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Solar as an investment

By now everyone knows that solar can save you money on your electric bill, but let’s take a deeper look at solar as an investment.

On average, a 6kW system that costs about $15,000 after the federal tax credit generates about 9,000 kWh in a year. If your current cost of electricity is $0.20/kWh, you would save about $1,800 per year on electricity and even if the electricity company never raises your rate, the system pays for itself in about 8 years.

After the system has paid for itself you will continue to profit over the 25+ year lifespan of the system. With no electric rate increase, the system you bought for $15,000 will generate $45,000+ of electricity.

But, electric rates aren’t going to stay the same and looking at the last two decades, they have risen an average of about 3% per year and as high as 7% per year in some areas. Just going with the average 3% annual increase in electric rates bumps up the return to $65,600 over the 25 year warrantied life of the solar panels. That results in a 14% Internal Rate of Return (IRR).

Realistically, that IRR will be even higher because the solar won’t automatically turn off after 25 years. It will likely keep producing for quite a while after that. We are just being conservative and sticking with the length of the warranty.

For the sake of argument, we should compare this to other investments like the stock market. The S&P 500 has an average IRR of about 7-8% over the last few decades. That means you can expect twice the return from solar. It is a shame that your investment in solar is capped by the amount of electricity you use.

Still not convinced? Let’s look at it another way. How happy would you be right now if you had bought all the gasoline you have been using for the last 25 years back in 1993 when the average price was only $1.11/gallon? You’d be grinning from ear to ear every time you thought about all that money you saved.

With solar, you have that opportunity right now. When you install solar on your home, you are purchasing the next 25 years of electricity at even lower price than the current rate. Going back to our 6kW system example, the cost of electricity comes out to just under $0.07/kWh. You would be locking in that low rate for the life of the system. Every time electricity rate hikes were mentioned in the news you could pat yourself on the back for making such a smart investment.

This investment also does not require that you continue to live in house you installed it on. A study done by US Department of Energy’s Lawrence Berkley National Laboratory in 2011 concluded that having a solar power system installed increased the home’s value by an average of $5.50 per watt which is more than the average installed price.

If you don’t have the cash to pay upfront for solar, don’t fret. There are ample financing options to choose from including loans, leases and power partner agreements (PPAs) that allow you to install the solar with no money down. The payback may not be quite as high as it would be if you paid cash, but your monthly payments to the finance company will be less than you are currently paying for electricity. This means you have an instant payback which is difficult to find in any investment.


Author: Harold Tan

I believe clean, renewable energy is key to the evolution of society as a whole. Solar powers our planet, why not harness it to power humanity? Let's power our homes, our work, and our vehicles with solar energy. It begins with raising awareness and encouraging those around us to go green.

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  1. Our consumption of electricity is high only in 3 months of the year. I do not know if PG&E allows you to use excess solar electricity in the cool months to offset consumption in the hot months. I call this banking but I am sure there is another word for it because PG&E uses the power the solar produced and you bank it until you need it. Not knowing this is key to me. Steve

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