Determining payback

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.

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.