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Sage Berglund

Nikki Kiga
Justin Loustau
12/9/14
Zerbe

A Benefit-Cost Analysis of Residential Solar Power in Seattle, WA

Investing in a residential solar system has been a reliable way for homeowners in
Washington state to reduce their carbon footprint, save on their monthly energy bill, and make a
financial investment that can provide future returns. However, with the future of market-defining
federal rebates, and since state-level utility incentives uncertain, (the Federal Residential
Renewable Energy Tax Credit is set to expire in 2016 and Washington state incentives will be
renegotiated in 2020) the question of whether to invest in solar energy is now more important
than ever. This report, using a sixteen-variable net present value (NPV) model, determines the
NPVs of investing in solar in 2015, 2017, and 2019 with a variety of equipment configurations
that are rewarded unique incentive rates by utilities. First, an overview of Washingtons
renewable resource landscape is provided and the key players within the residential solar market
are defined. Second, community solar and solar leasing are considered, and the client is formally
introduced. Third, variables that comprise this reports NPV model are defined and justified.
Fourth, the NPV models calculations are reviewed and there is a brief discussion of this reports
assumptions. Finally, results are presented and implications are discussed.

Renewables in Washington State


The Pacific Northwest has long been one of the greenest power producing areas in the
United States, thanks to an abundance of hydropower from rivers that serve as the runoff
pathways of the Olympic and Cascade mountain ranges, in addition to several large standalone

volcanic mountains including Mt. Baker, Mt. Rainier, and Mt. Shasta. Despite the often negative
local and environmental impacts of river damming (costs that are notoriously difficult to assign
monetary values and are often overlooked in benefit-cost analyses (Richard. O. Zerbe), the
region has chosen to pursue hydropower as a means to meet energy demand inexpensively, and
with a low-carbon footprint from the mid-1950s to the mid-1990s. However, the region has had
to revise its energy strategy over the past decade as energy demands have eclipsed the production
capacity of the regions hydroelectric dams (a phenomenon due primarily to population growth
and an increase in per capita usage). Washington, like other states in the Pacific Northwest, has
addressed its energy deficit with an expansion of natural gas-fired plants enabled by an increase
in nationwide natural gas production due in part to a controversial process known as hydraulic
fracturing, or fracking, that improves access to previously inaccessible gas reserves.1 A handful
of government representatives, green industry members, and citizens of Washington state
remain concerned about the environmental implications of this regional rise in dependence on
natural gas, and have searched for renewable, low-carbon footprint solutions over the past
several decades.
An increase in hydropower production, while an admittedly desirable way to increase regional
green energy capacity, has largely been seen as an infeasible option given the already high
number of dams that line regional rivers. Any increase in damming would not only decrease the
efficiency of current dams by obstructing water flows, but would also pose a high degree of
environmental devastation. In addition, state-conducted energy production studies have
determined that improving efficiency at most dams is a cost-prohibitive endeavor.2
1 "U.S. Energy Information Administration - EIA - Independent Statistics and Analysis." U.S. Energy
Information Administration (EIA). January 19, 2014. Accessed December 9, 2014. http://www.eia.gov/state/?
sid=wa#tabs-4.

2 Pernin, Christopher. Generating Electric Power in the Pacific Northwest: Implications of Alternative
Technologies. RAND Corporation, 2002.

Wind power, meanwhile, has been a renewable source embraced with much more enthusiasm,
and in Washington in particular. Environmental studies first conducted in the 1990s and
continued to the present have determined
that the states Pacific coast is an ideal
location for so-called wind farm
installations, along with a number of
Eastern Washington locales including the
Tri Cities and areas near Walla Walla.3
Since 2000, a number of wind power
projects have been approved by
policymakers in Olympia, making Washington the 5th most wind power producing state in the
country with a capacity of over 2,500 MW (or 5.3% of total WA energy production) in 2011. It
should be noted that this takeoff in wind-farm production was in large part due to the passing of
Initiative 937 in 2006, which requires large utilities (over 25,000 customers) to obtain 15% of
their electricity from renewable sources (excluding hydropower) by the year 2020.
While hydro and wind power are the two main government-funded renewable energy
alternatives in Washington State, solar power has remained largely untouched by state legislators
as a mass-scale energy source. While this may be due to solars relatively large upfront costs, a
lack of open and unrestricted government-owned land, or a host of other potential factors, solar
remains the most enticing options for citizens to invest in a green energy solution on their own in
Washington. As will be made clear later in this report, this is largely due to time-sensitive federal

