Skeptics scoff when told that solar electric systems pay for themselves. I understand the skepticism because very few purchases in life truly pay you back.
But most people do get the concept of a purchase that saves money, like LED light bulbs or a more efficient water heater. Solar is like that, but better. You can’t tell exactly how much the light bulbs or water heater reduce your energy bills. You just know they’re helping when you see your electric bills go down.
Solar is Different
With solar, you can determine how much your system is saving you, based on how many kilowatt-hours you produce in a month. It’s also easy to track how much solar earns you through green income program like Massachusetts SMART, Rhode Island REG, or New Hampshire RECs.
Because you know your savings and earnings, you’ll know when your solar electric system has paid for itself. Today’s “payback” period is usually between five and twelve years, depending on your electricity rates and how much solar your system produces. Over the years, our estimates of customer solar production in our proposals have proven extremely accurate. Solar is that predictable.
(One customer recently commented on SolarReviews: “New England Clean Energy estimated I’d generate 4,000 kWh in my first year of ownership. They were off by only 0.1%.“)
What is an Acceptable Payback Period?
I find it funny (funny strange not funny haha) how some people get fixated on solar’s payback time. I once heard someone say, “I can’t wait 10 years for solar to pay for itself. I’m going to get central air instead.”
With all due respect to the commenter, that is a ridiculous statement. That central air will never pay for itself. Neither will a new patio or kitchen. A car? We all know cars only cost us money. A house? They’re known as money pits for a reason.
Your solar system price tag – after being slashed by 30% through a federal tax credit in the first year – drops to $0 after electric bill savings and green income equal your purchase price. Yes, zero. Nada. Nil.
And over 25 years (your panels are expected to last more like 40 years, by the way) a typical system will deliver tens of thousands of dollars worth of savings and green income after it pays for itself.
A bigger, more expensive system doesn’t necessarily mean a longer payback period, because the higher price is balanced by greater production and therefore more savings and income.
The Bottom Line
Even if your solar payback time frame is on the high end, say fifteen or even twenty years, that’s still better than NEVER, which is when most purchases pay you back.
If this doesn’t convince you to join the thousands already making their own clean energy, then all I can say is, enjoy your fossil-fuel-powered central air. ☺
(This post assumes you buy your solar outright. If you finance your solar with a loan, it’s “paid for” whenever you make your final loan payment to the bank.)
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2 Responses to “How Solar Pays for Itself”
I’m a recent buyer of home solar (i.e. strong advocate) . . . however, I feel your article may in some instances provide ammunition to nay-sayers and/or disenchant potential new buyers of residential solar. What your commentary on payback period seemingly fails to address is the alternative investment opportunity cost, which anyone with even a moderate level of financial savvy recognizes. As noted, as a recent buyer, I’ve reviewed many quotes and seen the simplistic calculation almost universally used for payback period. NONE include an estimated alternative return on investment, i.e. what would I make on my money were I NOT to go solar (yet they include “historically based” but aggressive estimates on the increasing cost of traditional electricity). For example, if assume an annual 5% return on an alternative investment (e.g. mixed blend of stocks, bonds, etc.), my personal payback period increases from 5 to 8 years (still acceptable to me given my circumstances, but obviously not as comfortable as 5). In many areas of the country where traditional electricity is cheaper (e.g. the Midwest), the typically computed payback period is usually much closer to the long end of your range (12 yrs), and when alternative investment cost is computed this produces an estimated payback period that can easily be 15-18 yrs or longer (depending on return assumptions, of course). For many people, that is a duration which gives pause (Am I still in the house at that point? If solar really is the energy of the future, grid prices are going to level or even fall no matter their power source, etc. etc.)
It seems to me that right now (at least in New England) the residential solar market is largely supported by moderately affluent homeowners looking to go green but still conscious about not being financially “stupid”.
The argument to go solar is still compelling given current incentives, I would just suggest that a little more nuance should be used in the arguments for it to avoid people (who are starting to consider it) being turned off by over-simplicity. (To be fair, i’m sure you struggle with trying to write to the broadest, but yet appropriate, audience possible.)
I agree that payback or break-even time is not useful when comparing to alternative investment options like a mutual fund or real estate purchase. This is why we also provide Internal Rate of Return (IRR) in our proposals. The IRR, as I expect you know, allows the potential buyer to compare across investment types because it values the future cash flows regardless of the investment type. In other words, it is an apples-to-apples comparison tool.
For example, an 85% roof with 27 Panasonic solar panels in National Grid territory provides a 7.4 year break-even and 14% IRR over 25 years (or 7% over the first 10 years). Thus, if a customer is earning 1% from a Certificate of Deposit, the solar is a far better investment. If, however, they are a stock market wunderkind earning 30% and they only care about profits (not planet) then by all means, invest in the market.
It should be noted that many people are not interested in the IRR/NPV (net present value) perspective of solar. They are mainly concerned with solar’s impact on their monthly household budget, so we also provide that information.
On another note, your assumption that the New England residential market is driven by moderately affluent homeowners looking to go green is not the case. It was some years ago. But the market is developed enough here that people of all income levels are installing solar. We know because we track this. Solar loans, including a state-sponsored one in Massachusetts specifically designed to help lower-income homeowners go solar, have helped drive a market where people of all income levels can go solar and save money.
Thanks for your comments.
Mark
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