Written by Gayathri Vijayakumar, VP – Senior Building Systems Engineer
Over the last 10 years, we’ve seen great strides in the solar PV market in the United States. Between the federal tax credit and utility-sponsored incentives, the price to install PV systems came within reach of many homeowners. For others, eager to make a positive impact on the environment, power purchase agreements with solar companies and no up-front costs made it possible to utilize their roofs to generate electricity.
While the calculated cost-effectiveness of solar panels relies on the future price of electricity (which we can’t predict), we can confirm that they do deliver energy. In a very scientific study of exactly one home, owned by a SWA engineer, five years of generation data is available. Sure, it’s not the pretty Tesla roof, but these panels were installed back in November 2011. At 4.14 kW, with no shading and great Southern exposure, the panels were estimated to generate 5,400 kWh/year of electricity in New Haven, Connecticut (Climate Zone 5). The panels have exceeded expectations, generating on average, 6,200 kWh/year, which is roughly 70-80% of the electricity required by the 2,500 ft2 gas-heated home and its 4 occupants.
Looking back at the electric bills, the average price of electricity was $0.17/kWh, so the panels have saved $5,300 over five years. After rebates and the tax credit, the out-of-pocket cost was $11,500, so the panels are on track to pay for themselves within 11 years. While that may sound steep to some, these panels have a lifetime of 25-30 years, with minimal degradation in performance. So after paying for themselves, they will continue to perform well for 15+ more years, with little to no maintenance. The same cannot be said about the systems we purchase to provide space conditioning or hot water, even though they can have a similar price tag.
It also seems a bit unfair to hold solar panels to a cost-effectiveness standard when we don’t require the same of other costly home upgrades that are important to us, such as hardwood floors and granite countertops. But, if we are going to look at their cost-effectiveness, let’s at least compare them to the cost of buying electricity over the same 30 years. Although unrealistic and overly simplified, let’s pretend the utility will sell you 30 years of electricity up front, at a fixed rate of $0.17/kWh. Let’s also assume that generation and usage stays the same. That means 30 years of electricity bought up front from the utility would be $43,000. If we buy solar panels instead and buy the balance of electricity needed up front, the cost is only $26,600, including costs to replace the inverter twice. Over the thirty years, the best choice for the environment is also, conveniently, the cheapest one. If the “up-front” savings calculation of $16,000 is too much of an over-simplification, the array above still shows an internal rate of return of 10%, assuming inflation of 3% and a discount rate of 5%.
What if you aren’t planning to be in the home long enough to reach the point of breaking even, let alone thirty years to save $16,000? You can still install them in the hopes that it improves the re-sale value of the home (in much the same way that a similarly priced kitchen or bathroom upgrade might), or you can try a PPA, which has no up-front costs and the same environmental impact.
Speaking of environmental impact, these panels offset the equivalent CO2 emissions produced by driving an average 21 mpg car, about 10,000 miles (or 24,000 miles, if you’re driving a Prius).