This project has the objective of perform an analysis of Solar Panels Return on Investment (ROI). Before begin the analysis of Solar Panels ROI, we need to clarify the definition of:
What is ROI? The ROI represents the ratio between net income (over a period) and investment (costs resulting from an investment). Therefore, this measure is used to evaluate the efficiency of an investment and to known when you will start to get a return from your investment.
How to calculate the ROI of a solar panel system? To calculate the ROI of a solar panel system, you need to estimate the money spent on equipment and installation, which is your initial investment. For the return, you need to consider the following: the money you save on energy and the money you make by selling the extra energy your system produces back to the grid. Also, the increase in the energy price during the years and the incentives the federal/state tax credit.
Beyond the topics mentioned above, there are also importants benefits from solar panel system, which are the reduction of carbon dioxide (CO2) and generate electricity in an self-sufficient way. Despite not beeing part of the ROI calculation, these benefits can be very important to decide if you will have a solar panels system.
Some solar power critics seem to enjoy trying to point out that the energy payback time for solar power is too long, and therefore this form of renewable energy is not a good investment. This affirmative can not be consider true, considering the current solar system performance. Studies have proven rooftop solar is now more accessible and affordable than ever.
The takeaways that will be discussed in this project are: electricity cost, investment cost, and solar radiation.
According to the Energy Information Administration (EIA), the average U.S. home consumes monthly 897 kilowatt hours (kWh). In 2020, the consumer used to pay for electricity roughly 13.16 cents per kWh. On the other hand, in 2023 the expected average price of electricity will be 15.32 cents per kWh.
Therefore, for an average U.S home, the energy bill in 2020 was $118.04 per month. In 2023 that same monthly energy consumption is going to cost $137.42, an increase of about $20 in 2 years. This shows that the electricity cost increase is a key factor in the panel system ROI analysis.
The investment cost for a solar panel system is high. The average cost of a solar panel installation in 2022 ranges from $16,870 to $23,170. To help with this investment, it has been more common the application of incentives from the government like solar tax credits, cash rebates, performance-based incentives (PBIs), and energy credits. These incentives help to transform your investment cost feasible.
Solar installation costs in U.S. vary by your location, mostly by the state. The prices differences by location are actually due to differences in system sizes and incentives, but it’s still something to keep an eye on.
The availability and intensity of solar radiation on the earth’s surface vary by time of day and location. Latitude, climate, and weather patterns are major factors that affect the amount of solar radiance received on a given surface area during a specific amount of time.
The local solar radiation determines how high will be the production of energy from the panel. Therefore, is crucial to analyse the solar radiation from the local where the solar panel system will be installed.
The U.S is a big country that has states with different latitudes, climates, and weather patterns. So, it is important to keep in mind that different U.S. states offer different potency for solar energy generation.
Initially, a table will be created showing the data for the three takeaways of each U.S. state.
Instead of calculating the actual return time for the solar panel system, it will be calculated a ROI score value. This score will represent the ROI and it will be calculated using the data from Table 1, with the following formula:
\[ROI score = Average Energy Price Increase/10 - Average System Cost Per Watt + Solar Radiation\]
In the ROI score calculation the Average Energy Price Increase is divided 10 to keep all the variables in the same scale.
The ROI score is a simple method to determine which U.S state has the highest ROI. A high score indicates a good ROI. On the other hand, a low score indicates a bad ROI.
Figure 1: U.S. states ROI score
Figure 1 shows a significant difference between the ROI score from the West and East U.S. states. The West states have a better ROI score compared to the East ones. Ths occour due the fact that the West states have lower installation costs and higher avarage increase in electricity prices, which makes them a perfect match for solar panels systems.
Furthermore, the states in the Sul part of the country have a higher ROI score when compared to the states from the North. The cause is the higher solar radiation that hits the South.
To conclude, the U.S. state with the highest ROI score is California (CA), followed by Arizona (AZ). On the other hand, the state with the lowest score is Delaware (DE) followed by New York (NY).
EnergySage. “How much do solar panels cost in 2022?”. Accessed October 24, 2021.
Sunrun. “Economics of Solar Energy”. Accessed October 24, 2021.
U.S Energy Information Administration. “SHORT-TERM ENERGY OUTLOOK”. Accessed October 24, 2021.
A1 Solar Store. “State Solar Power Rankings”. Accessed October 24, 2021.