Tuesday, July 11, 2017

Suburban 5-4-and-a-Door Solar: Early ROI Calculations

The number one question that we get about our solar installation is "how much did it cost?" The number two question is "what is the return on investment?" After less than a month of service, we don't know the answer to the second question with any certainty, but we can start making some estimates. Here's what we have calculated so far.

How much did it cost?

$13,466.24 net.

We purchased through a Solarize program that was very successful and reached Tier 6 pricing, which means that the price per kW installed dropped significantly over the life of the project. Our original quote was a $3.05 per kW installed. Our final price was $2.80 per kW installed. For our 6.875kW array (25 panels x 275 kW/panel DC rating), that puts the original price at $20,968.75 and our final price at $19,593.75 for a savings of 8.3%.

The federal government provides a 30% direct tax credit that we will be able to deduct next year.  In the state of Georgia, there are no state-level incentives. Including that 30% credit, our net cost for the solar array is $13,466.25.

Power/panel 275kW
Panels 25
Original $/kW $3.05
Original Total $20,968.75
Actual $/kW $2.80
Actual Price   $19,237.50
Savings ($) $1,731.25
Savings (%) 8.3%
Tax credit $5,771.25
Net $13,466.25

How many years until it pays for itself?

It is way to early to know for sure, but probably somewhere around 10 to 11 years. Less if the cost of power goes up and/or we are smart about our power use timing. We want to minimize power sent back into the grid and maximize usage of the power that we generate since the policies here are not favorable to selling power back.

Our annual cost of power has been about $2,060 recently. Due to savings, that number has dropped about 20% since we've been recording. See this previous post for details on the drop in use. (The graph below is a little smoother because I originally forgot to normalize to 365 day years and this is dollars, not kWh.) So we'll assume $2060 per year as the benchmark to calculating payoff.

Using a price of $13,466 and an annual power usage of $2,060 nets the following range of years for payoff.

Across the bottom are assumptions for changes in power cost. Those could be due to increasing rates (Georgia Power has hinted a significant rate hike to cover the cost of the failed Plant Vogtle, but nothing has been decided yet and rates in the past 3 years have been relatively steady), decreasing demand, or any other factor that would change the nominal cost of power in our home. The white line represents the current costs (100%). Increases in rates will push that line to the right.

The vertical axis represents how much the solar panels offset our power bill. We're expecting something in the 50% to 60% range, but really don't have any firm numbers yet since there are a lot of variables involved like power generation versus power usage over time each day, alternative pricing plans (e.g. time-of-day rates that benefit low usage in peak times), performance in the winter months, etc.

The colored bands represent number of years to recover the total cost of the panels. See the legend at the bottom for the ranges. Right now, we expect to be somewhere in the gray band, but we'll need much more data to be certain. It's something that we'll be watching over the next 12 months.

For those who care deeply about the math, we did not include time-value-of-money in the calculations since interest rates are very low at the moment. We also did not include financing costs since we paid for these in cash. The changes in power cost are for the lifetime of the system, not per year, as per-year made the model too complex and anyone who cares that much can back out the per-year increases from the final numbers anyway.

So, there's your answers as far as we know them today. Feel free to ask questions and we'll keep updating as more information becomes available.

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