PV Panels as a form of Investment
We all know that solar energy is a clean and renewable energy source and a lot of people get photovoltaic (pv) system or panels installed because of their concern for the environment. But did you know that PV panels are an investment as well?
Read moreOnce you have solar panels installed, they will then generate energy for you for free whenever the sun shines. The energy that your PV panels generate will then translate to savings from your energy bill.
Given time, the energy that you save will pay for the initial cost of installation. Any energy that your pv panels generate can be considered as pure profit after you reach this 'break even point". In addition, having a solar system may also increase your property's value because of the savings and profit potential.
Calculating the 'break even point" and ROI on your PV Panel Installation
Here are the things you need to get a good estimate of the ROI on pv panels.
- Costs
- Get the total installation cost ( cost of pv panels + labor charges). Then deduct any tax credits or rebates that you will receive from federal and/or local incentive programs.
- Benefits
- Calculate the yearly dollar amount that you will save. You get this by multiplying the estimated power that your PV system will generate per year times how much you pay for your electricity per kWh.
- The PV installation contractor should provide you with an estimate of the total power that your system will generate in a year. This will depend on a lot of things including the type and size of your system, the climate in your state, and the actual location of your property.
- Look at your electric utility bill to get your current cost per Kilowatt hour (kWh). Do note that you also have to factor in distribution charges in this calculation so you need to divide your total bill by the number of hours of usage.
- You also need to estimate any additional income that you can gain by selling your surplus electricity in the SRECs (Solar Renewable Energy Certificates) market. Utility companies are required by states to buy some of the energy that they supply from homes and businesses that are certified solar energy sources. It's best to be conservative when estimating the income that you can get from SRECs because the market is driven by supply and demand. Ask a solar installation company for help in estimating this item.
To calculate the break even period, you just need to divide your initial investment with the total yearly benefits that you receive. For the ROI, you just need to divide the total yearly benefits by your total investment (inverse of the previous equation) and distribute it per year.
Click the button below to see a sample table that illustrates the typical PV panels installation cost and yearly benefits estimates.
| Residential PV Panel Installation ROI | |
|---|---|
| System Size | 5 kW |
| Costs | |
| Solar Panel Installation Cost | $25,000 |
| 30% Federal Tax Incentive | $6,000 |
| State Incentive (at $500/kWh) | $2,500 |
| Net Cost (Initial Investment) | $16,500 |
| System Generation | 6600 kWh |
| Yearly Benefits | |
| Electricity Savings @ $0.2/kWh | $1,320 |
| 6.6 SRECs at $250 | $1,650 |
| Total Yearly Benefits | $2,970 |
| Breakeven period | 5.56 years |
| ROI on 1st Year | 18% |
| ROI on 2nd Year | 36% |
| ROI on 3nd Year | 54% |
| ROI on 4th Year | 72% |
| ROI on 5th Year | 90% |
| ROI on 6th Year | 108% |
