Cost of Solar

The chart below shows the simple upfront costs involved in installing a typical 2.5 kilowatt (kW) solar photovoltaic system. For a home with above average energy needs (e.g. above 1000 kWh per month), a larger system may make sense. Any home or business owner looking into going solar should first invest in energy efficiency measures as it will allow for a smaller solar system and ultimately save more money.

Figure 1: Cost of Going Solar Post Rebates/Credits

*If in investor-owned utility territory, value of the rebate will depend on expected performance calculated by PUC or rebate levels in municipal utility territory.

The above chart shows the upfront cost of installing a solar power system after government rebates and credits. However, since these upfront installation costs lead to a supply of electricity that is essentially free for 20-30 years, to fully understand the value of a solar power system, one must calculate the value of the electricity NOT consumed by a home or business over that same time period. With net metering, these energy savings happen during the day, when the sun is out, as well as at night when the home is able to tap into excess credits generated during the day.

Furthermore, as the price of electricity goes up, so will the value of the avoided electricity and therefore the value of the solar system. In fact, solar power technologies are one of the few investments a consumer can make that increases in value over time. The CEC expects the cost of electricity to increase 1.5% per year for the next decade. In the chart below, this increased value is shown as the estimated $541/year savings in 2031 versus the $427/year during 2006.

Finally, when the upfront costs of a solar system are rolled into a low-interest mortgage or loan, the homeowner can save additionally via annual interest deductions from taxes.

Figure 2: Annual Savings for a typical solar home in San Diego due to Net Metering

* While solar systems are warranted for 20-25 years and expected to last longer, the actual output of a solar panel declines slightly over time. Further, while there are 8760 hours in a day, a typical solar system in San Francisco is only expected to generate electricity (at max output) for 1,644 hours per year. Sunnier San Diego will get 1,706 hours per year. It is important to note that these calculations for each region in California are averages over time. A solar system will start generating electricity in the early morning, peaking around noon-1pm and then declining until sunset.  Actual output will also depend on the quality of the installation, the slant of the roof, whether there is any shading, etc.

**Based on average of peak rates for SD&E. Actual value will depend on home’s energy usage. Homes consuming large amounts of electricity during peak times will see a higher value for their avoided electricity. This is because electricity rates increase the more a home uses during each month. For example, once a home consumes 600 kWh, every kWh consumed above that costs 19 cents/kWh during peak compared to 4 cents for the first 300 kWh consumed.