Investing In Solar Energy
When the subject of investing into solar energy is discussed, positive thoughts of “free energy” and complete independency for the consumer come to mind. When the idea of solar energy finally settles, the first real question is, “Is solar worth it?”. This question does not have a pure black and white solution. There are many variables to consider when starting the evaluation of investing into solar. The average consumer believes that they can just put the solar panels up on their roof, “plug them in”, and watch the savings add up. There is no one size fits all approach for determining whether or not solar is a smart investment. The good news is that there are different approaches in investing, and with the different approaches, there comes different levels of risk and return.
The very first option that comes to mind when talking about investing in solar energy is purchasing an entire solar system for a residential or commercial property. The investment of solar power for residential and commercial can be obtained a few different ways. The two main differences in solar systems is either a grid tied or off-grid system.
Figure 1. Grid Tied Solar System (solarfeeds.com)
Figure 2. Off Grid Solar System (solarfeeds.com)
The grid tied system uses the utility company to fill in the voids of the solar system, like either at night or non-ideal weather. This option uses the utility electric meter to record the net usage of the property. The meter will spin the opposite direction while the solar system is working. This is credited back to the customer at a different rate per kWh. This grid-tie solar system is the most traditional way of applying solar. Having electricity from the utility company available for the “just in case” times allows for a lower initial cost of purchase for the system compared to the off-grid system. Typically, off-grid systems are used when there is not a utility service available to the location. The off-grid system uses batteries for the storage of the energy for use in non-ideal times. The batteries that are normally sourced for this are lead acid batteries that on average have a useful life of 6 months to 48 months. The fact is, the user must replace the batteries much more frequently then any other part of the system. Once the consumer determines which system fits their requirements, the consumer must figure how to afford the system.
The purchase of a photovoltaic system for the property can be very daunting. The cost of the system can be upwards of $100,000.00 for a residential property. The justification for the high upfront cost is combated with the return on investment over the lifetime of the solar system. The lifetime for a solar panel is anywhere from 20–30 years. The manufacture of the solar panels will provide a “life time” warranty for the solar panels. The lifetime is determined by the manufacture and tends to be a selling point for the highly competitive market. The return on investment is determined by the payback time on the time of the purchase as a function of the electricity generated in kWh. According to the U.S. Energy Information Administration, the average electrical energy rates are 12 to 20 cents per kilowatt-hour. For example, if the local energy cost is 20 cents, which is on the high end, and if the cost of the solar system is $4.00 per kWh, then the return on investment of the system is about 15 years. The return on the investment can be improved based upon many variables, such as the geographical location of the solar system. If the location gets more hours of sunshine, then that directly affects the amount of output for the system.
Figure 3. Geographical kWh/day
Another variable is the surface area available for solar panels. Many roofs do not have the necessary square footage needed in order to get the optimal mounting position for the solar panels. An additional variable is the cost of electricity in your region. In many states, the cost of electricity is so low that the return on investment would be much longer then the life of the solar system.
There are multiple ways of purchasing a solar system. The obvious way is to purchase the system upfront. With such a large investment, the general public needs to finance the solar system. The NC Clean Energy Technology Center claims in a study that if a homeowner in one of the 42 nation’s largest cities were to finance the system at a rate of 5 percent or less, then the consumer would save a larger percentage then investing in the S&P 500. This study leads into a different way of thinking when trying to determine the return on investment of solar. When comparing the investment of a solar system to investing in a relativity low risk stock, the savings from solar yields a higher percentage over a length of time.
The options for investing in solar that have been discussed thus far are the most common ways to get into investing in the solar industry. There are several other options with much less upfront cost that can be a smart investment for someone looking to diversify in solar. Many consumers want the ability to diversify, but they don’t have a optimal roof, the necessary roof square footage, or some other variable that makes an independent solar system not possible. One of the fastest growing solar niches is the idea of investing in solar gardens. The solar garden is a relatively new idea where a group of investors go in together and build a large solar array that provides energy back to the utility company. The utility company then gives the solar garden members a rebate or payment based upon the percentage they own.
Figure 5. Solar Garden Flowchart
Solar gardens open an entire new way of investing in solar while also making it obtainable to a wider audience of investors. The issue with this way of investing, is that the tax codes and regulations of states are playing catch up. For example, when investing in solar for a home, a homeowner can get up to a 30% tax break, but the same tax deduction is not available to an investor of a solar garden. There are a few states that are trying to pave the way in fair regulations for solar, but the growth of the solar energy industry has forced agencies to play catch-up.
For many years, the ability to invest in solar has been limited to homeowners with deep pockets that were lucky to break even on their investment. But with the advancement in solar technologies and economics within the solar industry, the availability has been widened and become more dynamic. As in all types of investments, research must be done to evaluate whether it is a smart decision for oneself. Investing in solar continues to become a more viable option within the investing community, along with providing the benefit of an overall good feeling that comes along with a clean and renewable energy.
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· Wolk, . California. Public utilities Code. SB843. 2012.
· Colorado. Public utilities Code. 10–1342 Re-Energize Colorado. 2010.
· “Solar Gardens Community Power.” Solar Gardens. N.p., n.d. Web. 19 Feb 2015. <solargardens.org>.
· U.S. Energy Information Administration — EIA — Independent Statistics and Analysis. (n.d.). Retrieved April 17, 2015, from http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_6_a