3 U.S. Department of Energy. Washington State Wind Exchange Map


http://apps2.eere.energy.gov/wind/windexchange/images/windmaps/wa_50m_800.jpg

rebate and state incentive schemes that make investing in solar an extremely high-yielding
investment option in addition to one that is environmentally friendly. Since congress passed the
Energy Policy Act of 2005, which launched the Federal Residential Renewable Energy Tax
Credit, and the introduction of Washington states incentive scheme in 2006, grid-connected solar
capacity has skyrocketed from a mere 1.9 MW in 2007 to 27.4 MW in 2013 (an average annual
growth rate of 57.3%).4 What follows is an introduction of the key players involved in
Washingtons residential solar energy industry.

Key Solar Players

When analyzing Washington States solar energy industry, it is critical to understand how the
federal government, state government, WA state manufacturers, out-of-state manufacturers, and
local electrical contractors interact with each other in the marketplace. Note that these are the key
players when considering a homeowners purchase of a solar system, and that leasing and
community solar projects will be addressed individually following this description. Both the
federal and state governments have established themselves as agents that have lowered the price
of investing in solar for the consumer. In making solar more affordable for the masses, this
combination of the federal rebates and state, per kWh utility incentives that require Americanmanufactured materials (the specifics of which will be explored in depth later in this report) have
artificially raised demand for American solar equipment, namely panels (photovoltaic (PV)
devices that absorb solar energy) and inverters (devices that convert a solar panels direct current
(DC) output to an alternating current (AC) that can be fed into a commercial electrical grid).
4 "Renewable Energy System Cost Recovery - Definitions." RCW 82.16.110:. July 14, 2010. Accessed
December 9, 2014. http://apps.leg.wa.gov/RCW/default.aspx?cite=82.16.110.

American solar equipment manufacturers can be divided into two subcategories: in-state
manufacturers and out-of-state manufacturers. For the purposes of this report, out-of-state
equipment will defined as equipment produced outside of Washington and at prices that
significantly undercut in-state manufactured equipment. In-state manufacturers, according to a
number of industry experts including Artisan Electric Residential Sales and Project Manufacturer
Mike Rehder, act as monopolies that exist in direct response to state incentives that award higher
utility returns for equipment manufactured within that respective state. These higher utility
returns for in-state equipment allow in-state producers to raise their prices so long as the
consumers overall return on investment is higher than that of an investment in out-of-state
equipment (and the corresponding lower utility rewards). The majority of in-state equipment
producers are operating with a short-term outlook as the financial inviability of their operations
is uncertain given the eventual expiration of state-level incentives. Washingtons incentive
structure is such that it has indeed empowered in-state producer-monopolies, the most prominent
of which is Itek Energy, a medium-scale manufacturer located in Bellingham.
Meanwhile, out-of-state equipment manufacturers often arise in locales where state-level
utility incentives are non-discriminating between in and out-of-state equipment. The result is a
far more equalized semi-national marketplace (excluding states that have discriminating statelevel incentives) with prices that are more representative of the materials, labor, and lean
overhead costs required to make a business competitive. Oregons incentive structure is such that
it has not empowered monopolies and has instead created nationally-competitive producers, the
most prominent of which is SolarWorld, a large-scale manufacturer located in Hillsboro, OR, just
outside of Portland.

