When Does Solar Energy Start to Pay for Itself?
Much is made of the savings that businesses can get from switching to solar energy. But it is still an investment that costs money up front. So how do you calculate how much you will save and when you will start seeing those savings? Then, how do you use that information to decide which solar energy providers are offering the best service?
Here is how we calculate a payback period and how you can use it to compare solar energy providers.
What is a payback period?
Just like any investment, switching to solar energy takes some time before it starts to pay for itself. We call that interval of time the payback period. To calculate the payback period, you take the total cost of installing the system—minus any rebates or tax breaks—and then divide that by the annual reduction in your yearly electric bill. For example, if you spend $18,000 to install the system and then get a tax break of $5,200, the net cost is $12,800. If the solar panels reduce your electric bill by $1,700, the payback period is about 7.5 years.
What contributes to a payback period?
As we reviewed above, the installation cost, rebates and tax breaks, and expected energy bill savings contribute to the payback period. However, it is not always simple to work out the calculation. Energy bills can change from year to year, affecting the payback period. Right now, the payback period in the United States is expected to be anywhere from 9 to 12 years.
What counts as a good payback period?
Whether or not a payback period is “good” or not depends on the expected lifespan of the solar panels. Ideally, you want the payback period to be no longer than half the life of your solar panels. That means, with the current predictions, you would not want to install solar panels that are expected to last less than 25 years.
Renewable Worldwide | Solar Energy Providers
At Renewables Worldwide, we connect businesses with community solar farms to reduce their energy bills and help the environment. We are different from other solar energy providers in that we can give you an even higher return on your investment by sharing the cost with other businesses.