Solar Panel Electricity

Solar Power Economics: the costs and benefits of residential solar electricity - part 1


Introduction

In this article we will explore the costs and economic benefits of installing a residential solar electricity system, in an attempt to highlight some of the issues that determine whether it makes financial sense to do so. This is not to ignore or negate the fact that for many people environmental or other concerns are equally (or more) important; however even with the best of intentions, the uptake of renewable energy will not rise significantly unless there is a tangible economic benefit.

Setup costs

Since its power source (the sun) is free and solar power systems require very little maintenance, almost their entire cost is made up of the cost of the components and their installation. These costs can be quite variable, depending on a number of factors:
  • your energy needs (how big the system needs to be)
  • your geographical location
  • your house's physical orientation
  • competition in the industry in your country / area
  • availability of government subsidies
As you can imagine these factors make it nigh on impossible to accurately predict the cost of a particular installation without some detailed information - but many firms have online calculators nowadays which you can fill in to get a clearer picture of your particular situation.

Payback time

The question that most people ask is how long will the system take to pay for itself in reduced energy bills? The answer to this depends on the price-performance ratio of your system, and the price of electricity in your area, which varies greatly from region to region and country to country.
As an example, if you install a solar system which costs $15,000 but saves you $500 per year in electricity bills, how long before you see a return on your investment?

The answer is fairly obvious: at an annual saving of $500 per year, the system will take 30 years to repay the initial investment (ignoring inflation and other variables).
Solar is obviously a lot more attractive in areas with lots of sunshine and high energy prices; and with electricity costs set to rise over the next few years, it becomes a viable proposition for a greater percentage of our homes. Grid parity (where the cost of solar power is the same or less than what we pay from the grid) is expected to be achieved in the most favourable areas within the next year or two, and even in more marginal areas within the next 5 to 10 years.

Another important point to consider is the effect on the value of your home: research has shown that installing a solar system boosts its value to the tune of around $20 for every dollar's worth of electricity generated in a year. So in our earlier example, the $500 saved per year translates to a $10,000 premium on the value of your home; if you take this into account, suddenly the payback period drops from 30 years to 10 years. And once the system has repaid your initial investment, best of all is that you'll enjoy free electricity for 30 to 40 years or more, which is the typical effective lifespan of a residential solar system.

In part 2 of solar power economics we'll look at the effect of government incentives and physical location on the viability of residential solar electricity.