The Economics of Solar « Health Now, Wealth Forever

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By Tom, on November 7th, 2011

I recently stumbled across this infographic:

It claims that if you have $20,000 to invest in your child’s education when she is born, it would be a better investment to buy a solar panel system than investing it in a more traditional college investment plan. No matter where you live in a new solar power system will eventually start paying you.

The main difference between buying solar panels and getting your power from a utility is the way your payment is structured. Solar panels have a large upfront cost, like buying a house. Utility power is pay as you, like renting a home. There’s a point where your monthly payments to the utility will become more costly then the upfront cost of a alternative power source. This point is called the pay-back point. After you reach this point you can consider all the money you were going to pay the utility company a return on your investment.

Your pay-back point will depend on incentives (such as tax-credits), local utility rates, and the power and cost of your system. Here is an example calculation of a payback point:

I live in Fort Collins, Colorado and average about 5 hours of full sun in a day (to get an approximatation of the sun you’ll get go here). If I get a 2 kW system for $8000 (I would have to install the system myself for a price like this), I can expect to generate an average of 10 kWh per day (5 hours of full sun * 2 kW = 10 kWh) and 300 kWh per month. The utility rates in Fort Collins are currently $0.07971/kWh.

So my monthly savings would be 300 kWh x $0.07971 = $23.913, yearly savings $286.956. If I were to just go with the electrical savings I would pay off my system about 28 years, if the rates stayed the same (they actually go up every year, but I never know how much).

You can get information about incentives at the Database for State Incentives for Renewables and Efficiency. Incentives for Fort Collins include: The federal tax credit of 30% of the purchase price. This brings the system price down to $5600 ($8000 – (30% * $8000)).

Fort Collins Utilities Solar Rebate is $1.25 per Watt. This brings the system price to $3100 ($5600 – ($1.25 * 2000 W)).

I could probably find more incentives if I dug a little deeper, but these serve my purpose. My system would now reach it’s payback point in 10 years and 10 months. And I would start “making” about $287 a year, once a again, if the rates stay the same. That’s a significant amount of money and would be even larger if I were to invest $20,000 in solar power.

Now when someone says that solar is too expensive, you can tell them that it is actually cheaper in the long run than the utility payments they are making.