Solar-Photovoltaic Payback

L. David Roper
http://www.roperld.com/personal/roperldavid.htm
6 April, 2016

Introduction
Assumptions
Payback Calculation
Green Investment
Energy Payback and Carbon-Emissions Payback
References

Introduction

Solar energy is an inflation-protected investment; it reduces electricity costs at the current rate instead of future rates. The economics of solar energy include:

Return on investment
Cash flow
Increased resale value

The first thing you should do is make your house as energy-efficient as possible, so that renewable energy does not have to supply so much energy.

Assumptions

Several assumptions have to be made to calculate payback for solar PV; here is an example:

Initial electricity rate: ~$0.10/kWh for Blacksburg VA
Average yearly increase in grid-electricity rate: ~6%/year
Decline in efficiency of the solar panels: ~80% in 25 years
Cost per peak kilowatt to install: ~$7000/(peak kW)
Loan interest rate: ~5% per annum
Actual panel power output for full sunshine: ~70%
Average sunshine hours per day for a year: ~4.5 hours in Blacksburg VA (See this web page for the hours for other locations.)

There are some ephemeral situations that may reduce payback periods:

State or federal rebates for installing renewable energy
State or federal tax deductions or reductions for installing renewable energy
Solar Renewable Energy Credits (SRECs) that may be saleable

In the spreadsheet described below there are two worksheets; one for true cost and one for including ephemeral reductions.

Payback Calculation

There is a downloadable Excel spreadsheet for doing the calculation. (The spreadsheet may be changed in the future, so you may want to download it again if you need it in the future.) Doing the calculation for the parameters given above and varying the initial electricity rate ($0.10, $0.15, $0.20) and the average rate increase per year (6%, 8%, 10%, 15%), I get the following true-cost payback periods, not including any rebates, tax deductions/reductions or SRECs::

Payback (years):		30-year loan @ 5%
Rate Inc.\|rate	$0.10	$0.15	$0.20
6%	30	22	16
8%	22	16	10
10%	17	12	8
15%	11	8	6
Payback (years):		20-year loan @ 5%
Rate Inc.\|rate	$0.10	$0.15	$0.20
6%	20	20	20
8%	20	19	15
10%	20	15	11
15%	13	9	7

These numbers do not include any of the ephemeral situations which would reduce the payback periods:

State or federal rebates for installing renewable energy
State or federal tax deductions or reductions for installing renewable energy
Solar Renewable Energy Credits (SRECs) that may be saleable

Inclusion of these, depending on their values, can make the payback period to be zero!

Here is a specific calculation with ephemeral situations included:

Parameters:
Peak kW		23
Loan Period (years)		5
Loan rate		5%
Cost/peak kW		$5,000
Actual kW factor:		0.7
PV kW decline/year		0.80%
Sun hours per day over year		4.5
Grid energy initial rate		$0.10
Grid rate increase		6%
Replace inverter loan years		1
Inverter cost		$5,000
Rebate		30%
SREC/kWh		$0.30
tax rate		20%

The payback graph for these parameters is:

The payback is 7 years.

Green Investment

A Home Power Magazine study showed that, with reasonable assumptions, investing in green infrastructure for your home and business can return as much or more money savings as investing in the stock market earned over the last twenty years. And if enough information were available to calculate the money saved by not dumping carbon into the atmosphere, the energy-efficient investment would be even more favorable. This is a good time for U.S. citizens to buy products from companies to make their homes and businesses more energy efficient instead of buying stock in companies, which may go into increasing the salaries of executives. Make companies earn the money they receive from you by actually creating products you need for energy efficiency