Determining payback

gpt Registered Users Posts: 18
Hi, I was wondering what folks use to determine payback on an installed system. How do you factor in the potential rate increases in kWh from the electric company. Also do you include the increased value to the home? Thanks in advance.


  • stoneunhenged
    stoneunhenged Solar Expert Posts: 39
    Re: Determining payback

    I suspect there are several ways you could do it, all yielding an answer that is merely an estimate. A comprehensive approach would be to first determine your true costs (parts + installation costs + ongoing maintenance and repair + any increase in your real property taxes as a result of adding the system) less any government subsidies or tax breaks you receive. Then, estimate your return based on reasonable assumptions about the offset you will experience against normal grid usage (including a reasonable estimate of increased electricity costs based on historical trends). In my case, I expect my whole house PV system to yield an annual ROI of about 15% -- not too shabby by investment standards, particularly these days. (The average annual return of the stock market over the last 75 years is about 10%.)

    I doubt that a PV system would have much perceived value to a subsequent homeowner unless he or she was one of the statistically rare people who wanted to assume the burden of maintaining such a system. It's sort of like any unique amenity installed on a house that appeals to the idiosyncracies of the homeowner --think an indoor tennis court-- that seems pretty cool to you but not so much to the next owner. It might actually be seen as detracting from the value of the home.

    Finally, depending on the configuration of the system, you should consider that the system will depreciate over time. Batteries particularly have a relatively short useful life.
  • BB.
    BB. Super Moderators, Administrators Posts: 33,522 admin
    Re: Determining payback

    A simple formula to start with:

    (capital cost of system + maintenance such as battery replacement)/(kWhrs generated over 20 years)=$/kWhr over 20 years

    Example 3kW $20,000 GT (my costs after rebates) system installed near SF California with an average of 4,800 kWhrs per year generation:

    ($20,000 system cost + $2,000 replacement inverter assuming 10 year life) / (4,800 kWhrs per year * 20 years) = $0.23 per kWhr

    You can add other costs (interest, present value-future worth, etc.) to make a more accurate estimate of costs.

    Currently, in SF California we pay between $0.09 - $0.60 per kWhr ($0.75 maximum for businesses). Our northern California rate plans are highly variable (many plans, Time of Use, Tiered Pricing--use more-pay more, seasonal, Smart Plan with very high prices during high power usage times).

    I would agree with "stoneunhenged" that the system will add little value to your home. The return on investment is small, and many buyers are hesitant to buy homes with solar stuck to their roofs.

    In terms of investment, spending on conservation will save you more money and will increase the value of your property more (energy star appliances, insulation, double pane windows, skylights for light and ventilation, etc.).

    Near San Francisco California: 3.5kWatt Grid Tied Solar power system+small backup genset
  • Mangas
    Mangas Solar Expert Posts: 547 ✭✭✭✭
    Re: Determining payback

    The wild card will be utility rate increases going forward, particulary rural rates.

    If Cap and Trade taxes are imposed and solar hardware costs don't rise faster, I believe solar returns should get progressively better.

    As an ex CFO, I suggest rate streams discounted into the future can very meaningfully impact your results on a DCF basis. For my system, I set a useful system life of 20 years. Also, I set the total CAPEX investment net of bringing in the grid but included my fully loaded maintenenace man hours, replacing the batteries once, replacing 3 of 40 panels (damage or failure probablility) one of two charge controllers and setting a nominal/small residual value (except civil construction expenses).

    Since it's a large system which meets all of our lifestyle preferences, I didn't assume any future expansion expenses. I expect usage efficiencies (appliances, etc) should actually improve over time. The one cost I didn't include were energy efficient construction materials and devices which you could argue are more important in solar applications (e.g. system sizing) but maybe we would have done them anyway.

    Since I prefer working cattle on horseback and keeping my land in permanent conservation, I wouldn't have brought the grid in anyway. People who see our system and understand the trade offs don't consider it a negative. In the city, they probably would.
    Ranch Off Grid System & Custom Home: 2 x pair stacked Schneider XW 5548+ Plus inverters (4), 2 x Schneider MPPT 80-600 Charge Controllers, 2 Xanbus AGS Generator Start and Air Extraction System Controllers, 64 Trojan L16 REB 6v 375 AH Flooded Cel Batteries w/Water Miser Caps, 44 x 185 Sharp Solar Panels, Cummins Onan RS20 KW Propane Water Cooled Genset, ICF Custom House Construction, all appliances, Central A/C, 2 x High Efficiency Variable Speed three ton Central A/C 220v compressors, 2 x Propane furnaces, 2 x Variable Speed Air Handlers, 2 x HD WiFi HVAC Zoned System Controllers