By: Cary Weiner, 6/25/2018
I recently led a workshop on what to ‘Know Before You Go Solar’ in Walsenburg, Colorado. That are area has one of the best solar resources in Colorado, and residents pay their fair share for energy consumption. Together, that should equate to a quick payback period for households that invest in solar PV. So let’s take a deeper dive:
A typical home may need a 5 kilowatt solar array to offset all of its needs. Many installers in Colorado have been able to keep costs per watt of installed solar to around $3, but I learned that this might be low for the Walsenburg area because of the overhead involved with customer acquisition (i.e. sales). So at $3.50/watt, a 5 kW array would cost $17,500 before incentives. Many people would make that work by taking out a loan for at least a portion of the upfront cost. On this front, Elevations Credit Union has partnered with the Colorado Energy Office to offer a loan product called Residential Energy Upgrade (RENU) loan. While loan interest rates vary from 2.75-8.125%, let’s assume our hypothetical household takes out a 7-year, $10,000 loan at 4% interest.
If a household has enough tax liability to take advantage of a 30% federal tax credit, this can be a nice incentive. If a household doesn’t have enough liability (as measured by the Total Tax line 63 on your federal return), those credits can rollover into future years, but it is unclear whether those credits can be drawn down after the tax credit for residential solar disappears in 2022. For our sake, let’s assume that this household has enough tax liability to take the full credit over a two year time period at $2,625 per year.
Another important factor in evaluating the payback on a solar investment is the savings. In this case, let’s assume that our unshaded 5 kW solar array faces southwest. According to the National Renewable Energy Laboratory’s PV Watts solar resource calculator, that system should generate 7,800 kilowatt-hours in Year 1. It is wise to build in some level of degradation in production over time, and about 0.5% per year is a standard assumption. In San Isabel Electric Association service territory (which serves Walsenburg), residents who use less than 800 kWh per month will get a retail credit of $0.143 for each kWh of solar generated. (Monthly use over 800 gets credited at $0.113/kWh.) However, we might want to assume that those rates will increase over time, perhaps at 2% per year. On top of all this, because solar panels can be susceptible to hail, we’ll want to insure our hypothetical system at an estimated cost of $60/year. Included in the system price is an extended 20-year warranty for our inverter.
Now some installers will provide you with all of this food for thought, while other, less detailed installers may only provide you with a cost, the tax credit amount, and savings assuming (perhaps) a more aggressive rate of rate inflation. This is why it’s important to know the details before purchasing 25 years of electricity! Finally, let’s have a look at the bottom line:
These figures can be visualized better in the following graph:
The lesson here is that a solar investment may not be as simple as it initially seems, and that doing a cash flow analysis for your given situation is worthwhile in order to ensure that it’s something you can feel good about. In addition, think about other uses for your cash. In this case, a 7.5% return on investment is equal to or better than putting that money in the stockmarket. But every part of Colorado (and the country) will have different ROIs depending on your solar resource, tax situation, cash-to-loan ratio, installed costs, and more. You can use CSU Extension’s online solar calculator as a tool to help you make an informed decision before you take the plunge.