The final major players within the solar industry are electrical contractors, the majority of
which are small-to-medium scaled businesses that provide regional project management and
maintenance services. It should be noted that most maintenance services are funded by
manufacturer warranties that usually extend 20-25 years from the date of purchase. While exact
equipment and installation prices are ultimately negotiated between the consumer and his choice
of electrical contractor, in-state systems generally range from $4.25-$4.85 per watt while out of
state systems range from $3.50-$4.00 per watt. Average systems are rated between 5kWh-6kWh.
Mike Rehder of Artisan Electric confirms that exact prices are often determined by varied
installation (labor) costs rather than negotiations over equipment prices that are set by either the
manufacturer (most common with in-state producers like Itek Energy) or distributors (most
common with out-of-state producers like SolarWorld). Again, the electrical contractor market is
fairly equalized. Mike Rehder confirms the average breakdown of a sale as 60-70% of total cost
being allocated towards equipment and materials, 30-40% allocated towards installation (labor),
and 10-20% absorbed for overhead and profits. Now that a general overview of the solar energy
market with regard to residential system sales has been conducted, this report will briefly touch
on Seattle City Lights community solar model.

Community Solar
Seattle City Light offers a community solar energy model in which customers have
option to purchase $150 units of crowdfunded solar projects in Seattle. These governmentadministered solar arrays can be found in Jefferson Park, at the Seattle Aquarium, and at the
Woodland Park Zoo. Each $150 unit provides a yearly energy credit of $34 until 2020, when
ownership of these units (and the incentives tied to these units) will transfer to the host site.
Therefore, while community solar allows non-homeowners and those who cannot afford an

entire residential solar system to contribute to reducing Seattles carbon footprint, it is not a
sound financial venture as there is not enough time make money, let alone get a full return on
investment.

Defining our Client


The main purpose of this report is to evaluate the benefits and costs of investing in a
residential solar system (comprised of either in-state or out-of-state equipment) as a homeowner
at a given year (2015, 2017, and 2019). This client hopes to reduce their homes carbon footprint
and save on their monthly energy bill while making a financial investment that will result in
positive future returns. This reports main assumptions with defining such a client are, 1. that
they are indeed a homeowner in Washington state, 2. that they can either afford the upfront costs
of a system (equipment and installation) as negotiated with a local electrical contractor or afford
the long-term costs of a loan to pay for this negotiated system price, and 3. that they will invest
in a solar system before the year 2020. While, for the purposes of this report, federal rebates and
utility incentives are considered a benefit to the client, it should be noted that these benefits are
costs to the government and taxpayers. This report, while intended to inform a consumers
decision-making process, also allows the government agencies, utility companies, manufacturers,
and electrical contractors that have a stake in the residential solar market to determine adequate
tax breaks and incentives, component efficiencies and prices, and installations costs to make
solar an appealing investment for the consumer. What follows is a discussion of the sixteen
variables that comprised our net present value (NPV) model for an investment in residential solar
energy.

Variables

1. Number of Solar Panels: The number of solar panels a homeowner plans


to install depends largely on the size of the system they can afford as well as the surface
area they have available. The numbers used in this model are based on a standard 5.5 kWrated system using approximately 280 Watt panels. Thus, 18 panels are needed. To
determine roughly how many solar panels fit on a roof, simply need to divide the roof
area by the area of each solar panel (provided below).
2. Area of Solar Panel (m2): This variable is a simple metric of the solar
panels themselves. Most solar panels will have a sales spreadsheet or information page
that states the area of a solar panel. In the case of Washingtons in-state producer Itek
Energy, a standard panels dimensions are 39.1 inches by 64.8 inches,5 which converts to
1.635 m2. The conversion to m2 is necessary because solar radiation is measured in m2.
3. Solar Panel Efficiency (%): The efficiency of Itek Energys solar panels
can also be found in the companys specification references. In a table entitled Electrical
Data, power densities are provided in Watts/m2. The power density of the 280W model
is 171.0 W/m2. Given that standard test conditions, according to Itek Energy, are at an
irradiance of 1000W/m2, a 280W panel is able to capture between .1558 and .171 of the
energy available. Thus, the efficiency of the panels ranges from 15.58 to 17.1%.
4. Solar Panel Warranty (years): Standard manufacturer warranties for
panels are 25 years. As panels require very little upkeep once installed (aside from annual
cleaning and the trimming of any nearby trees that could obstruct sunlight), the majority
of maintenance costs (panel failure and replacement, etc.) are covered by the
manufacturer. It should be noted that the actual lifespan of each solar panel is often much
longer than 25 years. The University of Applied Sciences in Switzerland has studied the
degradation of solar panels since the 1980s. In 1982, a team installed a 10 kW rooftop
5 Itek Energy. Why Solar? Why Now? N.p.: Itek Energy, n.d. Solar Products Made in WA. 2014. Web.

