house with solar panels and a calculator with money

Will Solar Panels Pay for Themselves?

This is maybe one of the first questions that you could ask yourself if you are thinking about installing a PV system. Actually, you can also be asking yourself: Will they be worth it? When will I start saving?

The answers to these questions are not straightforward since they depend on many factors. Factors such as solar PV system costs, the incentives, the type of system, and your location. To find out payback times of solar panels, we must first understand how these factors affect the break-even point of a PV system

Which Factors Affect the  Break-even Point of a Solar Panel System?

Location

The location is a crucial factor. The amount of energy that your PV system can produce is entirely based in the solar irradiance available in your household. If you are located in a place with high levels of irradiance, then your probabilities to reach the break-even point sooner will be bigger.

The location is also related to the electricity rate from your utility and will be a decisive factor to determine when your PV system will start saving you money.

The average electricity rates vary from State to State. They can be as high as 21.57 c/kWh (Alaska) or as low as 9.56 c/kWh (Louisiana). Therefore, payback times will vary according to the electricity rate of your household and the energy demands that will be taken into account to size your PV system.

Some States like California and Florida have the perfect match between high electricity rates and high solar irradiance values, therefore break-even points will reach much faster than on other States.

Measuring how these two variables interact between them might not be easy if you are not familiar with the solar industry. However, there are reliable tools like PVWatts that can make this task easier

Incentives

One of the greatest benefits in the US is the access to excellent incentives from the government to go solar.

The first one of them is the access to the Renewable Energy Tax Credit at Federal level where you can obtain up to 30% discount on the total capital cost of your PV system, discount that will be attributed to your taxes at the end of the year. An important detail about this incentive is that from 2019 the discount will only be 26%. In other words, these are actually the last days where you can gain access to a 30% rebate.

The second incentive is Net Metering which is based on revenues obtained by feeding solar electricity to the grid that will vary according to the State

PV System Costs

To measure the capital cost of a PV system, the expenses are generally divided between hardware costs and soft costs. Hardware costs are attributed to all the equipment needed to install the PV system: modules, inverter, wires, mounting systems, combiner box, etc. On the other hand, soft costs are attributed to all the permitting, taxes, labor and interconnection to the utility grid of the system.

PV System costs have reduced radically over the last decade. Actually, back in 2010, the average price of PV modules was close to 2.15 USD/W, while today the price barely reaches 0.35 USD/W. Such cost reduction is due to the accelerated growth of solar installations and improvements in module efficiency that have decreased manufacturing costs of solar panels

Moreover, soft costs related to permitting and labor tend to change slightly according to the jurisdiction and utility that you will get connected to. Soft costs in the US tend to represent almost 50% of PV system costs, values that have maintained installation prices above other countries. Nevertheless, 2017 was a great year for reductions in PV prices, a factor related to the increase in PV system installations around the world. We can

take a look at a PV system cost breakdown using the latest data from NREL (2017).

pv system cost breakdown using the latest data from NREL (2017)

As we can see on the graph above, there are variations in the prices according to the type of grid-tied PV system selected.

PV Systems in the US, Are They Worth It?

Based on what we discussed above let’s make a little exercise. Let’s suppose that we want to install a PV system of 5kW.

As you could see in the image, the average price of a grid-tied PV system for residential purposes is close to 2.80 USD/W, therefore, we could approximate a capital cost close to 14,000 USD. If we apply the Federal Tax Credit of 30%, then the real cost would be approximately 9,800 USD

Moreover, we can estimate the average US savings of PV systems as 865 USD, according to data from Energy Sage and PVWatts. Based on these numbers, it would take about 11 years to reach a breakeven point. Additionally, if we consider that solar panels can last up to 25 years, then we can estimate total average savings as 12,110 USD!

If we want to obtain the highest savings that can be achieved in the US, then we need to install the PV system in California (with average annual savings of 1,272 USD). Here we could obtain payback times in almost 8 years and achieve savings close to 22,000 USD by installing a 5kW grid-tied system.

On the other hand, if we refer to the State of Missouri that has low electricity rates and one of the lowest solar irradiance values in the country

then payback times could be close to 15 years and savings around 6,425 USD.

As we can see payback times can vary a lot depending on the size of the system, the location and type of system implemented.

You must choose the right solar installer that helps you achieve the greatest savings based on your energy requirements.

To give yourself a reference of how much savings you should be obtained, you can use PVWatts as a valuable and reliable tool where you only need to establish the size of the system, the location, estimated solar panel efficiency and the electricity rate that you pay in your power bill.

References

https://www.energysage.com/solar/101/impact-of-electricity-rates/

https://www.energy.gov/savings/residential-renewable-energy-tax-credit

https://www.wisebread.com/how-long-does-it-take-to-break-even-with-solar-panels

https://www.nerdwallet.com/blog/finance/save-money-putting-solar-panels-roof/

https://www.nrel.gov/docs/fy17osti/68925.pdf 

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