Solar as an Investment
Is solar a good investment?
Solar can be a great investment for many properties. Over time, savings against a power bill equals the cost of the installation, after which solar energy is essentially free. Alternatively, solar power systems are also appreciated for total savings over the life of the system, which can be multiple times the original system cost.
But not every situation is ideal for solar. For one, the location needs to be sunny and the space needed varies with the conditions of every site. The potential benefits vary by user, the features needed, and what to them actually qualifies as a good investment. As solar professionals, we provide an honest assessment and advise based on individual needs.
For many, the benefits of being self-powered are essential. Saving money for a total return on investment is a great bonus - not often expected from almost any other equipment purchase.
How much in savings does solar produce?
Since sunlight is free, and solar power offsets the energy otherwise purchased from the utility (the grid), savings corresponds directly to the utility rate. On average, homes are charged 11- to 13-cents per kWh (plus tax) from the grid. The more expensive grid power is, the more valuable it is to reduce or offset with solar. However, the solar power generated has a complex relationship between your energy consumption (loads) and the grid.
Solar power is most valuable when used at the moment it is generated. But invariably, when there is extra solar power it has to be either stored in a battery or exported to the grid. When extra solar power goes to the grid, it will generate a credit on the utility bill. Energy sold to the grid has a different rate than the retail purchase rate. In South Dakota the "energy credit" rate is currently (2020) between 2- to 3-cents per kWh (as determined by the utility company). The credit is applied to the utility bill each month.
In the simplest terms, each solar panel can reduce power bills by $30 to $60 per year, depending on these rates and the nature of the building, site, and users.
To get the optimal savings and payback, the best system size depends on the type of system and the energy consumption profile (daily/monthly usage). Smaller systems result in higher self-consumption and energy value, but larger systems still provide more savings over a longer term. If small, there is improved performance value (faster payback calculation), but larger systems benefit from the economy of scale (lower price-per-watt). Larger systems benefit most with the addition of a battery system.
In contrast, for off-grid systems solar energy is simply free, and the solar power system installation cost is weighed against the alternative (i.e. cost to connect to the grid plus rates and fees). Off-grid systems are a larger investment, most often the best fit for newly constructed homes.
How long for a full payback?
We can readily calculate the amount of solar power that will be generated, and have tools to estimate savings and payback for any given system design. However, there are a number of variables relating to the building and users that can affect the outcome either way, and which may change over time.
As described above, the main variable of a savings calculation is the utility rate being offset. This varies by the utility company and the service rates they use. Each utility company has various service plans and ways they bill you for energy and power.
Time of use (of electricity) is another variable. When electricity use aligns with solar power production (use power as the sun shines), savings are optimal. Storing extra daytime energy in a battery for use at night has greater energy value than exporting to the grid, but with additional cost a battery system may not accelerate the payback time.
When offsetting a utility service with a demand charge, battery systems are effective at improving savings better than solar alone.
Depending on the quality of the solar resource, the electrical load, time of use, the type of charges being offset, and the cost of installation, we most generally estimate the payback to be within 10 to 14 years (one-third to one-half of the systems expected lifespan).
It's pretty well guaranteed that a solar power system is capable of providing a full return on investment (compared to the cost of utility power) at least once, and up to several times over the decades that the system may be in operation. If shortening the duration for full payback is the sole objective, then we can design the system for that purpose. But in other cases, we may design the system for a different purpose or benefit.
Like other building appurtenances, solar power equipment serves a specific purpose of inherent value, the only exception being that solar is typically considered relative and/or optional to the utility service. The value solar provides to the individual user can be as important, or more important than which alternative is cheaper. Ultimately, solar offers a reliable long-term economic benefit in most cases, whereas the functionality and features of the system also offer upfront benefits based on the interests of the user.