solar system comprised of panels with peak ratings of approximately 37W. When tested
in 2002, each panel registered a peak rating of 34W, only 9% less than the original.6 The
results of this study suggest that while solar panels do indeed degrade, their projected
lifespan is much longer than 25 years.
5. Cost Per Solar Panel ($): As mentioned above, the average cost of an instate system is $4.70/W with an average system size being 5.5kW. This means that the
total cost of the system is $25,850. Using the cost breakdown provided above, roughly
70% of that cost, or $18,095, goes to equipment costs, of which covers panels. Thus,
in-state panels are priced between $700-$800 a piece. The same method was used to
estimate the cost of each out-of-state system, which averages approximately $3.75/W or
around $20,625 total. As 60% of that total cost goes towards equipment, of which is
used for panels, out-of-state panels cost between $480-$550 each. The cost breakdowns
used in the calculations provided above were given by Mike Rehder of Artisan Electric.
6. Installation year: While a straight-forward variable, installation year has a
large effect on the NPV of a project as the federal solar tax rebate is set to expire in 2016
and state-level utility production incentives will most likely be reduced in 2020.
7. Cost of Inverter ($): The average cost of an inverter is 20-30% of the
overall equipment cost of a project. Thus, an in-state inverter costs between $3,600$5,400, and an out-of-state inverter costs between $2,500 to $3,700.
8. Cost of Installation ($): The total cost of installation is the same for both
in state and out of state systems, at around 30% of the total cost for an in state system and
40% for an out of state system. This number is roughly $8,000 total.
9. Increased Home Value ($): The increased value of a home as the result of a
solar system is similar to ones willingness to pay for solar in that it varies greatly from

6 Chianese, D., Realini, A., Cereghetti, N., Rezzonico, S., Bura, E., Friesen, G., 2003. Analysis of weather c-Si PV
modules. Proceedings of 3rd world conference on photovoltaic solar energy conversion.

person to person. One study done in California found that on average, having a solar
system increased a homes market value by $20,194.7 This was a study done in a wealthy
and relatively environmentally friendly neighborhood in Southern California. As such, it
is not appropriate to apply the same model to determine the value of a home in Seattle. In
addition, a solar system installed now but in need of replacement when the client is trying
to sell the home could be viewed as a detriment to home value. While the model does
include a value for increased home value, it has been left to $0. It is recommended that
such a value is adjusted taking into account more localized local real estate markets and
consumer preferences.
10. Average Solar Radiation (kWh/m2/year): Average solar radiation is factor
which is completely determined by the project site. Solar radiation in Washington varies
greatly from Eastern to Western Washington (see
figure) as well as throughout the year. Because this
report focuses on the costs and benefits of pursuing
solar power in Seattle, the model accounts for the
citys average daily solar radiation of 3.53
kWh/m2/day with a 9% standard deviation
multiplied by 365 days/year to produce a range from 1096 to 1313 with an average of
1204 kWh/m2/year.
11. WTP for Solar Energy ($/kWh): Willingness to pay (WTP) for solar energy
is one of the hardest measures to quantify because of high levels of variance between
individuals and because, more broadly, there are so many factors that might contribute to
WTP. For the purposes of this report, WTP for solar energy is limited to WTP for the
7 Dastrup, Samuel R., Joshua Graff Zivin, Dora L. Costa, and Matthew E. Kahn. "Understanding the Solar Home
Price Premium: Electricity Generation and Green Social Status." European Economic Review 56.5 (2012): 96173. Web.

