Homeowners who install photovoltaic power systems receive numerous benefits: lower electric bills, lower carbon footprints, and potentially higher home values. But these benefits typically come with significant installation and maintenance costs, and the magnitude of the gains can vary widely from one house to another. This article will help homeowners make the financial calculations required to determine the viability of solar power in their homes.
• Those seeking to go green may want to consider equipping their home with solar panels.
• Not only is solar power good for the environment, but you can earn money selling back excess power to the grid.
• While costs have come down over the past years, installation and maintenance of solar panels can be quite costly.
• Solar panels are best-suited for homes that receive ample sun exposure throughout the year.
• Before committing to solar power, be sure to understand both the social and economic factors.
Solar power is capital intensive, and the main cost of owning a system comes upfront when buying the equipment. The solar module will almost certainly represent the largest single component of the overall expense.
Other equipment necessary for installation includes an inverter (to turn the direct current produced by the panel into the alternating current used by household appliances), metering equipment (if it is necessary to see how much power is produced), and various housing components along with cables and wiring gear.
Some homeowners also consider battery storage. Historically, batteries have been prohibitively expensive and unnecessary if the utility pays for excess electricity that is fed into the grid (see below). The installation labor cost must also be factored in.
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In addition to installation costs, there are some further costs associated with operating and maintaining a PV solar array. Aside from cleaning the panels regularly, inverters and batteries (if installed) generally need replacement after several years of use.
While the above costs are relatively straightforward—often a solar installation company can quote a price for these for a homeowner—determining subsidies available from the government and/or your local utility can prove more of a challenge. Government incentives change often, but historically, the U.S. government has allowed a tax credit of up to 30% of the system's cost.
More details on incentive programs in the U.S., including programs within each state, can be found on the Database of State Incentives for Renewables & Efficiency (DSIRE) website. In other countries, such information is often available on government or solar advocacy websites. Homeowners should also check with their local utility company to see whether it offers financial incentives for solar installation, and to determine what its policy is for grid interconnection and for selling excess power into the grid.
Once the above costs and benefits are determined, a solar system can theoretically be evaluated using the discounted cash flow (DCF) method. Outflows at the beginning of the project would consist of installation costs (net of subsidies), and inflows would arrive later in the form of offset electricity costs (both directly and through net metering).
Rather than using DCF, the viability of solar power is usually evaluated by calculating the levelized cost of electricity (LCOE), then comparing it to the cost of electricity charged by the local utility. The LCOE for household solar will typically be calculated as cost/kilowatt-hour ($/kWh or ¢/kWh) - the same format commonly used on electricity bills. To approximate the LCOE, one can use the following equation:
LCOE ($/kWh) = Net Present Value (NPV) of the Lifetime Cost of Ownership ($) / Lifetime Energy Output (kWh)
The useful life of a PV solar module is generally assumed to be 25-40 years.6 The cost of ownership includes the maintenance costs, which must be discounted to find the NPV. The LCOE can then be compared to the cost of electricity from a utility; remember, the relevant price is that which occurs during times at or near peak PV solar production.
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