The economic benefits of solar energy are becoming increasingly apparent as innovations in technology make photovoltaic systems more affordable while government programs also offer additional incentives for private and commercial investment in renewable technology.
However, the fact remains, solar energy is not attainable without the upfront cost of purchasing and installing modules that will generate electricity. While this may seem initially daunting, it's important to realize owning a solar system is a long-term venture, like buying a home or a piece of property. As with any significant purchase, the goal is for early costs to eventually be overcome through a return on investment. For solar systems, the ROI for residential and commercial projects is often more sound than that of other assets, and continues to compound over time.
Offsetting residential utility costs
For individual homeowners, the upfront investment in solar can be softened by federal and state tax credits. The federal solar investment tax credit allows for 30 percent of the cost of the project to be recovered. Additionally, as many states also offer their own tax incentives, some homeowners may be able to recoup even more of the upfront cost.
Of course, outright purchase of a solar system is only one option available for residential projects. As the Solar Energy Industries Association explained, third-party financing options, including power purchase agreements and leasing of PV systems are also popular with homeowners. In New Jersey, for example, 90 percent of the residential solar market is made up of third-party systems.
Under a PPA model, a solar installer or developer will place a solar system on the residential property at no cost to the homeowner. The homeowner can then buy the solar energy from the system from the developer at a price that is typically lower than conventional electricity rates.
PV systems can also be leased in a similar fashion as an automobile or other long-term purchase. Under a lease agreement, homeowners would make regular payments on their solar panels until the system is paid off, depending on the conditions set by the developer or installer. SEIA noted many solar lease agreement have no upfront costs for homeowners.
The economic benefits of nonconventional electricity
Residential solar has the added ROI of providing an alternative to conventional electricity service, which has consistently increased in cost over the years. In fact, over the last decade, the retail price of electricity has risen significantly in many states, including California, which saw rates spike by 30 percent from 2006 to 2012, according to the U.S. Energy Information Administration.
When factoring in utility savings, many homeowners will find solar panels have an ROI that is more attractive than many of the traditional portfolio or retirement savings options. In fact, according to a 2013 study from Cost of Solar, an educational resource dedicated to the solar industry, homeowners in 86 percent of states saw a higher ROI with a solar system than with a 5-year certificate of deposit. In two-thirds of states, the ROI was higher than that of a 30-year U.S. Treasury bond, and for 25 percent of states the average return outperformed that of the Standard & Poor's 500 stock index.
Cost of Solar noted the ROI on these systems is greater in some areas when factoring in the cost of solar energy offset by solar incentives and compared to conventional electricity rates. In Washington D.C., for example, homeowners can see a 20 percent ROI on their PV systems. This means if a homeowner in Washington D.C. invests $10,000 in a solar array, the study found he or she would generate an average savings of $2,000 per year for the standard life span of a solar panel, or 25 years. That 20 percent internal return rate on the solar investment each year far exceeds a Treasury bond, where yields sometimes drop below 2 percent.
Additionally, the study found that a solid ROI was not limited to sun-drenched states. In states where conventional utility rates are high, solar energy becomes more valuable, especially if tax incentives reduce upfront costs. The Cost of Solar study found Hawaii residents enjoy the greatest rate of return, but homeowners in Connecticut, New York and Massachusetts will see their savings overtake their initial investment sooner than those in California, Arizona and New Mexico due to the high cost of conventional electricity in those states.
Incentives for commercial investment
With the economy still recovering from the recession, ROI is a factor all businesses must carefully evaluate. When investing in any new endeavor, commercial entities must consider how they can achieve a return on any upfront costs as quickly and as reliably as possible.
"Reduced reliance on conventional electricity makes business less susceptible to price fluctuations in the energy market."
Like homeowners, business owners must account for the cost of the electricity they use every day. However, this cost may be even greater than it is for residences, especially if the business owns or has long-term leases on large retail, industrial or office buildings, which may need to be heated or cooled at all hours of the day.
Installing a solar system to provide or supplement the business's electricity use can offer an attractive alternative to pursuing electricity solely from a utility company, especially since businesses also qualify for tax incentives that can offset the initial cost. These include credits specific to solar energy, such as the federal Business Energy Investment Tax Credit, as well as general investment credits and depreciation benefits available to commercial entities.
Solar systems may also allow for greater budgetary control. While there is an initial upfront investment, a reduced reliance on conventional electricity means the business will be less susceptible to fluctuations in the energy market that can lead to high rates and unexpected costs.
As Alta Energy noted, depending on the scale of the solar project and the business's location, commercial entities may also be able to participate in a Feed-In Tariff or Solar Renewable Energy Credit program. Under a FIT program, businesses will receive a set price from their utility for all of the electricity they generate and sell back to the electric grid. Though FIT programs are more common in Europe than in the U.S., the Energy Information Administration noted many U.S. utilities have established a FIT program or something similar. In Virginia, for example, under Dominion Virginia Power's voluntary FIT program, participants receive 15 cents per kilowatt-hour for a contract term of five years for solar energy provided to the grid.
Under a SREC program, businesses are eligible to sell units of "credit," which are equal to one megawatt hour of solar energy produced, back to utility companies. In states with mandated Renewable Energy Portfolios, utilities are required to source a certain percentage of their electricity from renewable energy sources. Utilities need to purchase SRECs to fulfill this requirement.
In addition to direct cost-savings and credits, there are other ways solar panels offer commercial ROI. A proven commitment to environmental responsibility can improve relations with customers and investors, and serve to attract new consumers who wish to support companies aligned with their values.
Why performance and reliability matter to ROI
While solar has established its potential for significant ROI, it should be noted that not all solar projects are the same, in no small part because not all solar products are the same.
By partnering with Trina, owners of residential and commercial solar systems can optimize their ROI through innovative solutions designed to overcome the shading and space restraints many of these properties face. With Trinaflex, installers can selectively deploy Trinasmart modules to the areas where shading or other factors are causing performance degradation. Trinasmart modules offer module-level diagnostics and maximum energy harvest through DC power optimization, as well as industry-leading fire safety protections. Trinaflex reduces the upfront costs of an adaptive system by allowing Trinasmart modules to be used in combination with standard modules.
Durability and proven performance over many years is also crucial for ROI. Trina products are rigorously tested to withstand environmental conditions over long stretches of time. This works to reduce operating and maintenance costs of the project, and ensures the upfront cost is a sound investment. With a strong track record of high field performance and reliability, Trina panels are guaranteed to reach their promised standards for the entire length of their life span - a 25-year industry-leading warranty.
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