reduction of CO2 emissions observed when one switches from grid to solar energy. The
first step in calculating WTP is determining the expected reduction of CO2.
Manufacturing one solar panel releases 50 g of CO2/kWh on average over its lifetime8. In
contrast, Washington produces 69 metric tons of CO2 per year and consumes 2,057
trillion Btu of energy per year9. This converts to 114.4 g of CO2/kWh. The average
Washington household uses 13,557 kWh/year10. This means that switching completely
from grid to solar energy reduces CO2 emissions by 874 kg/year. From this data point, we
created the following survey of equivalent CO2 reductions:
How much would you pay each year to:
1. Reduce your carbon emissions output from electricity use by 33%?
2. Lower the total number of miles driven in Washington by 2,080?
3. Have 1.432 acres of forest planted?
4. Stop .313 tons of waste from being sent to a landfill?
5. Save 874 kg of CO2 from entering the atmosphere?
6. Reduce the amount of coal burned by 1878 pounds?
Note: The reduction of CO2 emissions for question 1 is 66%, so answers were doubled.
The reduction of CO2 for questions 3 and 6 are 1748 kg so answers were halved.

8 United States. Department of Energy. Office of Energy Efficiency and Renewable Energy. Life Cycle Greenhouse
Gas Emissions from Electricity Generation. By National Renewable Energy Laboratory. N.p., Jan. 2013. Web.

9 United States. Department of Energy. Washington State Profile and Energy Estimates. By U.S. Energy
Information Administration. N.p., 20 Nov. 2014. Web.

10 United States. California Energy Commission. U.S. Per Capita Electricity Use By State in 2010. N.p., 2011.
Web.

Survey Results

Fig. 2 The WTP data spread

The average WTP for all questions was $145.64 and the average excluding question one,
which had the largest standard deviation, was $84.65. Dividing these numbers by 13,557
kWh produces a range of WTP from $0.011/kWh to $0.006/kWh. Because our sample
size was so small and not very representative of our expected client (lets face it, they
were cheap college students!), we chose to use the larger WTP in our calculations. Again,
this value could be adjusted on a per-client basis to reflect their own WTP.
12. State Incentives before 2020 ($/kWh): Currently, systems with entirely instate equipment are awarded a $0.54/kWh incentive. Systems with WA panels and nonWA inverters are awarded a $0.36/kWh incentive. Systems with non-WA panels and WA
inverters are awarded a $0.18 incentive. Entirely non-WA systems are awarded a
$0.15/kWh incentive. These utility incentives are set to expire and be revised in 2020.
Washington state also offers an 8.5-10% tax credit (depending on municipality) on
residential solar systems that is set to expire in 2018.
13. State Incentives after 2020 ($/kWh): It is uncertain whether state
incentives for solar will be eliminated entirely or just decreased in 2020. Mike Rehder of
Artisan Electric suggests that while the states tax credit will likely permanently expire in
2018, we can expect to see a standardization and continuation of lower utility incentive
rates after 2020. For the purposes of this report, a standard rate of $0.24/kWh regardless
of equipment sourcing was chosen.
14. Federal Tax Rebate (% Costs): The 30% federal tax rebate for residential
solar projects is set to expire in 2016. Given the current political climate in Washington,
D.C., it is unlikely that such a high percentage rate, if any, will be reapproved. For the
purposes of this report, it was assumed that no form of a federal rebate would exist
beyond 2016.

15. Cost of Energy ($/kWh): The cost of energy will continue to rise in the
forecasted years. Right now Washington State residents pay about $0.0882 per kWh.
Washington is certainly on the lower end of cost of energy within the United States. The
Nations average cost of energy is $0.122. This can somewhat explain the lukewarm
interest in Washington State - other states have higher cost of energy and growth rates thus incentivizing more people to look to alternative energy sources than in Washington
State.
16. Discount Rate (%): The discount rate is one of the most difficult and
subjective numbers to decide upon in BCA. While, there is reason to discount our model
at a rate around 4%, or the rate a homeowner can borrow at, we chose to discount our
model at a higher discount rate. This is to better represent the opportunity cost of not
investing in other projects. This will result in lower NPVs than under a 4% discount rate.

