The rewards begin immediately when you consider that from Day One home solar power reduces your energy bills or even eliminates them altogether. I think that this is where part of the misunderstandings arise associated with Solar. Let’s look strictly at the Return on Investment for a system that costs $10,000 and saves $100 per month. Under these circumstances the system will pay for itself in 8.33 years.
A very important item to consider is from a “savings” perspective: If you decide to invest your savings of $100/month into an account for 8.33 years your ROI would be just under 9% based on the famous investing standard called the “Rule of 72” which is a standard that has been used for decades to identify the interest rate at which an investment will double and return your initial investment back to you. This is a very important concept for you to consider and should change the way we look at solar. In the example below we see that an initial investment in solar of $25,000 for fifteen years provides a cumulative return that is far more profitable when compared to the stock market.
As we add to our understanding of a Solar ROI let’s answer these basic questions and please remember that every penny that you spend – and receive – should be included in your analysis of the return on investment:
- What is your initial cost?
- How much will maintenance and replacement parts cost including panels and inverter?
- What is the total increase in property value?
For the most part, it is not unusual for residential solar panels to have an ROI between 7 to 15 years. If you also have an electric car, this period will be shortened considerably because now you will be offsetting the cost of gasoline in addition to the cost of electricity. This can bring your total ROI down to as short as 3 to 5 years. But exactly how much you can save using solar power partially depends on where your home is located – and how it’s situated. Panels on a southern-facing roof, for example, will operate more efficiently than those on a roof facing north.
Moreover, the incentives at the federal, state and local levels are significant depending on where you live. All 50 states qualify for the 30% tax credit off the cost of your system, which can also be combined with state and utility rebates in your area. The federal tax credit of 30% applies to solar systems on existing homes and new construction and does not expire until the end of 2016. Furthermore, for many homeowners, a solar energy generation system will produce more electricity than the family uses and the excess is sold to the utility company in a process called net metering. This, too, reduces the overall cost of your system.
Once you have a general idea on the system price, financing costs, economic incentives, and the value of the electricity generated, it is possible to calculate the standard ROI on your solar investment using this formula: Total Cost of System after Tax Incentives Divided by Total Savings per month. Happy Calculating!
See You Next Time! Dr. Stripling