Businessman with economical friendly light bulb for head

As a homeowner considering a photovoltaic (PV) solar system, you are probably looking to reduce your carbon footprint while also saving money. Although PV systems have high initial costs, they eventually add up to long-term savings. At Affordable Renewable Energy LLC (ARE Solar), we work with our clients to figure out an estimated return on investment (ROI) for each system we install.

One thing to keep in mind is that solar energy has become much more affordable and efficient in recent years. Solar installation costs have gone from roughly $77 per watt in 1977 to $3.50 in 2015 for residential systems. If this still sounds expensive, remember that the price per watt is a very different figure from what you normally see on your utility bill. For example, in Boulder, CO, you may be charged between $0.05 and $0.09 per kilowatt hour. A kilowatt hour is equivalent to a power consumption of one thousand kilowatts for one hour. Meanwhile, the “price per watt” measurement used when discussing solar energy refers to how much it costs to install a system that generates one watt at peak power during the lifetime of the system. So, while a PV system able to generate one kilowatt may have an initial installation cost of $3,500, it will continue to produce this level of electricity for decades.

Things to Consider

Both the price per watt and the break-even point where you will see an ROI vary depending on multiple factors.

Your local energy costs are actually the most significant factor when estimating your break-even point. Traditional power rates have a pretty large range throughout the country. So, if your PV system is designed to cut your power bill in half, you will recoup costs faster if your average monthly bill is $150 than you would if it were $100.

Meanwhile, “soft” installation costs are the biggest contributor to the necessary initial investment size. While the cost of solar panels themselves has plummeted, there are many other aspects of PV system installation that contribute to an initial high investment. Soft costs include labor, permits, sales tax, and other indirect fees. This is one reason why it’s important to choose a contractor that specializes in affordable PV system installation.

The size of the system is another determining factor when it comes to estimating a timeframe for solar ROI. Smaller systems have a higher price per watt than do larger systems, which is largely due to the major role soft costs play in overall initial investment.

The amount of available “solar resource” is the biggest technical factor. A good PV installation contractor will design a system that maximizes the sun exposure your system receives each day.

Finally, federal and state financial incentives, including rebates and tax credits, also impact initial costs. ARE Solar works directly with clients to ensure they participate in any government programs for which they qualify.

The Bottom Line

The best way to find out the break-even point for your particular project is to ask for a quote from a professional PV installer. In general, though, homeowners in Colorado can expect a break-even point to be somewhere in a time frame of 7 to 11 years. Commercial systems, on the other hand, typically take between 3 and 6 years to start paying for themselves. Residential systems usually take longer to hit this break-even point because of their smaller scale and often more complicated installation factors.

Nearly a decade may seem like a long time, but PV systems are built to last. That’s why all installations made by ARE Solar come with a 25-year guarantee. Also, if you plan on moving before your break-even point, keep in mind that PV systems often add more appraised value to your home than what they initially cost to install. Although costly, PV systems are a great long-term investment.