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In winter, the average home’s daily PV production is about 3.8 kWh, which corresponds to 688 kWh over 181 days of winter (short days). Assuming the cost of first-tier grid electricity still is 11.4 cents, the total seasonal savings equals $78 for all winter PV production in the first year.

In summer, the average home’s daily PV production is 5.5 kWh, which corresponds to 1,012 kWh total over 184 days of summer (long days). Because the cost of electricity increases to 17.6 cents per kilowatt-hour for electricity usage from 13.5 to 20.8 kWh/day, the total summer PV production equals $178. This translates into a payback period of about 18 years.

Calculating Return on Investment (ROI)

So, how does investing in a solar power system compare with other investment options (such as the stock market)? I find the easiest way to calculate investment returns is on an accounting spreadsheet so I can change economic factors such as system cost, inflation, interest rates and the natural decline in the efficiency of PV panels, which we call the “degradation rate.” (Download my Excel spreadsheet at www.MotherEarth News.com/downloads/simplesolar.)

Let’s look again at the Sullivans’ house, using the system cost and payback figures from the previous section; I have chosen to replace the inverter every 25 years and replace the PV every 50 years. First, let’s assume a reasonable 5-percent electricity inflation rate (national oil prices have increased 4.2 percent annually since the Arab oil embargo of 1973) and an average annual system degradation of 0.5 percent. The Sullivans’ 50-year investment will return a tax-free average profit of 7.5 percent per year. But if we plug in an estimated annual increase in electric rates of 8 percent, instead of 5 percent, then the system will return an annual profit of almost 25 percent. If electric rates rise as much as 20 percent a year, the value of a photovoltaic system skyrockets.

In theory, you are buying 50-plus years worth of electricity. The above calculations assume you didn’t borrow the money to pay for your solar system, but borrowed money comes with an interest rate. Generally, the financial picture for debt-financed PV is unattractive because of high upfront system costs. Remember you have to subtract any loan interest costs from your electric savings.

— Doug Livingston

Solar Energy as an Investment

Sullivan Home Specs

• Array: 18 modules (12 volt/60 watt)
• Solar inclination: 37 degrees
• Inverter: 2,500-watt SMA-America SunnyBoy
• Total rated PV production: 1,080 watts
• Annual output: 1,700 kWh(4.7 kWh/day)
• Average daily power consumption:
6.4 kWh/day or about 2,300 kWh/year
• Grid power consumption: 1.7 kWh/day
• Gross installed cost: $11,563
• Rebates and tax deduction:$3,992; $861
• Adjusted installed cost: $6,710

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