Solar Estimation Rule Of Thumb - 50 Cents & 25 Cents

This morning's news from the ASES (American Solar Energy Society) is that the median price of installed N. American PV is $5.27/watt (http://ases.org/index.php?option=com_myblog&show=EIC-Survey-Median-Price-of-North-American-PV-Installs-5.27-in-Q3.html&Itemid=27).  While this is lower than previous reports, it is quite high when you consider that our most recent 3 installations done on a "coop" basis, were installed for about $2.50/watt (See Englemeyer Installation in an earlier blog).

Around here (Hampton Roads), each KW generates about $180 worth of electricity per year (assuming 12 cents/KWHr), or roughly 50 cents worth per day. (Note: 12 cents, which is close to the national average, is a little high for this region, but Dominion has been raising prices an average of 8% per year since the year 2000, so 12 cents covers future electricity costs).

That's an easy number to remember, and quite useful for quick calculations. (Note: All the numbers here are rough estimates for easy memory and quick calculation. They're close but not precisely accurate).

Suppose you want a 5 year payback, which is about the same as a 20% return on investment. In 5 years, that 1KW system will make about $900 worth of electricity ($180 x 5 = $900).  Since you can get 30% off your federal taxes, that lowers the installed cost, which translates to $900/ 0.7 = $1285 is what you could afford to spend and get your money back in 5 years (all other things like SRECs, maintenance, etc. being ignored).  That works out to about $1.30/watt installed.

At the government estimated price of $5.27, that's about 20 years, not 5 years, and only about a 3% return. Not so good. It requires a lot of soul searching and scrutinizing the family budget and in the end, isn't economically justifiable.  A $2.60/watt, 10 year payback cost is still pretty hard to think about, and right on the edge of acceptable for a lot of folks. 

What would we need for a 1 yr. payback?  We'd have to spend no more than $180 / 0.7 = $260, or about 26 cents per watt installed.

Again, a very useful and easy to remember number. Just round to 25 cents and that's the cost per watt installed per year of payback.

A 2 yr. payback would be twice as much at around $500, or about 50 cents/watt.

At what point is the price low enough that people no longer have to agonize over the cost?  I'm guessing it's about $1/watt installed, which translates to about a 4 year payback.

Can this happen?  The government thinks so. That's why the Dept. of Energy has started the SunShot initiative: http://www1.eere.energy.gov/solar/sunshot/index.html.

How soon?  Last summer (2011) we installed a system for $3.50/watt (14 year payback).  By December 2011, it was $2.50/watt (10 year payback).  Now, I'm looking forward to $2.00/watt (8 year payback) in the spring of 2012. Perhaps you see a trend here.

Hopefully, the cost will fall far enough, fast enough that people will begin installing lots of solar systems before institutional forces marshal themselves against the inevitable rising tide.