Solar panels have become mainstream driven by an astronomical decline in prices – a whopping 80% over the last 10 years. More than 1 Million homes have already adopted solar panels and it is rapidly rising. Solar panel adoption is no longer driven purely by environmental considerations. Consumers are increasingly adopting solar panels for their superior financial returns.
So, how do you compare the returns from adopting solar panels to returns from Stocks, Bonds and CDs? Using an example, let us illustrate how to calculate the returns for solar panel investments.
Solar Panel Costs
A typical household will require about 5 kilowatt (5000 Watts) of solar system to power its consumption. A 5 kilowatt solar system on average costs about $16,500 before any government incentives are applied. The federal government provides an income tax credit equal to 30% of the price of the solar system that reduces income taxes dollar for dollar. The income tax credit for a solar system that costs $16,500 equals $4,950 ( = 30% of 16,500). So, the net after tax credit cost of the solar system is $11,550.
Returns from Solar Panels
Now, to calculate the returns on this solar investment, we need to assess the savings on electricity bills. A 5kW solar panel system will typically produce about 625 kilowatt-hours of electricity (this number also varies by region, by topography of the roof and the extent of shading on the roof). If the price of electricity is $0.20 per kWh, this will lead to a reduction of the homeowner’s electricity bill by $125 per month. In this example, a customer saves $125 per month (or $1500 per year) on a net investment of $11,500 yielding a Return on Investment (ROI) of 13%.
Solar panels last for a very long time and come with warranties for 25 years. Factoring in the savings across these 25 years leads to an Internal Rate of Return (IRR) of 12% per annum. In many locations, the price of electricity is increasing significantly by at least 3% per annum. This implies that future savings on electricity bills will be even more. Factoring in a modest 3% annual increase in electricity prices, leads to an IRR of 15.2%.
Comparison to other investments
So how does this compare with other typical investments? U.S. Stocks have yielded historically about 8% per annum. However, the returns are subject to market crashes and other risks that come with equity investments. Bonds on the other hand offer far less returns but with arguably lower risk. Long-term U.S. treasuries yield 2 to 3% per annum but are subject to interest rate risks over time. C.D.s in your local bank offer even less usually around 1% per annum.
Newer online investment options, like peer-to-peer lending offered by Lending Club and electronic Real Estate Investment Trusts (eREITs) offered by Fundrise can offer close to double digit returns, but carry more risk than a solar panel installation.
Savings without Zero Investment
One big distinction between investing in solar panels and other investment options is that, with solar panels you can make money without necessarily investing a single dollar. How is this possible? This is possible because there are several zero money down financing programs available for purchasing solar panels.
With zero investment, you can now lease solar panels or purchase them through a loan or even execute a Power Purchase Agreement (PPA) where you purchase the electricity from the solar panels without owning them. With these financing programs, your monthly lease or loan or PPA payment for solar panels is typically 15-30% lower than what you would be paying your utility for your electricity. So you are making (saving) money without investing a dime!
Are solar panels are a good investment for me?
Investment returns from solar panels vary with location, roof topography, shading on the roof, local electricity prices and additional local incentives. PowerScout has made it easy to know if solar panels are good for your home. We gather all the data, analyze your rooftop through satellite imagery and tell you instantly how much you can save through investing in solar panels. Our FREE Solar Calculator gives you an INSTANT estimate with just an address. Not only are solar panels a great investment, they come with minimal risks. The technology is mature and you will make predictable returns by saving money month after month.
A recent study by the North Carolina Clean Energy Technology Center also estimated that in 42 out of 50 of America’s largest cities, generating electricity from solar panels is cheaper than getting it from their local utility. The study also found that in 46 of those cities solar proved to be a better investment than stocks.
Curious about what it takes to go solar and save? Read more at powerscout.com.