Conversion to Solar Electricity: Does it Make Cents?

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Home Page > Finance > Personal Finance > Conversion to Solar Electricity: Does it Make Cents?

Conversion to Solar Electricity: Does it Make Cents?

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Posted: Jul 22, 2008 |Comments: 0
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Conversion to solar electricity: Does it make cents?

 

Why don’t we see more solar panels? Shouldn’t we all take advantage of this “free energy from the sun” that we’ve heard so much about? Unfortunately, nothing is free. In this article, we will take a look at the dollars and cents surrounding decisions to convert to solar power near my home in Chester County, Pennsylvania.

 

With the current legislative and financial environment, it would take a long time to recoup the costs associated with a residential solar installation in my home. This can change quickly and drastically. You will see how a few favorable changes will completely transform the break-even outlook, or payback, for solar electricity in southern Pennsylvania. I examined the number of years required to recoup system cost under several scenarios. All scenarios assume installation of a 3kw photovoltaic solar-power system which would generate enough electricity to supply our current household annual energy needs of 7,500 kWh.

 

The parameters:

 

Number of years required to recoup rebated system cost (Yrs)
System cost (SysCost)
Rebated system cost (RSysCost)
Electricity cost (ECost)
Annual electricity rate increase (ERate)
State rebate (State)
Federal rebate (Fed)

 

The solar-power system:

All scenarios assume installation of a 3kw photovoltaic solar-power system with an un-rebated cost of ,000. The 3kw system will provide 75% of total electricity requirements for the home. Initial electricity rate (ERate) is .1529 kWh.

 

State and Federal rebates:

 

Our area does not currently have a rebate program, but legislation recently passed in the senate to provide up to 35% of equipment and installation costs. This bill is expected to pass in the House of Representatives.

 

Federal programs provide 30% of system cost up to ,000 as an energy credit which may be used to offset a tax liability in the year of installation.

 

Electricity cost forecast:

In July, the U.S. Energy Information Administration increased their forecast for 2009 electricity price increase from 3.6% to 9.8% (CNNMoney.com, 7/8/2008). The scenarios (Table 1) model several possibilities for long-term price increases.

 

The scenarios:

 

Table 1. Parameters for three solar-power scenarios in Chester County

SysCost

State

Fed

RSysCost

ERate

(0)

%Rebate

(0)

(0)

% per yr

Base Case

30

0%

2

28.0

3.5%

Moderately Favorable Case

30

15%

2

23.5

6.0%

Very Favorable Case

30

35%

2

17.5

9.5%

 

Each scenario generates a cumulative annual cost savings, determined by the utility usage (with solar panel=2,500 kWh without solar panel=10,000 kWh) x the inflation adjusted rate on an annual basis. This allows us to determine the number of years to recoup the solar-system cost (Yrs). All scenarios assume the cost to install the solar electric system are paid in full and not financed. The cost of financing a system would increase the the payback time or the number of years required to recoup the initial costs.

 

Figure 1. Cumulative cost and break-even for three scenarios.

Figure 1 shows break-even at approximately 18, 13, and 9 years for the progressively more favorable scenarios.

 

Discussion:

Break-even point for solar-power systems is a function of several variables. Concurrent changes in the economic and legislative environment can have a profound synergistic effect on feasibility of solar-power implementation in Chester County, PA. This is great news because it demonstrates that there can be viable alternatives to our current energy model. In the best case scenario, a payback time of 9 years would provide a good incentive to switch to a “free” and renewable energy source. However, the currently available solar panels have an estimated lifetime of 25 years and are guaranteed for 20 years. The payback time would have a finite time of 11 to 16 years. Not discussed in this paper is the option of selling back surplus energy to the service provider. In areas and situations where your system generates more electricity than you use, the meter runs backwards, and you can sell electricity back to the service provider. This would only increase the annual energy savings.

 

If a combination of legislative and economic variables come into alignment, solar power may leave the realm of the avid environmentalist and enter the mainstream. An economically viable solar power model will go a long way toward reducing our collective carbon footprint and reducing our dependence on non-renewable energy sources.

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