Solar energy is a rapidly growing industry, thanks to the dramatic drop in prices for solar energy systems in the past decade. In most cases it is more cost effective to implement a solar energy system than to buy electricity from the local utility company. Solar provides predictably priced electricity for 20-30 years, making it easy for businesses to forecast operational expenses. In top of that, most of the times, it is necessary to make sure to get information of the ROI/ payback period as well.
Grid-tied Solar payback formula:
To sort out the proper solar payback period, usually use this formula to get a tentative idea:
(Total system cost-Value of incentives) ÷ Cost of Electricity ÷ Annual Electricity Usage = Payback Period
System cost: Includes equipment, permitting, shipping and other associated project cost.
Value of incentive: It depends on state to state or country to country. It's mainly the solar investment tax credit.
Cost of electricity: Can be obtained from utility provider.
Annual electricity usage: Electricity usage which can be collected from electricity bill. Another way to calculate this is to multiply by 12 with the value of average monthly usage.
Examples for payback period of grid-tied solution:
Scenario #1: Places with average electricity rates, installed by a contractor at $1/watt
Let’s assume the household is “average” in every way, using 1234 kWh per month billed at a rate of 13.96 cents per kWh.
1234 kWh/mo. x 12 months = 14,808 kWh/yr
A 7 kW system would completely offset the energy usage. Considering a 7 kW system worth of $4,300. Considering a local contractor might charge $0.5/watt to install the system, which works out to $3,500 for this 7 kW (7000-watt) system.
We will also estimate $1,200 to cover permitting, shipping fees and associated project cost.
In total, the cost to install your system is =$ (4,300+3,500+1,200)= $9,000. Considering 25% of the federal incentives, that can be claimed under the federal tax credit, a value of $2,250.
($9,000 – $2,250) ÷ $0.1396/kWh ÷ 14,808 kWh/yr. = 3.27 years
In this scenario, it takes 3.27 years to break even on investment.
Scenario #2: Places with average electricity rates, DIY install
You can also choose to install your system yourself. This will deduct the $3,500 installation cost, but we should add another $500 for tools and the cost of an electrician to complete the final hookup. We also keep the $1,200 estimate for shipping and permitting.
That brings your system cost down to $6,000, with a 25% tax credit of $1,500.
Here’s how the payback period changes if you DIY install:
($6,500 – $1,500) ÷ $0.1396/kWh ÷ 14,808 kWh/yr. = 2.42 years
When you install the system yourself, it takes 2.42 years to recoup the initial cost of the system. Taking on a DIY install allows you to pay off your system about three years faster than hiring an installer.
Scenario #3: High electricity rates
If the electricity costs are higher than average, that makes the payback period even shorter, because it is saving more on utility bills each month.
Let’s use an example, which has the highest cost of electricity in the contiguous. At 21.74 cents per kWh.
Let’s assume average energy usage with installation help from a local contractor:
($9,000 – $2,250) ÷ $0.2174/kWh ÷ 14,808 kWh/yr. = 2.09 years
And the same scenario if you choose to DIY install:
($6,500 – $1,500) ÷ $0.2174/kWh ÷ 14,808 kWh/yr. = 1.55 years
It's clearly visible that, solar is even more appealing in states with high electricity costs. Eliminating high electric bills leads to quite a speedy payback period of 1.55 years if you take on a DIY install, or 2.09 years if you hire a contractor.
Scenario #4: Low electricity rates, more expensive system
To make things even, now let's consider about the worst-case solar scenario: the lowest electricity costs in the country close to 9.39 cents/kWh
How long would it take to pay off the same 7kW system?
($9,000 – $2,250) ÷ $0.0939/kWh ÷ 14,808 kWh/yr. = 4.86 years
The payback period balloons to 10.14 years if you hire a contractor for installation. Even taking this worst-case scenario into account, you still break even about halfway through the life of your 25-year panel warranty and stand to make a reasonable return on your investment.
Keeping all of those factors precisely, EverExceed grid tied solution can be a good choice for household or business purpose investment with an impressive ROI.
This ROI or payback formula is just a primary calculation. If you want to know more detailed and accurate calculation about ROI or payback time of EverExceed solar solution, contact EverExceed today. Our team is experienced for more than a decade on the industry to provide you best solution for your needs.
