Updated: Sep 1, 2020
Climate change is an existential threat to humans, which is why it is our mission at BlueRoof Foundation to educate consumers on how to reduce their carbon footprint. It is important that everyone make changes in their lives to address this problem before we will be forced to make drastic changes. In Part 2 of this series, we will evaluate installing Solar on your home and its impact on your carbon footprint with an eye towards financial Return on Investment (ROI).
I am sure you might be wondering why BlueRoof would write about another solar article when there are thousands already available for free on the internet. At BlueRoof it is not only our goal to educate consumers about solar technology but also to outline the financial ROI on these investments. Rooftop solar energy generation is quite simple, but calculating the ROI can sometimes be overwhelming. We have done extensive research to gather all the necessary data to help you calculate the ROI on your solar project. All numbers used in this post is from various government websites outlined at the end of this article.
The concept of solar energy is quite simple, and the technology works flawlessly anywhere on earth with enough sunshine. The cost of solar panels has plummeted more than 80% in this decade and has made this technology amazingly affordable. As part of our ‘Top three changes you can make to reduce your carbon footprint’ series, we recommend this as the second big change.
Today there are hundreds of vendors all over the country who are willing to install solar on your home. We have covered more than 120 population centers in the country with our calculation to give you an estimated ROI for your solar investment. As a homeowner, there are a few things you need to understand before you contact a vendor to install solar in order to get best results.
Orientation or Azimuth – Indicates which direction your solar panels are facing. South is the most preferred in northern hemisphere and is indicated by 180°, followed by West indicated by 270°, followed by East indicated by 90° and finally North indicated by 0°.
Tilt – Indicates the angle at which sun’s rays will hit the panel. For most places in the lower 48 states within US a tilt angle of 20-30° is considered ideal. Obviously, this depends on the pitch of your roof.
Net Metering – This assumes your solar panels will be tied to the grid. Most solar installations produce more energy than needed at certain times of the day. This excess energy is typically fed back to the grid for which your utility company should give you credit. This is called Net Metering and is extremely important for your ROI. Our ROI calculations assume that your local utility offers full Net Metering credit.
Solar size – Indicates the total size of your system usually expressed in Kilowatts (KW). One way to look at this is percentage of your home’s total consumption that will be met by your solar installation. Lots of factors go into this calculation. But suffice it to say that trying to attain 100% offset is a fool’s errand and not worth the cost. Knowing this we recommend offsetting not more than 90% with an ideal value between 60-80%.
Tax credits and incentives – This can have a big impact on your ROI number. Federal tax credit is 30% of the total cost till end of 2019 and thereafter reducing to 26%, 22% and 10% respectively over the subsequent three years for residential installations. Your vendor should inform you of any local or state incentives as part of the sales process.
We have glanced over many other technical details of the installation, but your vendor should present the same to you prior to installation. Below is a list of cities and states with ROI for same solar installation. Please note size of the installation does not change your ROI.
Assumptions: Solar installation cost = $2750/KW; Federal tax credit = 30% with no local/state incentives; Solar lifetime = 20 years; Solar energy degradation = 1%/year; Energy cost inflation = 2%/year; System size = 1 KW. If your system size is greater than 1 KW, ROI remains the same but energy generated will be a multiple of your size.
As you can see, Solar ROI varies widely across the country. If you are interested in installing solar panels for financial reasons, most installations in the US today will take at least 10 years to reach your ROI. But if you live in your house for more than 10 years, you will enjoy free energy for many years. If you are installing for environmental reasons, some cities and states make more sense than others due to high carbon intensity of the energy generation in some states. Finally, it is important to note that if you are upgrading or fixing your roof for any reason it may be the best time to evaluate solar option for your roof, as it might reduce your cost of installation slightly.
1Energy calculations were done using PVWatts calculator offered NREL.gov a government website
2Energy prices were as reported on eia.gov website and the numbers are from 2017
3CO2 emissions numbers were as reported on eia.gov and the numbers are from 2017