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Payback Period Calculation

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pdx_m3s

Active Member
May 18, 2019
2,086
1,991
Portland, OR
Finally got around to calculating a payback period for my solar install. My total net cost was $13,800 for an 11.2kW system.

Assumptions:
- 2.5% price per kWh rate increase annually
- 1% system degradation annually
- discounted future generation to present value at 3% (since this was effectively financed via our mortgage... absent solar, we would have put more money down on the house)

Payback period of about 7-8 years, which is what I expected. Perhaps sooner depending on future rate hikes, which are likely to run north of 2.5% per year. This does not factor in home price appreciation, which is another benefit.

payback.png
 
I did not get as technical as you, but here in CA my payback is probably going to be close to 4 years. Maybe less based on today's gas prices. The average rate I was paying before solar was .285 per kwh. We also charge the car 100% from solar, and our previous car used premium gas which is currently $4.50 a gallon or so. If I only look at electricity costs alone, I am just over 4 years ROI. Based off my notes from before, my total yearly savings for home & auto would be about $3700. At $3700 our ROI is 3.8 years.

Not buying gas actually is a bigger savings then powering the home. Our previous Lexus hybrid averaged about 25mpg, the costs to fuel it for 1 year at 12,000 miles, is about $2160.

Now, another factor is, we can now run the AC all we want, and still have energy left over. My numbers are based off our previous year usage, not what I have available to use in the future. So if I were to use all available energy, my yearly savings jumps to over $4800, ROI less then 3 years.

And some people say EVs and solar are dumb...
 
I did not get as technical as you, but here in CA my payback is probably going to be close to 4 years. Maybe less based on today's gas prices. The average rate I was paying before solar was .285 per kwh. We also charge the car 100% from solar, and our previous car used premium gas which is currently $4.50 a gallon or so. If I only look at electricity costs alone, I am just over 4 years ROI. Based off my notes from before, my total yearly savings for home & auto would be about $3700. At $3700 our ROI is 3.8 years.

Not buying gas actually is a bigger savings then powering the home. Our previous Lexus hybrid averaged about 25mpg, the costs to fuel it for 1 year at 12,000 miles, is about $2160.

Now, another factor is, we can now run the AC all we want, and still have energy left over. My numbers are based off our previous year usage, not what I have available to use in the future. So if I were to use all available energy, my yearly savings jumps to over $4800, ROI less then 3 years.

And some people say EVs and solar are dumb...
Yep! Similar here. I can now charge the EV at home vs having to go and sit at a supercharger (I have free SC on my Model S), AND can run the AC without worrying about a crazy high electric bill from SCE. I anticipate my ROI will be about 8 years if you use my previous usage (no car charging and sweating bullets in the summer!) and probably much less now that I drive on photons and am nice and cool! 😎 Let's also not forget that the utility companies keep jacking rates up and messing with the tiers, so I think rates will get MUCH higher than the OP forecasted.
 
I did not get as technical as you, but here in CA my payback is probably going to be close to 4 years. Maybe less based on today's gas prices. The average rate I was paying before solar was .285 per kwh. We also charge the car 100% from solar, and our previous car used premium gas which is currently $4.50 a gallon or so. If I only look at electricity costs alone, I am just over 4 years ROI. Based off my notes from before, my total yearly savings for home & auto would be about $3700. At $3700 our ROI is 3.8 years.

Not buying gas actually is a bigger savings then powering the home. Our previous Lexus hybrid averaged about 25mpg, the costs to fuel it for 1 year at 12,000 miles, is about $2160.

Now, another factor is, we can now run the AC all we want, and still have energy left over. My numbers are based off our previous year usage, not what I have available to use in the future. So if I were to use all available energy, my yearly savings jumps to over $4800, ROI less then 3 years.

And some people say EVs and solar are dumb...
I still think EV's are dumb. And how much did it cost you to buy? And why do you ignore this cost in your ROI?
 
I still think EV's are dumb. And how much did it cost you to buy? And why do you ignore this cost in your ROI?
Because it was $15k cheaper than the Lexus we were planning to buy. Not only cheaper, but virtually 0 scheduled maintenance. No trips to the gas station. Considerably cheaper per mile to drive. We have a Model Y, love all the extra storage, love the simplicity of the dash and controls. After driving it, everything else just seems so dated.
 
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I write financial software for a living and did create ROI model 5 years ago, when I got my original solar system. I made similar assumptions as you did about annual increase in electricity rates and used future swaps to discount imputed cash flows from generated electricity In the future.

The reality turned out to be very different from my model. Electricity rates in CT (my home state) jumped from 15 cents per KWh to 20, a year after installing PV system. A couple of years later rate dropped to 16 cents. Currently it is 21, without meaningful TOU rates.

