Solar Economics

Calculating ROI

Slides by Gay Canough

 Solar Economics
Sample Solar Economics Summary

A Solar Electric System with: It generates about 53898 kWh in year 1, PVWATTS
(132) Trina 385 W PV modules (50.82 kW) And 1,269,618.67 kWh in 25 years
Roof-mount
SMA TriPower 3-phase inverter TOTAL JOB COST $138,053.00
All wiring
NYSERDA grant $22,869.00
Complete installation After-NYSERDA cost $115,184.00
Estimated Fed tax credit $29,947.84
MACRS* $34,513.25
Fixed-Cost per kWh of PV for next 25 years: End cost $50,722.91
4.0 cents
(PV life expectancy is 40 years)
PV Modules have a 25 year warranty. Inverters have a 20 year
warranty.

What this customer will have paid utility over 30
years if they don’t go solar: $148,504.82
*MACRS is accelerated depreciation and stands for “Modified
Accelerated Cost Recovery System”
This is taken over 5 years. Ask your accountant or visit
http://www.irs.gov/publications/p946/ch04.html for details.
It works out to 25 to 30% of the Total Job Cost.
 Solar Economics

3% “Simple Payback” is irrelevant to

Consider utility increase running total of
rate increases in kWh
What PV saves
savings
PV systems, because utility rates
cost always go up over time.
year 1 $0.065 $3,503.37
year 2 $0.067 $3,583.21 $7,086.58
year 3 $0.069 $3,664.87 $10,751.46
year 4 $0.071 $3,748.40 $14,499.85
year 5 $0.073 $3,833.82 $18,333.67
year 6 $0.075 $3,921.19 $22,254.87
year 7 $0.078 $4,010.56 $26,265.43
year 8 $0.080 $4,101.96 $30,367.38
year 9 $0.082 $4,195.44 $34,562.83
year 10 $0.085 $4,291.06 $38,853.88 Assumption of 3% average rate
year 11 $0.087 $4,388.85 $43,242.73
year 12 $0.090 $4,488.87 $47,731.61
increase leads to 11 to 12 year
year 13 $0.093 $4,591.17 $52,322.78 time for system to pay for itself in
year 14 $0.095 $4,695.81 $57,018.58 electricity savings, even when
year 15 $0.098 $4,802.82 $61,821.41 the rate started fairly low.

If the rate is 10 cents, the time

goes to 8 to 9 years.
 Solar Economics

Cost of project without grants or tax credit $27,000

minus ‐ Incentive ($.30/watt)1 $1,800
minus ‐ Federal Energy Income Tax Credit (.3*$27,000) $8,100
minus ‐ New York Income Tax Credit (available for residential only) $0
=Actual Installed Cost [1‐2‐3‐4] $17,100

6. Annual Savings/Income
Energy Savings (7,534kWh@$.14/kWh) $1,055
Other Savings (lost employee work) 4 x $1,200 = $4,800
Income (RECs) (7,534kWh@$.00 kWh) $0

Total Savings = $5,855

7. Savings pays for system in $17,100/$5,855 = 2.9 years even with no rate increases considered
8. Return on Investment(1/7 x 100) (1/2.4) x 100 = 34.2%
(1) Assumed incentive level

This simplified approach neglects changes in energy rates, interest, and depreciation.
 Solar Economics

Comparison against other investment options.

1) Certificates of Deposit: ~1‐3%

2) Stock Market: historically ~9‐10%

3) Savings Account: ~0.5%

4) Treasuries ~3%

5) Corporate Bonds ~2‐5%, risk of loss of basis

When the concept of risk is added to the analysis, which

investments do you think have the highest risk, those above or
solar electric?