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Calculating the Economics of a solar power system

Solar Power shoppers always want to know how to size a system and the output of a system to eliminate their entire bill. Today we’ll cover how to calculate the economics of solar photovoltaic panels. First we need to start with your electric bill so go grab it and have it in front of you, and find out how many kWh (kilowatt hours) you are averaging per month.

Step 1 – Figuring out your kWh usage per day

For example, your bill indicates you are averaging 600 kWh a month.

600 kWh
————– = 20 kWh / day
30 Days

Step 2 – Calculating the size of solar panel array you will need

To figure out how many square meters of solar panels we will need to eliminate your usage. A solar insolation map will be needed to see how much sunlight falls on your south facing surface. Use the one below to find your area

For our example, lets use an insolation of 5 sq. meters of sunlight / day

20 kWh/day
—————————————————— = 33 sq. meters of panels
5 sq. meters/day * 0.12 efficiency

The efficiency number can be obtained from any solar panel specification sheet, the efficiency of solar panels range depending on the solar panel you purchase, so if you are looking for accuracy, find the spec sheet and plug in a real efficiency number in your calculation.

Step 3 – Output of the system

Now that you know how many sq. feet of solar panels you will need lets calculate how many kW (kilowatts) of solar power will the system output for you.

0.12 efficiency of solar panel * 33 sq. meters = 3.96 peak kW

Step 4 – Cost of electricity over the life of the system.

Now you will need to figure out how much you are being charged per kWh by looking at your bill…depending on where you are planning to install the solar power system, your cost per kWh can range, it can be very cheap to highly expensive. In the United States the cost per kWh ranges from .04 cents per kWh to higher than .20 cents per kWh. The MSRP for a 3.96 kW system is about $35,000 dollars, so lastly lets calculate the how much a solar power system would cost per kWh through its lifetime.

$35,000 MSRP cost of system
——————————————————————— = 0.16 per kWh
20 kWh * 365 days * 30 years system life

There you have a short 101 course on how to calculate the money factor for a solar power system. Go ahead, calculate your own requirements and see if solar power makes sense in your area. I’d like to see if solar power is competitive to your electric company in your area. Looking forward to your comments!

Author: Deep Patel

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  1. apparently a solar power system covering my electricity usage would cost me nearly $60 grand. and I’m not even sure I have the roof space for 51 square meters worth of panels, this seems rather crazy expensive to me, more than other estimates I’ve run, are you sure your calculations are correct?

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  2. mattress,

    yes our calculations are correct.

    thanks for replying to the calculation post. I want to commend you taking time to do your own calculation. I have a some feedback and questions. lets dive right into it.

    The square meters depends on a couple factors including solar panels efficiency rating, for example if you used a 12% efficency in your calculation, you might want to try a high efficency solar panel such as the Sanyo solar panels which are 22% efficient, you can cut the surface area required in half.

    As for the 60k total cost you have came up with:

    1. Did you subtract federal / state incentives (if any) from the final cost?

    2. how many kWh (kilowatt hours) are you using per day?

    3. how are you being charged by the utility company per kWh? are you on a time of use rate, where you pay a higher rate during peak hours?

    4. what is your current cost per kWh going through your utility company.

    If you are on a time of use rate, its better just to design a solar power system that just eliminates your peak hour usage, which you will see a significant drop in your electric bill.

    You can also use a staged approach, putting up 1kw of solar up at a time until you cover your entire electric bill. Solar power is scalable meaning you can add on more solar panels to your system as your budget increases and prices come down in the future. You don’t have to eliminate your bill all at once…a little at a time can get you to your ultimate goal of complete elimination of your bill.

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  3. I found this nice calculator on Sharp’s website:,,1-1,00.html

    This calculator takes into account your particular rate plan (someone had to compile a big database to do that!). Well done, Sharp!

    Even though I live in Phoenix (very abundant sunshine), using an assumption of $6,000/kwh (lower than this blog and probably lower than I can get for an all-in price), the payback is 20+ years, likely about the life of the system. Those doing the econ should keep in mind if they are staying with the grid, they need to separate out items on their bill that do not change regardless of how much electricity they consume (these are roughly half my bill, including a enviro fee, a meter reading fee, and about 10 other fees). Those fees are going to stick to your bill like hungry ticks and no solar system is going to reduce them, at least not where I live.

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