Solar panels for your home are an environmentally friendly decision, but is it economically wise? Unsubsidized, the cost of a solar system may be unattainable for many average homeowners, fortunately, homeowners in the Saskatchewan, Alberta and Manitoba can receive a rebate for the installation of new solar systems. Figuring out your payback period will help you to determine if installing solar panels on your home is right for you at this time.
Calculating payback period
The payback period of a solar system is the point at which the cost of installing the system breaks even with your savings, which are the costs you would have otherwise paid for energy. Developing an estimate of your payback period is simple once you collect information relevant to your lifestyle and location and know some rules of thumb.
The savings from installing a solar system are simply the cost of electricity that you are replacing with solar power. Start with the amount you spend every year, or if you are calculating costs for a new house, multiply your expected energy usage by the average cost of power in the area. It is also important to use a realistic inflation number to reflect power rate increases in the future. Next, consider a few options of solar systems in order to estimate the percent of electricity that will be replaced with solar, otherwise known as utility electricity offset. Some homes will not be able to replace 100% of usage due to limited roof space, and offsets from 50–80% are reasonable.
The cost of the system is the total upfront cost of panels and installation less the amount of rebate available. Please visit our provincial resources on our website to view updated rebate information in Saskatchewan, Alberta and Manitoba.
Let’s assume a house uses an average of 1000 kWh per month at a rate of $0.14/kWh. To meet 80% of household energy needs, the home will need a solar system to provide 800 kWh/month, or 26 kWh/day. Solar systems will cost $3.00/watt to purchase and install. Using solar radiance numbers in the area is important to figure out how many kWh will be produced by 1kW installed solar. In this example we will use 1250kWh/kW. So the required 9,600kWh divided by 1250kWh/kW sizes a solar array at 7.68kW. At 3.00/watt the price of the system is $23,040
The total cost is the price less the rebate, so the homeowner will pay about $18,432 assuming a 20% rebate. The savings for replacing 80% of electricity costs from the power grid are $1,344 per year, so the most common way to look at this payback period is 13.5 years. This however does not take into account the increasing rate of power over the life of the system. In order to determine an accurate payback a financial calculation is needed. For this example we will use a power rate increase of 6%. Using an excel spreadsheet and the calculation capabilities within, the payback period is 10 years.