Cost Of Solar: Eliminating Your Electric Bill
How Much Will It Cost To Install Solar Electric (PV) If My Goal Is To Eliminate My Electric Bill (“Net Zero”)?
If your goal is to eliminate your electric bill then the next several questions to be answered are: what was your last 12 months of kWh (kilowatt-hours) usage? Was that a typical year or were there things that caused your electric usage to differ from your normal/current usage? Do you have enough shade free roof space with southern exposure? If your roof is not well suited then do you have shade free space on your property for a ground mount system?
When calculating your last 12 months of kWh’s used, you can either: 1) pull out your utilities bills for the last 12 months and look for the total kWh’s consumed per month and then add up the last 12 months; or 2) simply call your utility company, give them your account number and they will give you the month by month breakdown for the past year. It is important to note that for a grid-tied solar system, neither the peak monthly usage nor the average monthly usage are nearly as important as the total annual usage.
After you have determined the past 12 months kWh usage, the next question to be answered is was that a typical year of electric consumption or will there be any change in your electric usage in the future? Maybe you were out of town a lot more than usual, in which case you used less electricity than normal. Maybe you’re planning to build an addition on your home or build a workshop. Or maybe there will be more or less people living in your home going forward. If any of these things are the case then we can adjust the size of your solar array to ensure you achieve your “net zero” goal.
The next thing you’ll want to ask yourself is do you have good shade-free southern exposure on your roof? If not, do you have shade-free space on your property for a ground mounted solar array? Another thing to consider is the tilt and orientation of your roof, as these two things can dramatically impact how much power (electricity) your system will produce. With a ground mount array, we can build the solar array to be 100% optimal. Don’t worry too much initially about the location… we have shading analysis tools and can ultimately help determine the best location for your solar array. The main things to consider here are your location preferences and options; but remember – shade is the enemy!
Once the above questions are addressed then we can determine what size your solar system needs to be in order to eliminate your electric bill. As a very broad based rule of thumb, each kW of solar panels installed in Colorado will generate around 1,300 – 1,600 kWh’s annually, depending on the tilt and orientation of the solar panels (this is a topic which will be discussed in future blog posts).
There are many variables in determining the cost of installing solar on your home or business. But one of the most important things to understand is that solar pricing is not linear. Generally speaking, the larger the system is the lower the cost (per watt) will be. A 10kW (10,000 watts) solar system will cost a lot less per watt than a 4kW (4,000 watts) system. Of course, the total cost of a 10kW system will be higher than a 4kW system but the larger the system is the lower the cost per watt and the greater the return on investment.
Many solar installers will tell you that a ground mounted solar array will cost a lot more than a roof mounted array. This is not necessarily the case! With a roof mounted array we are limited by the tilt and orientation of your roof, which in most cases is less than optimal. Therefore, in order to produce the same amount of electricity, a roof mounted solar array must be larger than that of a ground mounted array, which can be built to be 100% optimally oriented. Let’s say the tilt and orientation of your roof are such that you’ll only achieve 90% of the optimal power production. If that were the case (very common) then a roof mounted solar array would need to be approximately 10% larger than a ground mount array in order to achieve the same power production. In this situation, a ground mounted solar array would be less expensive than a roof mounted array.
There are many other variables that impact the cost of installing solar, which we evaluate during our site analysis (ie – breaker panel and electric service, roof structure and material, rafter/truss system, meter location, point of grid interconnection, conduit runs, etc.). However, getting to the heart of the question, the total turn-key cost of having solar installed on your home or business will typically be between $2.50/watt, for larger solar PV systems, and upwards of $4.50/watt for smaller systems. In addition, everyone who installs solar on their home or business is eligible for a 26% federal tax credit ((As of Jan 1st, 2020) this is not a tax deduction; it is a tax credit… a dollar for dollar reduction in the taxes you pay to Uncle Sam), thereby reducing your installed cost by 26%. Also, many utilities offer rebates and/or REC (Renewable Energy Credit) payments based on the size of the solar system and the amount of power it produces. These utility rebates can also drastically reduce the cost of installing solar.
Putting it all together… we’ll use an example addressing everything we discussed above using the following assumptions: your kWh usage over the last 12 months was 15,325kWh’s and you don’t anticipate any change in your future usage; you live on a small acreage and have room for a ground mounted system; your roof is shade free, faces southwest (225 degrees from north) and has a 20 degree pitch; you have plenty of roof space but want to know the cost difference between a ground mounted solar system and roof mounted system; and of course you want to get as close to “net zero” as possible.
Using our power production tools (based on 40 years of solar irradiance data collected in Colorado) we can determine that an 12 kW system on your roof will produce approximately 16,095 kWh’s per year (based on the above assumptions); whereas a 10kW ground mount array built at a 40 degree tilt and 168 degrees from north (100% optimal) will produce 15,997 kWh’s. As you can see, this ground mount array will produce approximately the same amount of power (within 98 kWh’s) as the roof mounted array but is much smaller in size (10kW vs 12kW).
