A couple of factors need to be considered to help decide whether it makes sense to install a PV solar panel:
- Are you really going greener by doing so?
- Does it make economic sense and if not, should you still go for it?
In most cases, the answer to the first question will be in the affirmative. However, there are areas where the local utility actively discourages use of solar PV panels. Their motivation is three-fold:
- It may be prohibitively expensive in certain areas when compared with the rate the utility charges, especially in areas where sunlight is a premium. This has the unsavory effect of the utility reimbursing you only a small portion of the cost encountered to “sell” the excess power you generated back to the grid – a no-win situation,
- The local utility may already have a green power strategy in place that is more cost-effective and greener than residential PV panels, and
- Local utilities may not participate in state rebate programs making you ineligible for state sponsored buyback rebates.
The second question requires playing with a bunch of numbers in order to arrive at an informed decision. Knowing the numbers for each of the following is key to that measure:
a) Your yearly energy usage in Kilowatt-hours (KWh). This can be obtained from your utility bill.
b) The cost per KWh the utility charges for your electricity. This can also be obtained from your utility bill. The calculation can get a little tricky if the rate is tiered. Dividing the total amount you paid the utility in the last year by the Kilowatt-hours used will be ample for most cases.
c) Expected output in KWh per installed Kilowatt-peak (KWp). Your local utility website or the PV installers should be able to provide this information.
d) Cost per installed Kilowatt-peak from a PV installer in your neighborhood. Ensure that the installer does not take into consideration the federal and state rebates.
e) The size of the PV system needed to meet all your electricity needs. Dividing the number from (a) above by the number in (c) gives you this number in KWp.
f) The dollar value of the federal and state rebates you may be eligible for.
g) Interest rate and the associated closing costs for a loan to fund the amount.
The following example using fictional numbers looks at how to use the above information to get to a cost estimate for any home:
a) Yearly Electricity Consumption: 3,200 KWh.
b) Cost/KWh: 13¢
c) Expected output per Kilowatt-peak: 1600KWh.
d) Cost per installed Kilowatt-peak: $9000
e) Size of the PV system: (a)/(c) = 2 KWp.
f) Total cost before rebates: (e)*(d) = $18000.
g) Total rebates ($2.8 per KWp State + $2K Federal) = $7600.
h) Total cost after rebates: (f)-(g) = $10,400.
i) Interest rate for a Home Equity Loan for $10,400: 8%.
j) Amortized cost/month of the loan over the expected life (assumes 25 years which is the standard warranty period) of the PV panel (Hint: Use an online amortization schedule calculator): $80.27.
k) Cost/KWh: (j)*12/(a) = 30¢.
The cost of solar panels in this example came out twice as expensive as the local utility rate. But, after the 25th year in operation, the power is virtually free till the solar panel reaches its end of life. Though from a peripheral point of view it might not make economic sense to install solar panels per the example cited, it might still be worthwhile to consider paying more especially if the utility is not using renewable sources to generate power. The cost will deviate from the number cited above, as the effect of the federal rebate is reduced if energy consumption is higher.
Here are several links to get educated on residential solar panels:
- An analysis of Suntech Power, the largest manufacturer of solar modules globally.
- Portal to the world of solar energy.
- Google Solar Panel Project (the picture on the side is of GooglePlex).
- Solar Electric Power Association.
- Wiki entry on Solar Cells.
- Vote Solar.
1. Trina Solar (TSL) - Stock Analysis - 08/08.
2. LDK Solar (LDK) - Stock Analysis - 03/08.
3. Solar Manufacturer Comparison (STP, TSL, YGE, CSIQ) - 11/07.
4. Suntech Power Holdings (STP) - Stock Analysis - 09/07.