The Oil Drum

So a tax deduction is a taxpayer expense? It is probably not nearly as large as the mortgage interest tax deduction on a house. The grant came from the utility renewable energy surcharge. You should figure in the devaluation of the currency in your arithmetic as well.

Most of us agree that energy in all forms is going to become more expensive. IMO, this will be a significant rate, something like 5% a year, even after adjusting for devaluation of the dollar. I think it is reasonable to say that there would then be about an 8% or 9% return on a dollar spent on this solar energy system, compared to paying the electric utility.

One of these days, I will have to do a comprehensive post on the economics of solar vs. grid power. I have yet to see a single article in a newspaper or magazine that got it right...and don't even get me started on the hatchet jobs that the vested industries do on it that get written up by dumb journalists as "expert opinion." Most analyses of solar PV are as benighted as saying that "we have 50 years worth of oil left"...as if it were not a dynamic involving multiple factors.

Here's the bottom line, without getting into all the details. As my experience is in the California solar market, I will cite the numbers that apply there...your local incentive programs, and the economics thereof, may vary.

For residential solar systems, the system will typically pay back the original investment in 11 to 18 years (14 years on average), depending on the size, the site, the equipment, and other factors. Over 30 years, the system will return 2x to 3x the original investment.

For commerical systems, it will typically pay back the original investment in 7-12 years (can be as low as 5 with special depreciation), again depending on all of the above factors, and then some (special rules for business and other incentive programs). Over 30 years, the system will return at least 3x the original investment.

But the modules will produce power for as much as 100 years, given an average decline of about 0.5% per year in production (although it's not really linear), not 30 years! We typically use 30 years for the financial analysis simply because it maps well to a mortgage (which is usually used to finance the system), not because the system is dead in 30 years! In fact, the modules have a 25 year warranty, which means that they will be producing 80% of their rated output after 25 years...and bear in mind that their actual output begins life at around 95% of their rated output.

Further, the payback period and the ROI are based on assumptions about the rate of general inflation, the rate of grid power inflation, the terms of the loan, etc. Obviously, the ROI is going to be better if you pay cash, not finance with a home loan.

When all factors are properly taken into account, and the economics worked out over, say, a 50 year time scale, the system will typically pay for itself 3x to 5x over. And a peak oil-aware estimate of the rate of energy cost increase over the next 50 years is going to produce a much different ROI than a historical average rate of increase.

Whereas grid power pays for itself...uh, never.

And no one invests in a solar system exclusively for its return on the investment. That's just silly...there are lots of reasons to buy solar PV. Nor does the typical buyer make the investment as a "highly visible political statement" (one can buy much more visibility for one's political statements with that kind of money!).

Not at all. In fact, in my considered opinion, the best reason to invest in a solar system is cost insurance. Effectively, you are buying the next ~14 years of power up front, and amortizing that cost over your home loan, hopefully at a fixed rate. After that, you get several decades of FREE power. As opposed to being forever subject to the vagaries of the grid power markets.

For those who resent the investment of taxpayer dollars in solar, have you considered that the taxpayer is already on the hook for many different externalized costs of fossil fueled grid power, including the effects of acid rain (lost revenue & resources in forests & fishes), the health costs of air pollution, the numerous hidden subsidies to fossil fuel industries, etc. etc.?

And for a final thought, for those who think "Ehh, I'd rather spend that $25K on a new kitchen with granite counters and SubZero appliances," let me pose this question: When will that investment pay for itself?

Probably never, unless you're somehow in a housing market that's still going up. But that never seems to enter into the typical homeowner's calculus. Yet, they are quick to say that 14 years to recoup their original investment on the solar system is "too long."

Go figure...No, really, I mean it: Go figure!

--C