
$10K
$29K
$17K
$10K
$19K
$16K
$11K
