Solar Panels Home Economics

Sarah and I put solar panels on our home here in Prescott, Arizona last year. We signed the contract in October 2009. Here is the real-world information about the cost of our solar panels, current utility incentives, state and federal tax credits, and payback time.

The sticker price of our 2.7kW system, installed, was $8.10 per installed watt, or about $22,000.This was the sticker price of the system before local utility rebates, or state and federal tax credits.

Local utility rebates last year (in our case from Arizona Public Service [APS]) were $3 per installed watt, which equaled an $8,100 rebate on our 2.7kW system.

That left us at $13,900.

Then, a $1,000 Arizona State tax credit (not a deduction but a dollar-for-dollar tax rebate).

That left us at $12,900.

Then, a 30% federal tax credit (again, not a deduction but a dollar-for-dollar tax rebate).

That left us at a total out of pocket cost of $9,030

Our solar panels will offset approximately $70 per month in electricity costs today. That is, $70 a month we will not have to pay to your local utility company.

Now consider this: Electricity rates, on average, increase 6-8% a year (historic average over the past 30 years). This means that the $70 a month of electricity we are producing today will be worth $140 a month in ten years, $280 a month in 20 years, and $500+ per month in 30 years (the warranty on our system is 30 years).

System Financing: Let’s say that you finance that $9,030 system using a home equity line of credit (don’t laugh; some people still have home equity left). 5% annual interest on that $9,030 (amortized over thirty years) will cost approximately $49 per month.

So, you are saving $70 per month that is not going to your local utility company, but instead are paying $49 a month to your bank. This is a net savings of $21 per month! And ten years from now, you will still be paying $49 per month to your home equity loan, but that $70 monthly electric bill, increasing 6% annually, will now be at around $140 a month. You are now saving $91 per month or $1,092 a year.

Twenty years from now, you will still be paying $49 per month to your home equity loan, but that $70 monthly electric bill, increasing 6% annually, will now be at around $280 a month. You are now saving $231 per month or $2,772 a year!

Now, each year you will be saving more and more money relative to what you would otherwise be paying. In fact, over the life of the system, you will save tens of thousands of dollars in electricity.

Also, the above figures don’t include the added value, in real dollars, that your solar panel system has added to our home.It also doesn’t take into consideration that each year you will be stopping hundreds of tons of C02 from entering our atmosphere.

Current APS rebates have dropped from $3 per installed watt to around $1.75. However, the $8.10 per watt cost of our system has also dropped to around $6.50 per watt. So, our system, if we signed the contract today, would have cost us less than it did 16 months ago.

Have fun,

Jim