The economics of a rooftop solar system

Question: How long does it take for a solar system to pay for itself?

I get asked this more than any other question pertaining to solar energy, and invariably, I hem and haw, because like most things, it’s complicated. Depending on the person who’s doing the asking, I’ll answer in one of three ways:

1. I dunno. How long does it take for your Audi to pay for itself?
2. It pays for itself immediately, and keeps on paying.
3. Between three to thirteen years, give or take. Sometimes less.

Different people get different answers because they’re interested in solar for different reasons. Most people’s motives are as follows (with the most important one first):

1. Generating your own energy from sunlight is really, really cool.
2. It has the lowest environmental impact of all known energy sources.
3. A solar system is an investment that pays strong dividends for a long time.

For most people, economics are generally the least important of these reasons for getting a solar system. But unless you have more money than you know what to do with, it needs to be a consideration. We can safely assume that if you’re reading this, you want to make a sound investment, not just buy something cool or altruistic.

How is solar a wise investment?

In order for solar to actually be worth its hefty price tag, the following must apply. Most likely, they do.

• You use electricity on a regular basis;
• Money saved = money earned.

If you are able to reduce the amount of money you spend on energy (preferably without having to alter your lifestyle), the savings goes straight to the bottom line. So, a solar system saves you money by turning sunlight into electricity that you would otherwise be buying from the grid. Would a million-dollar investment be worthwhile if it saved you a hundred dollars a month? Not remotely! But the solar numbers are much friendlier than that, and getting friendlier all the time as the cost of implementation decreases and traditional energy becomes more expensive. In fact, as of 2015, the numbers have reached a tipping point, and solar is beginning to make a lot of sense to a lot of people.

Here are the main variables in calculating the real value of a solar system.

1. The more energy your solar system generates, the less you’ll have to buy (there’s more sunlight in Phoenix than there is in Seattle).
2. The more expensive your grid energy, the more money your solar system will save you (a kilowatt-hour in Texas is one-third what it costs in Hawaii).
3. The less you pay for your solar system, the faster your ongoing energy savings will pay off your initial investment (tax credits and market forces in a solar-friendly state like Massachusetts make for much less expensive systems than in a state like Arkansas).

With these variables in mind, San Diego is a great place for solar, because it’s sunny, grid energy is very expensive, there are lots of solar installers competing for your business, and there are generous tax incentives that lower the price dramatically. A rooftop solar system in San Diego could easily pay itself off in less than five years.

Coeur d’Alene, Idaho, on the other hand, is a terrible place for solar. The sun shines less than half the time. Grid energy is among the cheapest in the country. There are virtually no tax incentives, and you’d have a hard time finding someone to do the installation. A solar system in Coeur d’Alene is still a big plus for the planet, but wouldn’t have paid for itself after thirty years.

Here in Houston, we’re seeing payoff periods of about 9 or 10 years, factoring in the longstanding federal tax credit. While it’s not quite a no-brainer for the average household (solar systems cost as much as cars), this is actually a pretty excellent investment, when compared with stocks, securities, annuities, and even real estate.