Understanding The Cost of Solar Panels
While the majority of home and business owners who choose to install solar panels are doing so primarily to “do the right thing,” some are taking the long view of the potential cost savings down the road. And for those who may be on the fence about whether to invest in a solar energy system, knowing how to calculate their return on investment would be invaluable information in helping them make a decision.
But just go ahead and Google “ROI solar energy” and you’ll be flooded by varying statistics and formulas each claiming to have the answer. The simple answer is, calculating your potential return on investment can be time-consuming, but there’s no way to shortcut the process without short-changing your results.
Solar Power Return on Investment Calculations and Payback Period
The first step in calculating your solar panel cost and return on investment (ROI) is to establish your payback period or the point at which your savings equal the cost of your photovoltaic (pv) system and you start banking the savings in energy costs. This is basically a 5-step process:
- Establish your pv system cost. Keep in mind that this is not necessarily what you paid for the system. You will need to deduct any rebates or tax credits to come up with an accurate cost. Solargaines files all the necessary paperwork for you to claim all government incentives. Our process is a true turn-key system.
- Determine how much energy your solar panels will collect based on the installation of your system. Solargaines can help provide you with this exact information which will vary based on the amount of sunlight in your area, placement of your panels, etc.
- Look on your current electric bill from your utility to see how much you pay per kilowatt hour (kWh). Many people forget to include distribution charges. The accurate way to calculate your true usage charges is to dividing your total bill by the amount of hours of usage. Put another way, if you just multiply the number of hours on your bill by the kilowatt per hour charge your should see your total bill is higher than this calculation. On average a kWh in the Baltimore area is approximately $.15 per hour.
- Calculate the total benefit of a solar system including the power it generates per year and the SRECs that can be sold to generate additional income.
- Calculate the payback period and return on investment. Payback period would be the initial net investment divided by the yearly benefit. Conversely, the return on investment is calculated by dividing the initial investment into the yearly benefit to get a percentage of the initial investment that is returned each year. In the example above, which is typical of an average residential system, the payback period is about 4 years and 8 months. The first year ROI is 21%! typically it is our experience that a pv solar panel system returns a 15% to 20% on initial investment!
Is The Paperwork Complicated?
Solargaines will not only expertly install your solar panel system, we will file for all the necessary paperwork on your behalf to receive federal state and local grants, incentives, and rebates. Solargaines will also perform the necessary administrative tasks to acquire SRECs to generate additional income from your photovoltaic system. As part of the installation process each system also comes with a computer monitoring dashboard system which allows you to monitor your system’s performance.
Is It Worth It?
In the example above, the cost of solar panels is $14,000 and it takes 4.71 years to get your money back. The first year ROI is 21%. Put another way, if solar panels were a stock, and you invested $14,000 in that stock it would have a reliable annual return of 15% to 20% (apprximately $2100 to $2800 in this case) on your investment.
Any energy savings beyond this time frame represents your return on investment.
Of course, there are other variables that can affect your ROI including the changing price of electricity. Typically, electric costs rise so if anything so your payback period may be shorter than you calculate. Just remember that solar maintenance costs are very low, so that will not add to the equation significantly.
Additionally, your ROI can change if you invest the savings in products that will compound those savings and yield an even higher ROI. Based on Solargaines’ extensive experience, we have found our clients average a 15-20% return on investment based on a typical payback period of between 4-7 years.
Doing Well by Doing Good
To ensure your payback period is as short as possible, Solargaines can help you research and apply for grants, incentives, rebates and tax credits that reduce your out-of-pocket cost for solar panel installation while recommending a system that maximizes your daily energy savings.
Learn what to expect before, during, and after the installation.
Other questions? Contact one of our experts to determine your exact ROI today.
Want to learn more about the cost of solar panel installation? Contact Solargaines today with questions or to request a free solar evaluation.