Investment

How much does a solar electric system cost?

To answer this question, we’ll use an example. If we start with a house of about 2000 sq. ft., a reasonable assumption is that the family living there uses about $800 in electricity per year. To put that in terms of kilowatt-hours (kwh) of electricity, that is about 6750 kWh per year. You can tally your electric bills to see how you compare to this example.
A solar electric system operating in southeastern Wisconsin sized to produce this much electricity would cost about $44,000 in initial cash outlay. This could vary substantially depending on your site, but this number assumes a good site with the correct orientation, adequate area and limited shading.

As mentioned above, there are incentives available to reduce this cost. The Federal incentive on such a system would be about $13,200 and the Wisconsin incentive would be about $10,500. These incentives vary over time and with the exact size and cost of the system. The net result is that such a system would end up costing about $20,300.

This assumes installation on your home. With panels on a solar farm, these numbers will be different. In addition, there are ways to finance your solar electric system that may be attractive for some buyers.

Key Fact: Solar electric systems can require a significant upfront cash outlay, but this can be reduced with financing; the total cost can be lowered in the range of 45- 50% via incentives.

What kind of return on investment or payback do I get?

In the example above, which we must remember depends upon many assumptions, your rate of return is a little over 4%. That means that investing in a solar electric system is somewhat like putting your money in a savings account that pays a 4% rate of interest. However, a solar system is different from a savings account, because of two factors. First, you get a different “rate of interest” each year because you are paid according to electricity prices at the time you generate power. In our example, we have assumed that electricity prices will rise over time (as they have historically) and as they rise, your “interest rate” goes up. The second difference is that the power you sell is paying you the “interest” and also paying back the principal. In this regard it is like a mortgage in reverse (instead of paying the bank both principal and interest, you get paid both principal and interest by the utility).

Another way of looking at this is to consider payback period, that is “how long does it take me to get my investment back?” In this example, it takes 16 years to get your investment back. Again, we should remember that there are many assumptions involved in these calculations.
These numbers can be improved somewhat if your solar system is on a solar farm. A key reason is that on a solar farm, additional technologies can be used to increase output. In addition, solar farms allow different financing vehicles, which can affect returns.

All of these examples ignore taxes. Taxes of course will depend upon a consumer’s individual situation. However, there are solar investment strategies that can reduce taxes on the power produced.

Key Fact: Solar electric systems may deliver rates of return above 6%, with volatility that is different from other investments.

Speak to a professional for more information on an investment currently yielding above average returns.