Grid-tied Solar Money Management. (cover story)

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Author: Livingston, Doug

Because the Sullivans' home is designed so efficiently, the couple's total energy use is so low that the house uses less power than most American homes -- on average, less than 7 kilowatt-hours a day (kWh/day). In fact, the Sullivans' power consumption stays within California's first tier of the penalty-pricing bracket, which means they only pay 11.4 cents per kilowatt-hour for electricity -- the lowest possible rate from their utility. In the Sullivans' region, the second penalty-pricing tier doesn't apply until their monthly consumption of grid power reaches 19.1 kWh/day in the winter and 10.4 kWh/day in the summer. Because of this, their system payback period will be longer than for a California home with more typical electricity consumption. (Go to www.MotherEarthNews.com/downloads/simplesolar for details on calculating seasonal production.)

The following payback analysis assumes a 5-percent annual increase in the price of electricity after the first year. The Sullivans produce about 4.7 kWh/day of photovoltaic power and use about 1.7 kWh/day of grid power sold to them at 11.4 cents a kilowatt-hour. This means the Sullivans' solar system earns about $196 in the first year [0.114 cents (grid price) x 4.7 kWh/day (PV production) x 365 days (year)].

Now let's calculate how long it will take the Sullivans to pay off their grid-tied solar system. The total installed cost of the Sullivans' system was $11,563. Without rebates, tax incentives and grants, the system would pay for itself in the 34th year. But with a $3,992 rebate from the California Energy Commission (www.consumerenergycenter.org) and an $861 state tax credit, the couple paid only $6,710 for the system, which reduces the payback period to 22 years. A similar system with batteries would cost about $12,000 after rebates and incentives, and would have a payback of 41 years.

Let's calculate the payback period for an average California home that consumes 20 kWh/day (almost three times as much electricity as the Sullivans' home), using the same Sullivan system assumptions, including rebates and system cost. In this case, the average home would rarely step out of the lowest-priced tier during winter (19.1 kWh/day), but would regularly step into the second and third pricing tiers during summer (10.4kWh/day).

In winter, the average home's daily PV production is about 3.8 kWh, which corresponds to 688 kWh over 181 days of winter (short days). Assuming the cost of first-tier grid electricity still is 11.4 cents, the total seasonal savings equals $78 for all winter PV production in the first year.

In summer, the average home's daily PV production is 5.5 kWh, which corresponds to 1,012 kWh total over 184 days of summer (long days). Because the cost of electricity increases to 17.6 cents per kilowatt-hour for electricity usage from 13.5 to 20.8 kWh/day, the total summer PV production equals $178. This translates into a payback period of about 18 years.

So, how does investing in a solar power system compare with other investment options (such as the stock market)? I find the easiest way to calculate investment returns is on an accounting spreadsheet so I can change economic factors such as system cost, inflation, interest rates and the natural decline in the efficiency of PV panels, which we call the "degradation rate." (Download my Excel spreadsheet at www.MotherEarthNews.com/downloads/simplesolar.)

Let's look again at the Sullivans' house, using the system cost and payback figures from the previous section; I have chosen to replace the inverter every 25 years and replace the PV every 50 years. First, let's assume a reasonable 5-percent electricity inflation rate (national oil prices have increased 4.2 percent annually since the Arab oil embargo of 1973) and an average annual system degradation of 0.5 percent. The Sullivans' 50-year investment will return a tax-free average profit of 7.5 percent per year. But if we plug in an estimated annual increase in electric rates of 8 percent, instead of 5 percent, then the system will return an annual profit of almost 25 percent. If electric rates rise as much as 20 percent a year, the value of a photovoltaic system skyrockets.

In theory, you are buying 50-plus years worth of electricity. The above calculations assume you didn't borrow the money to pay for your solar system, but borrowed money comes with an interest rate. Generally, the financial picture for debt-financed PV is unattractive because of high upfront system costs. Remember you have to subtract any loan interest costs from your electric savings.

Daryl Hutchings of Harmony Solar in San Jose, Calif., installed the Sullivans' array of 18 PV modules that produce 1,700 kWh of electricity per year (4.7 kWh/day).

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By Doug Livingston