
Part 4 in a series of 4 posts from Dr. Nicole Peill-Moelter, the Director of Environmental Sustainability at Akamai, in which she documents what she learned while deploying a solar system on her home in California.
Calculating Your Effective PV KWH Rate to Estimate Your ROI
To estimate the ROI of your PV system you'll need to calculate your current KWH rate from your utility and the effective KWH rate of your PV system. The latter calculation will vary depending on the financing option you choose. Let's look at an outright purchase first and then a leasing option.
PV System Purchase KWH Rate
In this case you need to estimate the total KWH the system will produce over its lifetime accounting for the annual reduction in the system performance, 1% per year. Conservatively the system lifetime is 20 years, the typical warrantee period, but more likely longer, e.g., 25-30 years. Next calculate your cost. This should include any interest rate cost if you finance the system and also any state rebates and federal tax credits. It should also include $1-2,000 for the replacement of the inverter about halfway through the system's lifespan. Inverters are generally waranteed for 10 years. Then divide the total cost by the total system output to arrive at your effective PV KWH rate.
PV System Leased KWH Rate
The calculation is similar to the purchased calculation. The PV system vendor will guarantee an annual KWH output for your system which you then total up for the term of the lease, e.g., 15 years. You then need to calculate the net present value (NPV) of your lease payments including any down payment and financing charges. Doing a NPV calculation takes into account that a $100 payment 10 years in the future is worth less than $100 payment now - depreciated each year by the discount rate. This is your total system cost. Again, divide the total cost by the total system output (KWH) to arrive at your effective PV KWH rate for your leased PV system.
PV System ROI
Now, the number you've been waiting for [drum roll] the ROI of your PV
system. The easiest way to do this calculation is to multiply your PV system's total lifetime output in KWH by your current utility KWH rate. The ROI is the difference between this value and the PV system's cost. Technically, to be accurate you should do a net present value calculation of your utility payments over the system's lifetime. However we can make a simplifying assumption that the discount rate used in the NPV calculation and the rate at which electricity prices will increase are about the same.
We leased a system for 15 years with an estimated payback of 7-8 years. We leased because once the kids are out of college we plan to downsize to ensure they don't come back to live with us!
Food for Thought
Two additional things to consider when mulling over whether a PV system makes sense for you is the future cost of grid electricity and water usage associated with the traditional production of electricity.
With the installation of smart meters it's very possible that utilities will start to price electricity based on time-of-day. This is because electricity is most expensive to produce during periods of peak usage which just so happens to be during the day and early evening when you are likely to be using the most electricity, e.g., 1-8pm. If that's the case, your future electricity rates could be substantially higher than the current flat rates you are paying today. A PV system locks in your rate for 15-30 years. The only risk you run is that utility rates will decrease in that time span to below your PV system's KWH rate - and how likely is that?? So I think a PV system is a pretty good bet!
Water Used in Electricity Generation
An astounding fact that I learned recently is that for every kilowatt-hour burned 20-40 gallons of water is consumed in the generation of that kilowatt-hour. This water is used to cool the steam generated by a coal, nuclear or natural gas power plant. A typical American household uses ~100 gallons per day. But if you include the water inherent in the electricity usage, that figure
increases to over 1,000 gallons of water per day!! You can bet that as water becomes an increasingly valuable resource, especially in water constrained areas like the southwest and southeast US, this will add to the cost of electricity.
A PV solar system would eliminate this entirely because except for the manufacture of the solar energy panels, no water is consumed to produce the electricity. Very cool indeed!
I hope this series of findings was helpful to those of you out in the market considering PV for your home. It has been a wonderful experience for me and my family and we are looking forward to many years of net neutral energy bills thanks to our new PV system.