Solar System Return On Investment

Date:

Factor : Available Solar Incentives

Solar System Return on Investment

What solar incentives are available when you purchase your system has a tremendous impact on your return on investment. The Federal Investment Tax Credit refunds you for 26% of the total cost of your installation in your tax returns. Additionally, Massachusetts offers a state tax credit thats worth up to $1,000.

Depending on which community you live in, there are also performance-based incentives that help put money back in your pocket, so you can see a larger return on investment. For example, you could also take advantage of net metering to see a larger return on investment. With this billing mechanism, your system automatically sends the surplus energy you produce back to the grid and you receive credits on future bills in exchange. This increases your avoided energy costs, which strengthens your return on investment. If its available in your neighborhood, you can also join the Solar Massachusetts Renewable Target Program, which is a performance-based incentive that compensates you monthly for 10 years for every kilowatt-hour of electricity that your panels generate. However, these state and federal incentives are dwindling, so if you want to maximize your ROI, its best to go solar sooner. Return on investment in Massachusetts used to be quicker under older incentive programs, so many of our past clients received four-to-six year ROIs.

How Much Does A Solar Panel Cost

Prices have been coming down steadily over the years. The total cost will depend on how many kilowatts of power your array will generate. According to consumer reports, after solar tax credits are accounted for, the cost for a solar panel system on an average-sized house in the U.S. in 2021 ranges from $11,000 to $15,000.

How Do You Benefit From Solar Panels

Solar energy is long-lasting and low maintenance, making it incredibly efficient to run. The bulk of the costs associated with solar power come from hardware and solar panel installation costs. These setup costs might be intimidating, but you’ll find that you quickly benefit from the initial investment.

Here are some of the common ways you can save and benefit financially from solar panels.

Recommended Reading: Chartered Alternative Investment Analyst Caia

Calculating Solar Power Costs

Once the above costs and benefits are determined, a solar system can theoretically be evaluated using the discounted cash flow method. Outflows at the beginning of the project would consist of installation costs , and inflows would arrive later in the form of offset electricity costs .

Rather than using DCF, the viability of solar power is usually evaluated by calculating the levelized cost of electricity , then comparing it to the cost of electricity charged by the local utility. The LCOE for household solar will typically be calculated as cost/kilowatt-hour – the same format commonly used on electricity bills. To approximate the LCOE, one can use the following equation:

LCOE = Net Present Value of the Lifetime Cost of Ownership / Lifetime Energy Output

The useful life of a PV solar module is generally assumed to be 25-40 years. The cost of ownership includes the maintenance costs, which must be discounted to find the NPV. The LCOE can then be compared to the cost of electricity from a utility remember, the relevant price is that which occurs during times at or near peak PV solar production.

Offsetting Your Energy Consumption

Get Solar power system return on investment calculator ...

Solar power will always offset your traditional electricity consumption it may even entirely replace the need to use grid-provided electricity.

The average American household spends over $1,500 a year on fossil fuel electricity. By installing several solar panels on your property, you could replace up to 100% of your energy needs and save up to $100 every month. Plus, energy costs are currently rising at around 2.2% per year, while solar power installation costs get cheaper.

The higher your current electricity bill, the shorter your expected solar panels payback period, and the more likely you are to benefit from offsetting your energy consumption with solar power.

Read Also: Can I Take A Heloc On An Investment Property

Get A Free Commercial Solar Financial Analysis

Unfortunately weve had to be very general with these terms because each solar project can vary widely.

To get more specific information for your potential solar project, we offer a free financial analysis that includes estimated costs, finance options, payback, ROI, NPV, and IRR. Contact us to receive your free solar estimate and financial analysis.

Commercial Solar Panels Decrease Energy Costs

Solar panels cut down on the amount of energy you pay for, because all day every day, youre producing your own.

There is a common misconception that solar panels only work when the sun is blaring but this isnt the case. Even on an average day in the depths of a British Winter, solar panels produce enough energy.

When you generate your own solar power, you only have to switch to the National Grid at night. With most small businesses using less power at night, this can offer huge savings.

More than that, small business owners protect themselves from losses due to energy price increases. As the cost of using the National Grid rises, solar panels save a small business owner more and more money.

You May Like: Benefits Of Investing Through An Llc

Solar Return Of Investment In Malaysia

Investing in solar is a big step. However, the solar return of investment from your solar panel is one of the biggest reasons why people choose to incorporate solar panels into their home.

However, what exactly do we define an effective return of investment if youre planning to invest in a solar panel system for your home? Well, a good ROI will be a positive net flow of earnings or savings that was generated throughout the life of the solar system you installed.

Hence, the higher your monthly savings on power bills from solar is, the quicker your initial investment would be repaid and the higher your ROI would be.

Typically, commercial & industrial consumers should expect payback in 3 5 years and residential consumers should expect payback in 5- 7 years. Once the initial cost of your system is paid back, the energy generated by your own solar panel system is almost free of cost!

