The fall in solar power system prices and the extension of two key solar subsidies (the 30% solar tax credit and the net metering laws in several key states) mean solar is now a really good investment for most owners of single family homes.

Some zero down solar products are saving home-owners $80 a month on their power bill without the home-owner making any investment.

To explain this more fully, this means you pay nothing up front for the solar, your monthly utility bill becomes zero and the solar payment can be up to $80 less than your current power bill.

  Many people see an initial saving of $50 per month in year 1 and turn up their nose at solar, not realizing that this saving becomes over $300 per month after 20 years and that total savings over the life of a system will be over $40,000.  

 

In key states like California, New York, Massachusetts, Connecticut and New Jersey moving from buying power from your utility to buying power from a solar provider under a PPA or lease agreement is as simple as going from paying 20-22 cents per kilowatt hour to your utility provider to paying 15-16 cents for the same power from your solar provider.

However, what is interesting to note is that even in states where power is much cheaper the average rate you will pay for power will soon rise above this level.

Here is what the average rate you will pay for electricity from your utility provider is likely to be on the following assumptions.

(Remember that although you get a few kWh of electricity per month at a lower rate your rate increases a lot as you use more power. Having solar saves you paying for your most expensive kWh's of power and so savings can actually be higher than what you get using the average cost of power.)

This table shows the average you will pay for power over the next 25 years assuming a rate of power inflation of 4%. Actual power price inflation over the coming 25 years may be higher or lower.

Current average electricity priceAverage rate you will pay for electricity over the next 25 years assuming 4% price rises
15 cents 24.9 cents
18 cents 30 cents
21 cents 35 cents

 Solar savings of 16 cents per kilowatt


 

Solar savings case study

6 kW system installed in Los Angeles under a net metering agreement with LAPDW and a 16 cent fixed 20 year PPA agreement.

So if you are a resident of California and you purchase a 6 kW solar power system to cover your bill via a 16 cent PPA Agreement then:

(Assuming there is no indexation in the PPA Agreement. If quotes you have been offered have indexation push back on the salesperson to get a fixed PPA rate.)

Total Savings from 6kw PPA in California over 25 year lifeAnnual Production x 20 x (Average utility power cost over next 25 years - PPA power cost) + Annual Production x 5 years x Average Utility power cost
  9000 kWh x20x(30cents-16cents) +9000 x 5 x 30 cents
  $38,700

You can do your own solar savings calculations based on your location, your usage and your utility on the leading US solar panels savings calculator. This calculator has all of the utility rate plans loaded into it and also has solar production data that it gets from PVWatts. It is a solar cost calculator as well as a solar savings calculator and so it also has all of your local solar incentives in it that are not in the PV Watts site.

Solar Savings with a cash purchase or purchase with HELOC loan.

 

  With the outright purchase of a solar power system your levelized cost of power is now as low as 8 cents per kWh and your savings can be double that of a PPA or lease agreement.  

 

PPA's and other third party lease products have taken the market by storm and account for more than 65% of residential solar panel installations. The reason for this is that a solar PPA is an easy sell when the home owner pays nothing and sees a monthly saving from day 1.

However, the cash cost of installing solar panels has now fallen and in actual fact that savings you can get from purchasing the system.

For more discussion see the pros and cons of buying v's leasing solar panels.

Let's revisit our case study for the 6kW system in Los Angeles and now assume that it was purchased. We have assumed a gross cost before the 30% solar tax credit of $4.00 per watt. See solar panel cost data.

cumulative cash flow for a solar power system

As you can see from the graph above, home owners are $16,800 out of pocket initially (after the 30% solar tax credit) but they can recover their money within 5 years and the total savings generated over 25 years exceeds $86,000. Monthly savings start at $228 but increase to $500 per month over the life of the system.

These total savings are more than double the savings compared to a PPA agreement.

 

  In this case the levelized cost of the energy produced by the solar power system over its 25 year life is approximately 7 cents (228,000 kWh / $16,800), or less than half of the price of a PPA and only 25% of the average utility cost per kWh over the next 25 years had they not bought solar.  

 

Food for thought provided you can use the solar tax credit and either have cash available to purchase a system or access to a cheap home equity loan to fund it.

You can use the solar energy savings calculator to work out your savings based on your location, utility provider and usage for a cash purchase just as you could above for a lease.