In my model I assumed that electricity production is guaranteed fir 25 years, because of warranty from panels manufacturer (Suniva), microinverters maker (Enphase) and installer (Astrum Solar). Suniva went bankrupt. Fortunately Enphase did survive and even prospered but at one point they were rather close to insolvency. Astrum Solar residential business folded but commercial division is still around.

Most likely it is impossible create accurate model for PV ROI since a number of factors are impossible to model accurately. A relatively small difference in one year projected electricity rate increase, from real value, multiplied by 25 years would make calculations for system lifetime unlikely to hold true. It is somewhat better for 3-4 years.

The calculation that I find most useful is my electricity rate for my PV system, assuming 25 years lifetime and no additional costs for repairs and changes.
 
I write financial software for a living and did create ROI model 5 years ago, when I got my original solar system. I made similar assumptions as you did about annual increase in electricity rates and used future swaps to discount imputed cash flows from generated electricity In the future.

The reality turned out to be very different from my model. Electricity rates in CT (my home state) jumped from 15 cents per KWh to 20, a year after installing PV system. A couple of years later rate dropped to 16 cents. Currently it is 21, without meaningful TOU rates.

In my model I assumed that electricity production is guaranteed fir 25 years, because of warranty from panels manufacturer (Suniva), microinverters maker (Enphase) and installer (Astrum Solar). Suniva went bankrupt. Fortunately Enphase did survive and even prospered but at one point they were rather close to insolvency. Astrum Solar residential business folded but commercial division is still around.

Most likely it is impossible create accurate model for PV ROI since a number of factors are impossible to model accurately. A relatively small difference in one year projected electricity rate increase, from real value, multiplied by 25 years would make calculations for system lifetime unlikely to hold true. It is somewhat better for 3-4 years.

The calculation that I find most useful is my electricity rate for my PV system, assuming 25 years lifetime and no additional costs for repairs and changes.
I agree. Assumptions can run amock in models. For solar, I didn't believe anything in my models that was more than seven years out as there were, and are, just too many moving parts.

If the panels are working for two more years, we will have crossed break even. (5.5 years post installation)

YMMV...

All the best,

BG
 
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I write financial software for a living and did create ROI model 5 years ago, when I got my original solar system. I made similar assumptions as you did about annual increase in electricity rates and used future swaps to discount imputed cash flows from generated electricity In the future.

The reality turned out to be very different from my model. Electricity rates in CT (my home state) jumped from 15 cents per KWh to 20, a year after installing PV system. A couple of years later rate dropped to 16 cents. Currently it is 21, without meaningful TOU rates.

In my model I assumed that electricity production is guaranteed fir 25 years, because of warranty from panels manufacturer (Suniva), microinverters maker (Enphase) and installer (Astrum Solar). Suniva went bankrupt. Fortunately Enphase did survive and even prospered but at one point they were rather close to insolvency. Astrum Solar residential business folded but commercial division is still around.

Most likely it is impossible create accurate model for PV ROI since a number of factors are impossible to model accurately. A relatively small difference in one year projected electricity rate increase, from real value, multiplied by 25 years would make calculations for system lifetime unlikely to hold true. It is somewhat better for 3-4 years.

The calculation that I find most useful is my electricity rate for my PV system, assuming 25 years lifetime and no additional costs for repairs and changes.
Good points. This was more for fun than anything else. Solar was a no-brainer for us since we were building a new house. My only regret is not going bigger with our system. We'll get close to net-zero with our current situation, but once we get a second EV, all bets are off. Luckily, we have the roof space to go bigger, albeit being on the front of the house.

Given the unavoidable transition to renewable energy, I think it's safe to assume energy rates will be going up at least as much as they have on a historical basis.
 
Good points. This was more for fun than anything else. Solar was a no-brainer for us since we were building a new house. My only regret is not going bigger with our system. We'll get close to net-zero with our current situation, but once we get a second EV, all bets are off. Luckily, we have the roof space to go bigger, albeit being on the front of the house.

Given the unavoidable transition to renewable energy, I think it's safe to assume energy rates will be going up at least as much as they have on a historical basis.
My original PV system was 4.5KW on the AC side. The second iteration, that I designed and installed myself, is 17KW AC, 22KW DC with 72 panels. It was sized based on 90% of expected annual electric consumption, assuming using heat pumps for house heat and using 2 EVs. My current regret is not going with 100% target.
 
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My original PV system was 4.5KW on the AC side. The second iteration, that I designed and installed myself, is 17KW AC, 22KW DC with 72 panels. It was sized based on 90% of expected annual electric consumption, assuming using heat pumps for house heat and using 2 EVs. My current regret is not going with 100% target.
Yep, I have yet to hear a person regret going bigger. This is why I am going nuts, or trying, with 30kw and 90 panels. SInce panels are not perfect, max inverter output is 22.8. I have seen 22.4 once.