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A simple analysis of Financial and cost concerns.

The following is a somewhat simplified look at a typical installation and what the costs, and incentives will be. There are many variables, and some assumptions have been made. The most popular and usable size PV system is a 4 kW system. It will be used here. Below are some of the assumptions, as well as some rules of thumb:

  • The system is a 4 kW Photovoltaic system comprising PV panels mounted on the roof. The space needed by such a system is approximately 100 sq feet per kW. This system will cover 400 Sq feet of roof. Note that all the panels do not have to be in the same place!

  • The ideal orientation for a PV system is facing directly south, and angled at 41 degrees. The typical Ohio 4/12 pitch roof is 18 degrees. A more suitable roof would have a 8/12 pitch (33 degrees). There is, however, a wide latitude for variation without unduly sacrificing performance.

  • research shows the typical 4kw system will provide 5600 kWh of electricity annually, or just over 450 kWh per month (Average) in Ohio. This calculation is borne out by actual installations. Note that output is higher in summer months when the days are longer, and much lower in winter months with short days. Hence, this is an averaged annual production.

  • The average electrical consumption for a residence varies widely, and, depending on the source is placed anywhere from 750KWH per month to 1200 kWh per month. 1000 kWh per month will be used here

  • The average cost for an installed system ranges from $8.00 per watt to $11.00 per watt. There are of course a large number of factors influencing cost, including the type of PV cells and collectors employed. We will use a baseline of $9.00 per watt. It is well to note that larger systems cost LESS per kW to install. The typical cost for a 10KW system would be in the $6.00 per watt range.

Basic system cost

Original System cost$9.00 per watt times 4000$36,000
Ohio residential PV Grant$3.00 per watt times 4000$12,000
Federal 30% Tax Credit30 percent of $36,000$10,800
Final System cost after incentives$14,000

There are various other subsidies and incentives and tax credits that are location specific. Those additional savings can often reduce the system cost another 10-20%. We will however ignore those in our baseline.

Direct cost savings, exclusive of financing

The current electric cost from AEP in Central Ohio is 09 cents per kWh. That is going up very soon by 013 cents to 10.3 cents per kWh. At rate increase currently pending will further increase that cost by 48% to 15.2 cents per kWh in the near future, which is close to the current national average cost of 14 cents. Here are the direct savings based on those electric rates, and system direct payback times. After the payback period, the savings are direct to you:

5600 KWH/yrCurrent Rate .09/kwh$504.00/yr$42.00/mo27 years
5600 KWH/yrNew Rate .103/kwh$576.00/yr$48.00/mo24 Years
5600 KWH/yrAEP Proposed Rate .152/kwh$851.00/yr$70.00/mo16 Years

Not real impressive yet? There are other factors.

Lets talk financing. A home PV system will qualify for financing under a home improvement equity loan, or, if you are buying or refinancing, can be included in the primary mortgage. Adding $15,000 to a 30yr $150,000 mortgage at 5% will cost you $80.00 per month. A similar payment would apply to a $15,000 equity loan. This means, based on the above savings, at today's electric rates, you will be paying an additional $30.00 per month for your system. At the AEP proposed rates, it would be $10.00 per month. But wait!

Taxes! The above financing options are Tax deductible. If you are Married, filing jointly, and make $80,000 per year (25% tax bracket), that means an additional 16% savings on the loan interest payments! The additional payments above would result in another $960.00 tax deduction annually. An annual savings of $153.00, or 12.80 per month. That means, at the AEP proposed rates, you would actually save $2.80 per month! While still paying the initial investment down. This obviously does not account for the decreasing interest payments of amortization, but, at least in the 5-7 year term that is not significant.

Of course, there are many, many factors. This discussion is just hypothetical. But, it points out that with proper financing, even using 'worst case' numbers in many instances, the system can be self supporting from the start. Any additional savings on installation, further incentives and credits, or changes in your tax bracket will only enhance the savings!

And, now for some 'future thought'. Many industry analysts predict that if the proposed federal carbon caps are enacted, electric rates in states that use primarily coal (Ohio) will rise above 20 cents per kWh. At that electric rate you will be saving significant money each month from the outset.

Currently, many mortgage rates are well below 5%. This, again, will turn the tide to profitability. As your interest rate goes down, the cash return will go up. And, of course, If you are considering refinancing, now is the perfect time to wrap in a major home improvement, like Solar PV!

The National Appraisal Institute, albeit before the current recession, reported that energy improvements can add to the value of your home at the rate of $20 in valuation for each $1.00 of energy savings. Based on the above current electricity bill savings, this could add $15,000 to $20,000 to the value of your home. You would certainly recover the cost of the system immediately on resale, and still pocket the savings before the sale. Of course, this again is very subjective, and would depend on the market the house is in. This number is oft repeated though, and used in many real estate calculations. It is worth considering in your decision, especially if you plan to sell the home in the average 4-7 years.

With the introduction of smart grid, it will become possible to sell excess electricity back to the Utility. Often at rates much higher than what you pay the utility for the same amount when you use it. This is already happening in many localities, especially California, Utah, and Arizona, where often the sell back rate is twice or more the amount users pay for utility electricity. Although the reasons are beyond the scope of this article, even at these higher purchase levels, the utilities are saving money on peak demand. This will certainly open the door to actually making a substantial profit from a suitable PV system.

Many users with roof mounted arrays have reported a significant drop in the cost of Air Conditioning. This is due to the 'shading' effect of the array on the roof, and the fact that it is, by design, on the sunniest roof surface. This effect would naturally not apply to ground mounted panels, or Building Integrated PV systems.

Last, but certainly not least, are the environmental savings. A PV system, especially in Ohio offsets a tremendous amount of Carbon emissions. It also reduces the load on the Electric Utility, and with the coming of Smart Grid may have a significant impact on the number of smaller generating plants that are utilized.

Think about it! Do some calculations based upon the costs noted here. Put them in your actual financial situation and decide if you can afford to NOT invest in a Solar PV System!