The Cost of Solar Power: You Can Afford It

You've heard about the cost of solar power systems. If you're thinking about installing one, here’s how to calculate the payback period.


| October/November 2006



cost of solar power - power cost comparison

This chart compares costs of utility bills without a solar system to costs of the solar system (loan, lower utility bill and maintenance). It assumes the PV system inverter is replaced at 15 years. The major drop at 20 years represents payoff of the loan.

Andy Black/OnGrid Solar

For years, questions about returns on the expensive investment in a solar-electric system were dismissed with the analogy, “What’s the payback on your swimming pool?” That sentiment might speak to the converted, but for most people considering solar power, the financial case is a major deciding factor.

Fortunately, photovoltaic (PV) technology has matured such that we now can offer serious answers to the payback question, backed by solid math and accounting. Answers vary significantly by local climate, utility rates and incentives, but in the best cases, the returns will be more than 10 percent, the cash flow positive and the increase in property value great enough to offset or more than offset the cost of solar power. In other parts of the country where electric rates are low and incentives may be less, a grid-tied system may barely cover its maintenance costs.

What Factors Improve Payback?

The most important factors for making solar an attractive investment include high electric rates, net-metering policies, financial incentives and good sunlight. Unlike the other factors, sunlight is available in almost all of the continental United States.

High electric rates can take various forms. California, Hawaii, New York and other states have average rates well above 15 cents per kilowatt-hour (kWh). California’s tiered pricing system penalizes large residential users with prices as high as 33 cents per kWh. Solar energy offsets highest-tier usage first, making the customer look like a smaller net user.

Under most net-metering laws, which vary by state or utility, solar energy generated by users offsets the retail cost of the electricity they use. Even better, in California, solar systems are allowed to operate on a time-of-use rate schedule, which enables users to sell electricity back to the utility at peak rates, which can be even more valuable. These high rates are the most important factor in improving the payback.

Direct incentives can include tax benefits such as credits or depreciation. A federal tax credit went into effect Jan. 1 for 30 percent of the cost of a solar system, up to $2,000 for residential systems (there’s no cap on commercial credits). For PV systems, that typically means a $2,000 credit on your tax return for the year the system was installed. Then there are state incentives, including rebates, which can discount up to 60 percent of a system’s cost. Some states also offer tax credits, which can further reduce the upfront cost of a system. Consult a certified tax adviser to check the applicability of such incentives to your situation.

cathysmith135
1/27/2015 3:52:12 PM

Thanks for the information. Solar energy is such an awesome thing. It works wonders for our environment. I'd like to know more about the cost of solar power. It's worth it to do it, right? I'd like to look into purchasing solar panels. Would you recommend it? I'd just love to know that I'm making a small difference in the world. http://www.browermechanical.com/solar.php


cathysmith135
1/27/2015 3:51:40 PM

Thanks for the information. Solar energy is such an awesome thing. It works wonders for our environment. I'd like to know more about the cost of solar power. It's worth it to do it, right? I'd like to look into purchasing solar panels. Would you recommend it? I'd just love to know that I'm making a small difference in the world. http://www.browermechanical.com/solar.php






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