Is a 5.4% internal rate of return good for a 25 year solar system with 10 year break even payback?

aluminumwelder

Please click on link below to see my calculations. (Scroll past the red box or click on X to close it ) I will DIY install the system for around $1/watt or $0.74 after federal tax rebate. Is this a good investment?  It's with a electric coop that has $27/month fees and paltry 4.79cents for excess generation. York, SC location. Info below link is the Utilities net metering rules. 

http://pvcalc.org/PVcalc?scale=1&t_useful=25&nominal_power=6&annual_yield=1390&r_degradation=0.5&t_guarantee=25&p_guarantee=0.0479&p_guar_own=0&cons_own=0&p_income_now=0.086&r_inflation_energy=2&p_setup=740&p_lease=0&r_insure=0.5&r_maintenance=0.5&t_finance=0&r_finance=4.15&own_funds=100&disagio=3&reserve_yield=3.5&r_inflation=2&loan_type=redeemable&redeem_type=uniform&tax_rate=0&lang=en&ccy=USD&index_linked=0&


Service availability charge @ $.89 per day  (works out to $27/month)
First 200 kWh per month @ 7.78¢ per kWh
Next 800 kWh per month @ 7.60¢ per kWh
Over 1,000 kWh per month @ 8.68¢ per kWh
As of the Effective Date of this Rate, the Cooperative’s Value of Renewable Generation is:
Value of Renewable Generation @ 4.79¢ per kWh

[PDF] Residential Net Metering – Rate Schedule 75 – Rate 5 — York Electric Cooperative, Inc.

This rate is available on a first come, first serve basis, except that the total capacity of all retail member generating systems under rate schedules 72, 73, 75, 76 and 77 shall not exceed 1% of the Cooperative’s hourly integrated peak load, as measured at its distribution substations, for the prior calendar year. If the member’s proposed installation results in exceeding this limit, the member will be notified that service under this rider is not allowed

The Nameplate Rating of the member’s installed generation system and equipment must not exceed the lesser of the Member’s actual or estimated maximum annual non-coincidental demand (kW) for the last twelve (12) months or 20 kW

DanS26

I have a very similar installation on an REMC POCO.  Installed  ~10 years ago in August 2011.  I self installed a 23.16 kW system for $1.70 per watt that is parts only with the tax credit.

Service availability charge @ $37/month
Retail cost of power @ 10.888 cents per kWh
POCO pays wholesale for excess @ ~6.92 cents per kWh (varies by season)
My cost of production is ~6.6 cents per kWh

My IRR is 5.12% with a 12.7 year payback.....just a few years to go.

If I was installing at $0.74 per watt instead of the $1.70 per watt actual in 2011 I would expect that my IRR would be north of 10% and payback ~5 years.

Go for it if you have the DIY skills.  Follow the code requirements and all safety guidelines.  Everyone asks me if solar is worth it.  I tell them if you do not have POCO net metering and if you have to pay someone else to install then it usually does not financially work.

But if you can get net billing with a reasonable wholesale reimbursement and you can self install then it might work well at todays parts prices.

Your numbers look reasonable to me.

aluminumwelder

thanks for the reply. I played around with pvcalc a little more and it seems the Energy Price Inflation (%/year)
does not work.
even when I plug in somethign ridiculous like 50% increase in utility bill every year, it does not affect ROI.

but if I play with the feed in tarriffs the Return on investment ROI, increase dramatically. However I sized my system so that it would be about a 90% of the bill, so the amount of energy sold back to the utility should be close to zero. And if energy sold back to utility is zero then that feed in tarriff should not make a differnece in the ROI? 

I wish the finacials of determining pay back of solar arrays was not so complicated .

DanS26

I built my analysis tool in Excel.  Used PVWatts to determine production that is key.  My Kyocera panels will degrade .71% per year and that has been spot on since installation 9 years ago. Cost of production is important....some people use levelized cost of production but it is a little more work but doable.

From there all the inputs and cash flows are fairly straight forward. Start with your investment in year zero and then just feed in all your positive cash flows net of negative cash flows by year....don't forget periodic maintenance on those inverters which only last 10 years.

I assumed no salvage value at the end and no energy price inflation.  My POCO has actually reduced prices over the last six years.  Natural gas and renewables are cheaper than coal in my neck of the woods. 

Excel will calculate ROI, IRR, MIRR, Payback and all the other present value analysis needed. If you build your Excel model correctly you can keep a running analysis of actual and planned cash flows by year.  Use the extensive graphing capabilities to impress your friends. Good luck.