The Cost of PV…Is there a Payback?

We’ve been exploring our renewable energy options, but in order to determine how much renewable energy we need to make, we’ve been working on how much electricity we are going to consume. Since we selected a geothermal hydro-air heating and cooling system, we’ve eliminated our dependence on fossil fuels like oil and natural gas. But we still need electricity, both to power the ground source heat pump that runs that system and for the rest of the electrical needs in our home.


According to the Energy Information Administration, the average US household consumes 920 kWh (kilowatt hours) of electricity per month. Because we are building an energy smart home, our house is expected to consume less electricity than an average house. Using a figure that has been tossed around to me by numerous sources, our basic design of switching to CFLs, ENERGY STAR rated appliances and spray foam insulation will reduce our electric bill by 30% which provides us an average of 644 kWh per month.


We know our electric bill will be substantially higher than the 644 kWh because our geothermal system runs on a heat pump that draws electricity with an expected annual output of 17000 kWh. This is an added 1416 kWh per month. So we’ve set out to see if there is any value in adding a photovoltaic system to our house.


A 5 kW PV system located in the Northeast will produce approximately 6,200 kilowatts of electricity a year. On average this is about 500 kWh hours a month. To achieve adequate exposure and output, a typical residential PV system usually requires about 100 square feet of clear surface area per kilowatt of PV capacity. So for a 5 kW system, you need 500 square feet of south facing exposure, ideally roof space with no trees interrupting your solar gain. We have 350 square feet a south-east facing roof space on a dormer above our garage and another 300 square feet over our master bedroom.


The PV on the garage roof will produce 4970 kWh per year with 18 modules and the south-facing roof will produce 2588 kWh per year with 9 modules. If we install PV on both roofs we get 27 modules producing 6.2 kW or 7558 kWh annually. 


The industry-average cost per installed kilowatt of an Photovoltaic panel (PV) is about $10,000, but federal and state rebates and tax credits that have been increased in 2009 have cut that expense in about half. There is still a plus and minus to this. With the Energy Economic Stabilization Act of 2008, the Federal Government extended the solar Investment Tax Credit for eight years. They also removed the $2,000 cap on the 30% Tax Credit for PV systems ($2,000 cap still applies to hot water and other thermal systems). This amount will come directly off your tax bill, but because it is a tax credit, we still have to put the money out upfront (now) and wait until 2010 for the tax credit. But the tax credit is substantial and since we usually owe on our taxes we will likely feel the entire amount.


But how long will it take to pay off the cost of the PV system? If we install the full 6.2 kW system we are looking at a cost installed costs of labor and materials of approximately $49,000 (no sales tax which is awesome). After a $2000 RI state tax credit and a federal tax credit of $14,700, we’re looking at an all in cost of $32,300 out-of-pocket.

Take the $32,300 and divide that buy how much electricity we are generating which was estimated at 7558 watts annually multiplied by the cost of electricity in RI (per my Jan 2009 bill that kWh rate is approx $.16 per kWh) for a total of $1209.28 savings annually. My payoff period is 26.7 years. OUCH.


Don’t give up yet, a 5 kWh PV system will avoid the release of 73 tons of carbon over a 25 year lifetime that would have occurred if I had purchased that power from your utility. I like that.


I think we’re going to settle somewhere in the middle here; we’re looking at a starter PV system with wiring in place for the addition of future panels. We’re planning under the assumption that though we won’t get more sun, technology will evolve and as it does both the costs of hardware will go down and the energy the system can produce will go up.


What I hope is that the utility companies and the government get more aggressive. Homeowners need help on the front end with theses systems. With housing starts and home values down, homeowners don’t have the cash or equity for these systems upfront. Electric costs will continue to rise and we will continue to emit carbon into our air. Every PV system that gets installed now helps us all in the future.


Posted by KDL | follow me on Twitter : newscaster




2 Responses

  1. I do these types of calculations all of the time for the rainwater harvesting systems I install, and the one factor that you did not include, which will significantly reduce your payoff time is THE RISING COST OF ENERGY. The price of electricity will certainly not stay at $0.16/kWh for the next 20-30 years. I am not sure the rate at which the price in your is rising, but the nationwide trend is toward higher energy prices. See if you can find some data on projected energy rates and perhaps that will bring your system payoff duration down to 15-20 years. Not a bad return in the old days- now people expect 3-5 years payoff on in invested money. Have fun with your PV project.

    • Hi Jeremy – It’s true I took it at face value and omitted rising costs of energy. I thought about it but also thought about what I could do with the money I put out upfront if I did invest it. I sort of considered the two a wash/the next level of math definitely challenged my accounting skills. Once we get to final numbers and as we live in the house I intend to track our costs annually to determine our actual payoff time. I aslo really do hope PV improves to collect more with less and for less!

      Thanks, Kim

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