Community Solar Variables


While not a component of this reports main goal to calculate the NPV of an investment in
residential solar energy, the following are the variables used to determine that community solar is
indeed not a wise investment choice.
1. Number of Units: Seattle City Light customers can purchase between 1125 units11.
2. Cost of Each Unit: The cost of each unit is set by Seattle City Light at
$150
3. Energy Production Per Unit: Production per unit varies by location, but on
average, it is 29 kWh/year.
11

United States. City of Seattle. Community Solar FAQs. By Seattle City Light. N.p., 2013. Web.

4. Energy Credit Per Unit: The energy credit per unit per year ranges from
$33.75 to $34 depending on the project (Seattle City Light, 2013). We will use the
average of $33.87 per year.

Methods
What follows is a discussion of this reports methodology, covering both the calculations and
assumptions used to determine NPV.

Calculations
Years with Guaranteed State Incentives = 2020-(Installation Year)
Yearly Benefits Until 2020 = (Yearly Energy Generated)(Benefits of Generated Energy)
Energy Generated = (Number of Panels)(Area of Panels)(Solar Radiation)(Efficiency)
Benefits of Energy Generated = ((WTP) + (State Incentive(1)) + (Cost of Energy))
Present Value of Benefits For Period Until 2020 =
1(1+( Discount Rate )(Years withincentive ))

(Yearly Benefits Until 2020)


+(Increased Home Value)

Present Value of Costs = (((Number of Panels)(Cost per Panel))+(Cost of Inverter)+(Cost of


Installation))(1-(Tax Incentive))
Yearly Benefits After 2020 = (Yearly Energy Generated)(Benefits of Generated Energy)
Energy Generated = (Number of Panels)(Area of Panels)(Solar Radiation)(Efficiency)
Benefits of Energy Generated = ((WTP) + (State Incentive(2)) + (Cost of Energy))

Benefits Until 2020 at 2nd Incentive Rate = (Yearly Benefits After 2020) *

(Years withincentive )

1(1+( Discount Rate )

Benefits at 2nd Incentive Rate over Total Warranty = (Yearly Benefits After 2020) *

1(1+(Discount Rate )(Solar PanelWarranty ))

Benefits After 2020 = ( Benefits at 2nd Rate over Total Warranty) - (Benefits Until 2020 at 2nd
Rate)
Net Present Value = (Benefits After 2020) + (Benefits Until 2020 at 1st Rate) - (Present Value
Costs)

Equations for Community Solar


Yearly Benefits = ( (Number of Units)(Energy Credit)) +((WTP)(Number of Units)(Energy
Produced))
1(1+( Discount Rate )(Years with guaranteed incentive) )

Present Value of Benefits = (Yearly Benefits)

Net Present Value of Community Solar = (PV of Benefits)-((Number of Units)(Cost Per Unit))

Equations for Crystal Ball Model


Initial Cost = ((Cost of Panels * # of Panels) + (Inverter Cost) + (Installation Cost)) * (1 Federal Tax
Rebate State Sales Tax Rebate)

Annual Benefit = (Energy Generated)( WTP)(State Incentive) (Cost of Energy * (1+ Energy Cost growth
Rate) Year))
Net Present Value = (PV of Sum of Annual Benefits) (PV of Sum of Annual Costs)

Assumptions
We assumed that homeowners would be credited the full retail price for the energy that they
generate from their solar system.

Federate tax credit we assumed that this credit would not be applicable after the deadline in
2016. We have heard from an industry insider that it is extremely unlikely for another federal
credit to be applicable any time soon.

Discount rates we want to account for the variability in discount rates and decided to take a
normal distribution between 6 and 9% with 7.5% as our mean discount rate.

Cost of energy growth rates there is some variability to the rate at which the cost of energy is
growing each year. We used figures from the Energy Information Administration that gave the
next 5-year forecast between 0.4% and 4% growth each year, with a mean of 3.32%. We made
the assumption that this range would be used for the 25 year forecasts we created.

Production credits we know that production credits are defined until 2020 after which we
cannot say with absolute certainty what the rates will be. We used an informed industry estimate
of 0.24 as our mean over a normally distributed range from 0.06 to 0.36.