An 12 kW roof mounted solar PV system installed by Alt E would cost around $36,000 ($3.00/watt), at today’s prices, whereas a 10kW ground mounted system would cost around $35,000 ($3.50/watt). As you can see the cost per watt for a ground mount system is a little more than the roof mount system but the total cost is much less since the ground mount system is 100% optimal and produces about the same amount of power as the less optimal roof mounted system. Therefore the return on investment is much higher for the ground mount system since the price is lower!
Taking the next step, let’s assume you decide the ground mount system is the way to go. Using $35,000 as the price, you will receive a federal tax credit of $9,100, thereby bringing the cost down to $25,900. Now let’s assume your electric rate is $.12/kWh (this is Xcel Energy’s approximate current residential electric rate). Your solar system will save you $1605/per year at today’s electric rates (15,997kWh’s produced x $.12/kWh = $1,919.64 annually). Therefore the total annual financial benefit to you is 1,919.64 in annual savings.
To do a very simple payback analysis, simply divide the net cost (after your federal tax credit) of $25,900 by the annual financial benefit (savings) of $1.919.64 to determine that the payback timeframe is 13.5 years. However, we all know that electric rates are only going up (average annual electric rate increase over the past 30 years has been 5% annually – doubling about every 16 or so years), so if you factor in this rate increase going forward, then your actual payback time frame is more likely around 10.56 years. However, even factoring in increasing electric rates doesn’t give you a true financial perspective.
If you want to calculate your true payback timeframe from an investment perspective, it’s important to understand what the actual return on investment (ROI) is, which means it’s important to take into consideration the tax ramifications of your solar investment. Since savings on your electric bill are not taxable, in order to compare the true R.O.I. with other investments, which are taxable, you must ask yourself, “What would I need to earn on a $25,900 investment in order to net $1,919.64 annually from that investment, after I pay taxes?” To answer that question, let’s assume you are in a 25% tax bracket. If that were the case then you’d need to earn $2,559.52 from that $25,900 investment in order to net (after taxes) the same $1,919.64 from your solar system ($2,559.52 less 25% tax of $639.88). Looking at it this way (which is the proper way of calculating actual R.O.I. on your solar investment), then a simple calculation shows a payback timeframe of 10.1 years ($25,900 divided by $2,559.52 = 10.1 years). Once again, factoring in electric rate increases, your actual payback timeframe is 8.38 years or an annual return on investment of OVER 11.9%… and every year that your utility rate goes up, your ROI increases as well, since you are saving more and you are not subject to those utility rate increases. Where else are you going to get a risk free (a contract with a utility company is about as safe of an investment as there is) return on your investment that’s anywhere close to that?!!! WHY ISN’T EVERYONE DOING THIS???
One last thing to note on solar costs… it rarely, if ever, makes good financial sense for the consumer to lease a solar system. While there are a lot of solar companies out there that really push this approach (because it’s solely in their best interest) it is almost never in the best interest of the consumer. They will lock you into a 20 year contract (most with annual rent payment escalators) and tell you that your “rent payments” will be less than your electric bill and they will take care of all maintenance. Well, first of all, if you calculate the total kWh’s that your system will produce over the 25 year warranty period (our proposal shows you this), then you will see that by purchasing the system your price/kWh produced is far, far below the cost/kWh that you’re paying the utility; and far, far below the cost/kWh to lease the system. Secondly, the panels and even some inverters come with a 25 year warranty, so even if there is a problem with your system (very unlikely) the warranty will cover the cost of the new part and the manufacturer will even pay for the labor to replace it. Honestly, it really irritates me when I hear these larger installers use these as main sales points in pushing a lease! It’s simply and completely misleading… to their benefit and the consumers detriment! However, their main sales pitch is that “you don’t have to come up with any money up-front” or “we have a ‘zero down’ lease plan”. Again I call BS… there are several lenders out there who will finance a solar PV system with no money down (we work with two such lenders). Some also sell a “Prepaid Lease Plan”, where they make it look like it cost less up front than it does to purchase a comparable system. Again, do the math (or call us so we can show you exactly how the numbers work) and it becomes crystal clear that a lease is definitely only in the best interest of the installation company! Also, it’s very important to understand that if you lease a solar PV system you will not receive the tax credits or the utility rebates and it will not increase the value of your property! In fact it may make your home harder to sell since the buyer will now be obligated to assume the lease for the reminder of the contract! If you are interested in monthly payments and/or no down payment, please don’t fall for the lease sales pitch, financing a solar system can achieve those same goals and you’ll be far better off financially. Call us… we’re happy to walk you through the numbers of both approaches so you can see for yourself!
Please stay tuned next Thursday for Part 2: “Putting it all Together”! Here we will use an example addressing everything we’ve discussed in this post. In the meantime, please check out our website at www.altewindandsolar.com and our Facebook page at http://www.facebook.com/pages/Alt-E-Wind-Solar-Ltd/196202797091314 or give us a call at 970.482.SOLAR (7652).