Residential Photovoltaic, System Options, Financial Payback Analysis

If you are thinking about PV for your home or business, the first consideration is

Grid-Tied or Stand Alone

Grid-tie systems make electricity, but are connected to the utility grid. Any excess you generate during the sunny day flows into the grid, and you use back electricity, MWH for MWH, other times. Essentially, the utility is your battery, plus provider when you need more than you can make yourself. This is absolutely the preferred way to go if you can. If your application is so remote connecting to the utility isn't practical, then by all means build your own "islanded" system, but what we are discussing here is grid-tied.

The buzz word utilities use for grid tie systems is NEM, or net energy meeting. Ask your utility for information about their NEM program.

With or Without Battery Backup?

If all you are concerned with is making your own electricity to reduce your utility bill and fight global warming, then skip the batteries. We did. If you need battery backup for your home or business to provide reliability when your utility has an outage, then you can build a system to accomplish that too, but that isn't what we will consider here.

How Big is Too Big?

The next step is to put a ceiling on your system's size. It isn't cost effective to make more electricity that you use, since NEM programs don't pay you for any excess you generate. Since my utility accumulates totals from month to month and only zeros out any excess annually, my max system size is calculated on an annual basis, but you may want to do it on a monthly basis if that is how your utility works.

Why the difference? On short winter days you will probably self-generate 60% as much electricity as long summer days. If you design your system to generate 100% of your demand using wintertime irradiance values, you'll be making way more than you can use in the summertime. But if you design your system to generate 100% of your demand using summer irradiance values, you'll fall short in the wintertime. If your utility doesn't carry forward totals from month to month you've got a decision to make.

Based on my utility bills (I need around 25KWH/day), for my location (there are calculators that predict KWH AC for a particular KW DC size, tilt, orientation, and location), and typical inverter efficiency, a 5.8KW DC system would provide 100% of my energy. Anything larger and I will be paying for a system so large that it will make more electricity than I use and then I'm subsidizing the utility.

How Much Can You Afford?

PV isn't cheap, so often the decision about PV system size has a significant financial component. One of the big thing that makes a PV system financially viable are tax credits offered to encourage people to become more energy efficient. In addition to the current Federal tax credit of 30% of the cost of the system, up to a maximum of $2,000 credit, the State of Hawaii where I live offers a 35% tax credit up to $5,000 credit. Yea. That really changes the underlying economics and makes an expensive PV system pay for itself much sooner.

I began with some simple calculations based on pricing at dmsolar.com for a 4.8KW DC system. I chose that size as a starting point because it was near but slightly below the maximum size I wanted: packaged dmsolar.com systems with 24 200W panels and inverter are available for $24,405 (including shipping to HI). Track mounting hardware will cost $1,256, misc hardware and wiring will cost approximately $1,014 for a total system cost of $26,675, reduced by $2,000 in federal energy tax credit and reduced by $5,000 for Hawaii tax credit for an all in cost of $19,675.

Factoring in my expected system performance, and current utility rates. (Utility rates in Kauai were I live are significantly higher than mainland rates. Your payoff will vary significantly depending on what your utilities KWH rates.)

Notice the actual daily kWh falls short of the 25 required and the annual average generation results in only 85% of the required electricity, although in peak sun months it approaches 98% of the required electricity.

For our simple analysis we will ignore the cost of capital and assume an average savings of $3,309 / year resulting in a 5.9 year financial payoff.

Double Your Tax Credit

As I tried different system sizes I noticed the larger the system, the longer the payoff. Since the tax credits are capped, once the cost of the system exceeds the point where the tax credits max out, you're pay for more of the system yourself without help from the tax credits. There is a work around: the tax credits let you install multiple systems in multiple years and take full advantage of the tax credits each year.

Obviously it wouldn't make since to install a bunch of tiny systems piecemeal over lots of years, but in my case instead of installing one 4.8KW system I designed two systems, and evaluated the cost and payback of installing them in two consecutive years to almost double the tax credits.

The total tax credit increases from $7000 to $6,739 + $6,597. The resulting lower net cost means the system financial payoff occurs after only 4.0 years!

Photovoltaic System Above Upper Floor
Installed Dec 2007