Do the Solar Math
By: Joe Maurer, Next Step Energy LLC
Why install a solar PV system? You can hedge against rising fuel costs! You can own your energy up front! You can offset your own fossil fuel consumption! You can have energy independence!
You probably have heard some of what a solar PV system can do for you, but what about the costs? What does the math of a solar PV system say? A baseline PV costing exercise usually begins by looking at your kWh/per year usage. Here is a sample exercise you can do at home.At our home business, the energy usage is 8,300 kWh per year. To estimate my PV system size, I will begin by dividing my kWh per year by 1.2. This gives me an estimated PV system size of 6,917 watts or a 6.9kW system. To calculate my installed cost, I multiply the PV system size by the cost per watt for a roof mounted system, which in this case is $4.00. This gives me an installed cost of $27,988. Not exactly chump change, I know. But wait! There is more to this equation.
If I am a rural business owner, I can apply for a 25 percent USDA REAP grant. To figure this amount, I multiply myinstalled cost by 0.25. This puts me at $20,991. If my utility participates with Focus on Energy, I can take an additional $2,400 dollars. This Focus on Energy grant is taxed at 33 percent (-$792), so the cost of the system is now at $19,383. The federal tax credit is considerable at 30 percent. To calculate this, I simply multiply my installed cost minus the USDA grant by 0.30. This puts me at $14,693.70! I know exciting, right? We are not done—let’s look at depreciation. Depreciation indicates how much of an asset’s value has changed. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses. To figure depreciation, multiply your installed cost ($27,988) by 0.21. Our net solar system cost is $8,816.22! This isn’t chump change either—but it’s a considerable difference from where we started.
So, what’s the payback time? To calculate this, divide the net solar system cost by the solar energy value in year one and multiply by 1.35. To calculate your solar energy value in year one, multiply your annual electric load by your utility rate. For example, for my solar energy value in year one, I multiply $0.11 x 8,300 to get $913. So to find payback, I divide my net system cost ($8,816.22) by solar energy value ($913) and multiply by 1.35 to give weight to module degradation, property insurance escalation, inverter replacement etc. My payback time is 13 years. Or I could say after 13 years, I make money with my system! System life is expected to last at least 30 years.
Check with your tax professional and solar site assessor to find out if you qualify for solar enegy tax incentives.