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Black Hills Home Builders

© 2020 by Black Hills Solar, Inc. |

  • Sonny Rivers

Solar as an Investment

Is solar a good investment?

Solar can be a great investment for many properties. For some a solar installation is treated purely as an investment, whereas for others, solar may geared to another purpose. As an investment, solar is considered for the rate of savings (alternative to grid power) and calculated time to payback. Beyond the point of payback, energy is considered free.

In some (usually obvious) cases, solar power systems will not be able to perform to their potential. In case of significant shading or another problem with the site, we explain the impact and if we believe it is a good investment or not.

How much in savings does solar produce?

When solar energy directly offsets power that would otherwise come from the grid, savings correspond directly to the utility rate (plus tax). On average, a utility bill has an energy charge of 11- to 13-cents per kWh. The more expensive grid power is, the more valuable it is to offset.

However, solar power generation isn't a 1:1 ratio to the power bill. Actual savings depends on the ratio between solar power used directly versus solar power sold to the grid. Energy sold to the grid has a different rate.

At times during the day when more solar power is generated than being used, the extra power will flow over to the grid. The value of energy exported depends (again) on the utility, and in South Dakota it is on average only two to three cents per kWh. This is usually credited to the bill each month.

Each solar panel can reduce power bills by $30 to $60 per year, depending in part on these rates. It also depends on several factors of the site, the building, and the users.

The optimal range for system sizing appears on a bell-curve where at the peak we find the best cost-to-performance ratio. 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 less economy of scale; if large, there are diminishing returns.

This methodology applies only to grid-tie systems, relating directly to utility rates, and involves assumptions on what rates will be for decades into the future. Compare this to off-grid systems, where we would instead consider solar energy as free (i.e. no billing), and the installation cost is weighed against the alternative (i.e. cost to connect to grid plus rates and fees).

How long for a full payback?

We can accurately predict 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 that will change over time and affect the outcome to some degree. Performance can be evaluated year after year to track progress.

One of the main variables to actual savings is time of use. When electricity use aligns with solar power production, savings are optimal. On the other hand, selling electricity to the grid is less favorable. A conscious strategy may be implemented, or not.

Depending on the quality of the solar resource, the electrical load, and the cost of installation (varies by building), we most often estimate the payback to be within 10 to 14 years (one-third to one-half of the systems expected lifespan).

Does investment/payback really matter?

It's pretty well guaranteed that any grid-tie solar system is capable of a full return on investment at least once, if not three times over the decades that the system may be in operation. If shortening the duration for full payback is essential, then we design the system for that purpose. Otherwise we might design the system another way, leaning towards another purpose or benefit.

Not all of our customers consider investment as their main objective. There are other popular benefits to solar.

Our Take

Since their introduction, solar power systems have typically been viewed strictly for the purpose of investment. However, today's technology offers more than savings and those other benefits should be considered as well, such as energy storage, vehicle charging, and environmental. After all, solar power systems are like other pieces of building equipment, offering specific benefits that improve the comfort and use of a home (or business).