How to calculate return on investment for solar installations?

Calculating the Upfront Cost

To determine the upfront cost of the solar installation, you’ll need to get quotes from multiple solar panel installation companies. The cost will depend on the size of the system, the type of panels used, and the installation company’s labor costs. As a rough estimate, a 5-kilowatt solar panel system can cost between $15,000 and $25,000.

Determining Energy Savings

To calculate the energy savings, you’ll need to know how many kilowatt-hours (kWh) your solar system will produce per year. The number of kWh produced per year can be calculated by multiplying the system’s wattage (kW) by the number of hours of sunlight it receives per year. For example, a 5-kW system in a sunny location might produce 8,000 kWh per year. If your home uses 30,000 kWh per year, that’s a savings of 26.7% on your energy bills.

Calculating the Return on Investment

To calculate the return on investment, divide the energy savings by the upfront cost of the system. In this example, let’s assume the upfront cost is $20,000. The energy savings would be $6,667 per year (30,000 kWh x $0.22 per kWh). Now, divide the energy savings by the upfront cost: $6,667 / $20,000 = 0.333 or 33.3% return on investment. If the system lasts for 20 years, the annual rate of return would be 1.66% (33.3% / 20 years). However, this doesn’t take into account tax credits and other incentives, which can increase the rate of return.