Incentives And Tax Credits

Wiser Energy System – Provide Proof of Return on Solar Investments (Short)

A large percentage of the costs youll encounter with solar installation can be offset with the help of tax subsidies and incentives. The largest kickback homeowners are eligible for when embarking on a home solar investment is the investment tax credit . This federal program allows you to deduct over a quarter of your solar installation costs from your federal taxes.

The savings dont end there. Most states also offer various incentives to help homeowners improve their solar ROI. These can come in the form of property tax credits, sales tax exemptions or cash rebates. Additionally, some states and municipalities offer net metering, which allows homeowners to sell their excess solar energy back to their local utility company thus lowering monthly bills and shortening the payback period.

Understanding what incentives your state offers will help you get a better picture of your ROI and how you can best capitalize on your investment.

Read Also: How To Invest In Stocks Below 18

Energy Retailers Solar Power Buy

Energy retailers offer between 7¢ and 16¢ per kWh for excess solar power exported to the grid.

Buy back-rates are low from energy retailers. Aim to get a solar power system size that matches the amount of power you use during the day, when maximum solar power will be generated . Most homes aim to use over 50% of their solar power to get a good return on their investment. Achieving higher self-consumption is easier than ever.

What Is The Cost Of Solar Energy Per Watt

The average levelized cost of solar energy has reduced from $7.24 after incentives in 2010 , to an average between $0.13 and $0.17 per kWh in 2018 before subsidies are applied. After incentives are applied, the cost comes down to between $0.08 and $0.11 per kWh. In most cases, this is a lot less than what consumers pay their utilities for electricity.

Read Also: Real Estate Investment Analysis Software

Mount Angle & Orientation

Solar panels work best when they face directly into the sun. But that task is complicated by the fact that the sun moves across the sky throughout the day. It also changes angle in the sky as the seasons change.

You can buy pole mounts or trackers to adjust your panels to the optimal angle throughout the year, but the production gains from these adjustments are minimal. Most system owners will be happy enough to mount panels at a fixed angle, which saves money on racking and installation costs.

Ideally, solar panels should be tilted at an angle that is equal to your latitude. The natural slope of your roof should come pretty close to this angle, so you usually dont need additional adjustments.

You also want to point your panels toward the equator so that they are facing the sun. In the US, south-facing arrays offer the most production. You can generally make do with east or west-facing arrays, but will need to oversize your system to account for a dip in production.

PVWatts is an invaluable tool for calculating the efficiency of your system based on the above factors.

For more info, check out our article on angle and azimuth, which explains the optimal position to mount your panels.

Return On Investment Graph

Solar Power System Investment

The graph below demonstrates the return on investment for the example case over the period of 25 years. It shows that the system would save the owner $17,750 in power bills over 25 years . Factor in that power prices are expected to rise at a rate of 4% every year for the next 25 years, and the savings will be $27,830.

You May Like: Investing In Gold Etfs Pros And Cons

How Many Solar Panels Do I Need To Power My House

When asking yourself how many solar panels you need for your home, there are again a number of variables to take into account. The most significant contributing factor here is how much energy you use. While there’s no single answer, a good rule of thumb is that it takes roughly four solar panels per kilowatts needed.

Most solar panels produce around 250W every four hours of full sunlight. So how does this all play out reality?

A 3kW PV system will be sufficient for roughly three residents, according to average energy consumption. Using this formula, a system of this size would use about 12 panels on average.

A more common size for homes in the UK is 4kW, which can provide for three to four residents. If you use the same formula, a 4kW system would need an average of 16 solar panels.

You can always use a solar PV system to power some of your home instead of all of it. That would certainly lower the number of solar panels you need, but may not be as profitable in the long run.

Are Solar Farms Profitable

The overhead of solar panels, investing in land, and other pieces that go into starting a solar farm can seem like a lot of overhead costs at first glance.

Solar projects are a long term investment with the potential for solid profit. After the initial investment, solar farms offer recurring revenue for years to come.

One of the reasons a solar plant can be so profitable is that the energy created is sold back to the electricity utility so that it can be distributed and used by others.

Solar farms are scalable depending on how much space there is to set up panels. You can generate profit from just a few acres or create a large scale farm.

What does it take to invest in solar energy? Lets take a look.

Read Also: Best Investment For 401k Plan

Can A House Run On Solar Power Alone

Practically, it is not often possible. This is because solar only works when the sun is shining – which means when it is cloudy or nighttime, they do not generate electricity. There are some battery solutions to provide power during these times, but they still tend to be quite expensive. Most homes with solar panels still rely on the grid from time to time.

Are Solar Panels A Good Investment Yes

Solar System Return on Investment (ROI)

Solar PV is a fantastic investment. Returns of 10% plus are available, non-taxable , inflation linked and dependent only on the sun coming out.