Solar radiation We used historical figures taken from The NASA Surface Meteorology and
Solar Energy Data set to project what we expect the mean solar radiation to be in Washington.
We keep in mind that these figures are for Seattle, WA so not directly applicable to Eastern
Washington, which most certainly will have higher numbers. We used a normal distributed over
the range from 1220 to 1330 with 1288.45 as the average. We assumed that solar radiation will
not change over the 25 year period which clearly ignores global warming effects, or other
weather trends.

Loan rates we used a normally distributed range from 2.9% to 7% with a mean of 5% for our
loans. We used the loan rate given by the Snohomish Utility District for 2.9% up to $25,000 as
our lower bound with the capped 7% discount rate. While some loan terms were given for 7
years, we found 10 years to be a more representative loan term and used this in all of our
calculations for loans.

Loan range We used a range from $5000 to $15,000 as a normally distributed range with
$10,000 as our mean. Technically people could go as small as $1000 or as large as $25,000 but
the NPV range as it stands is quite sensitive to the loan terms, and we dont want that to too
heavily weight our analysis.

We also have to recognize that our own dispositions, and views toward Solar Energy probably
impacted the way we selected what figures and filtered what data to include in our analysis. It
would be impossible for us to completely objectively analyze the situation, but we did our best to
use a variety of reliable and well-known sources.

Results

Fig. 4 Shows the minimum, maximum and mean NPV values found using Crystal Ball
*Notice that the range of NPVs in 2015 are much more positive than in 2017 and 2019. This is
largely due to the fact that the Federal tax is still in effect, thus reducing the upfront cost.

Fig 5. 2015 NPV range and statistics found in Crystal Ball

Fig. 6 2017 NPV and statistics found using Crystal Ball

Fig. 7 2019 NPV and statistics found using Crystal Ball


Sensitivity analysis
What follows is an analysis of the possible discount rate sensitivity for 2015, 2017 and 2019
under the assumption that the solar system has both a Washington Inverter and Washington solar
panels. We assume that the variables stay constant as viewed in Fig. 8.

Fig. 8 The constant figures used to calculate the NPVs in Fig. 9

Fig. 9 Sensitivity analysis on the discount rate on the All Washington NPVs
As we can see there is a significant difference between the ranges yielded in 2015 versus the
2017 and 2019 ranges. We can also see that the discount rate significantly impacts the NPV. Just
by changing the discount rate from 5% to 9% almost halves the expected NPV.

Fig. 1 - Sensitivity analysis on the NPV model from 2015

Fig. 2 Sensitivity analysis on the NPV model from 2017

Fig. 3 Sensitivity analysis on the NPV model from 2019


Notice how as the analysis progresses from 2015, to 2017, to 2019, the state incentive after 2020
accounts for an increasingly significant positive effect on the NPV. While the cost of installation
accounts for an increasingly more negative impact on NPV.

Conclusion
The results from this reports NPV analysis demonstrate that installing a residential solar
system at present is a sound investment in most cases, especially when using equipment
manufactured in Washington state. However, our results demonstrate how the projected benefits
of an investment in solar diminish rapidly as the installation year approaches 2020. This is
largely because of the great degree to which returns on an investment in residential solar rely on
both state and federal incentive structures that are set to be eliminated or reduced in the near
future. It is crucial that market prices for solar equipment and installations continue to be
recorded and analyzed as government incentives fade, to see if the industry can achieve lower
prices that make an investment in solar financially viable. Right now the solar energy market is
far from efficient, any benefit that the customer gains is often through the efforts of the
government - which means its a wash. Hopefully, in the coming years solar panels will continue
to become cheaper, which will decrease the heavily weighted upfront cost, and then more
efficient at capturing and converting energy which will up the potential long term benefits. Thus
providing a hopefully more positive NPV without governmental intervention. Until then, the
choice of whether to install a residential solar system, especially as governmental rebates and

incentives phase out, will largely come down to the individual customers WTP to reduce their
carbon footprint on an individual basis, a metric that is extremely difficult to calculate.