In fact, as our recent blog showed, the cost per kWh of solar electricity is around 10p. This is well below the grid cost of electricity, which for homeowners, is about 19p per kWh, and rising year-on-year. Over the solar system’s 25 year lifespan, the cost of grid electricity is expected to be 36p/kWh on average.

Of course, the financial solar return on investment doesn’t tell the whole story. In this age of increasing air pollution, climate change, and decreasing fossil fuels, solar PV makes sense even without the excellent financial return.

If you’d like to discuss further or receive a free quote, please get in touch:

Don’t Miss: Best Investment Companies For Beginners

Alternate Ways To Invest In Solar Farm Real Estate

The traditional way of investing in solar farms involves buying acreage, building a big system, and selling that power back to the grid.

With developing technology, solar energy has gone from massive farming to individual homes and buildings. Here are a few more ways to capitalize on the booming renewable energy industry:

Solar Batteries Are Expensive But May Be Worth It For Those Who Use A Substantial Amount Of Electricity

A solar battery can store any excess power generated by your solar panels that you don’t use at the time, rather than exporting it back to the grid. They aren’t cheap costing about £2,100 for a three kilowatt-hour battery.

The savings you make on your bills can be significant, though. The price you’re paid for each unit of energy you export to the grid is usually much lower than the price you pay your supplier for electricity. So, economically, it makes more sense to store the energy and use it yourself with E.on saying a household with a battery could use 30% more of the electricity they generate themselves.

Another potential advantage of a battery is that it can increase the rate you get paid for exporting your electricity back to the grid. Some firms will pay many times more than the standard amount if you buy certain types of batteries. See what firms pay.

The battery isn’t all about what you generate yourself, either. If you’re on a flexible ‘time-of-use’ energy tariff, with cheaper electricity overnight for example, you can charge the battery at cheaper times from the grid and use it to power your house during more expensive hours.

Read Also: How Do You Make Money Investing In Cryptocurrency

How Long Does It Take For Solar Panels To Be Paid Back

With all of these things in mind, how long is the average solar panel payback time in the UK? Since there are so many variables involved, this answer will vary among different circumstances most importantly, whether you make use of the SEG payments or not.

Without the SEG, your solar panel savings will come from your decreased reliance on the grid. As mentioned earlier, these savings will be between £100 and £270 for an average London house. With an average system cost of around £6,000, it would take you 22 to 60 years to break even.

With SEG payments, solar panel payback times are significantly shorter. A similarly-sized system with the same cost of £6,000 could earn around £100 in annual SEG payments. With both these payments and average energy savings, it would take you between 16 and 22 years to break even.

Your break-even point on your solar panel investment when using the Smart Export Guarantee can be as early as 16 years. Tariff rates for the SEG vary per supplier, but a good rate is 4-6p/kWh.

The more PV power you generate, the more you can earn from the SEG. The programme applies to all renewable energy up to 5MW, so you most likely don’t have to worry about investing in too large of a system. As long as you stay under that figure, the more extensive your system, the shorter the payback time you will have.

Whats The Return On Investment For Solar Panels

High Return on Investment With Industrial Solar Power ...

By katelyn

Many residential homeowners and businesses go solar for economic benefits. While there are some minimal upfront costs, homeowners see a substantial return on investment when they choose to purchase solar panels. In fact, because its such a low-risk investment, many people are starting to consider solar for their retirement plans. The average return on investment for solar in Massachusetts is six to eight years, but ROI depends on a range of factors so every installation varies.

In this post, well be focusing on some the factors that determine ROI: your electric bill, available solar incentives, and the design and layout of your system in relation to the sun.

Don’t Miss: Financial Analysis For Commercial Investment Real Estate

How To Calculate Your Solar Return On Investment

Three key drivers determine the return on investment of a solar system. These are:

1) The cost of your solar system2) The amount of electricity your system produces3) The value of the electricity your system is offsetting

Lets assume we have an average size solar system in an average solar market in the continental US. A 5 kW system should cost you $20,000 to build, and it should produce 7,500 kWh of electricity per year. And the cost of the electricity should be about 20 cents / kWh.

In this example, the annual value of your energy production would be 7,500 x $0.20 = $1,500. So you would be getting a 7.5% yield on a $20,000 investment. This would equate to a 13.3 year payback period. This does not look that great. Does it?

Now thankfully, in most places in the US and many other parts of the world, the actual ROI of a solar system is much more attractive than the above example. Read on, to see why that is.

1) First of all, there is still a 30% Investment Tax Credit on any solar investment until Dec 31, 2016. This means that for every $1000 invested in a solar system, the US Federal government gives you back $300 in the form of a tax credit. Assuming you are a tax paying person, that would bring the total investment in the above example from $20,000 down to $14,000. And that would change your annual yield from 7.5% to 10.7%. And your payback period from 13.3 years to 9.3 years.

Popular

More like this
Related

Series 65 Registered Investment Advisor

Who Needs...

100 Financing Investment Property Loans

Glossary Of...

Investment Adviser Registration Fees By State

Adviser Custody...