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Making Solar Panels Pay - How to Calculate Cost Recovery

solar power cost recovery

A solar energy system is a terrific investment for your home or business. Solar power offers clean, renewable energy to either replace or supplement your current energy system. With the rising cost of oil, energy prices have skyrocketed with no sign of relief. Solar power offers a constant supply of energy, and once your energy savings match your original investment, that energy supply is free.

Though your initial investment can be sizable, advances in technology have made solar power systems more affordable than ever. Additionally, there are many financial incentives offered to consumers who install energy efficient solar power. These incentives can be considerable, as much of half of the cost of purchasing and installing a solar power system. Then, depending on the system chosen, you will have an immediate reduction on energy bills. Before long, the system will have paid for itself, producing free energy for your home or place of business.

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Exactly how long does it take for your solar energy system to pay itself off? There is no simple answer. Rather, there are several variables that need to be taken into consideration. Then a calculation can be done to determine how long it will take to recover the cost of investing in a solar energy system. These variables are: what your energy needs are; what type of system best meets those needs; where you live; what types of rebates and financial incentives are available to you; and how much you currently spend on energy weighed against how much you expect to save.

The first things to consider are your energy needs and your goals for energy efficiency through a solar power system. Are you planning to use solar power for electricity? Do you want to use it for heat and hot water? Perhaps you want to heat your pool. Or you may want backup power in the event of a power outage. You can choose a system which will allow you to be off-grid, or completely independent in your energy use. Or, you can choose a grid-tied system, which will supplement your current energy provider in whatever amount you choose. If you start with a smaller system, for example one that will supplement 25% of your power supply, you can easily add solar panels to enlarge your system later.

If you tie your system into the electrical grid, your system will provide solar power to you alongside the power coming from the grid. If more power is needed at any time, the utility company will provide it. If you create more power than you need, your solar power will go back out onto the grid, and you will actually be selling power back to the utility company (your meter will run backwards). Or you can choose to store excess power in batteries, guaranteeing a constant power supply even if local power goes down. You can choose to provide power to your entire house, or to a few key appliances, such as your furnace, water pump and refrigerator.

Your energy goals will determine what system is best for you. Whether a grid-tie system or off grid; how much energy you want to supply from solar power; and whether you want the capability of storing energy; all factor into the price of your system. You could choose a system to provide back up power to essential household appliances in the event of power outage for 2 to 3 thousand dollars. A grid-tie system which supplies 50% of power for a typical moderate sized house could cost about $15,000. Figure on spending an additional several thousand if you want to store power. There are numerous websites which help you calculate your exact energy needs, and the size and type of system that would work best for you. You might also consider consulting a solar installation professional, who can work out the best system and installation for you.

It is worth noting that where you live plays an important part in choosing your solar power system. Solar panels produce the most electricity in bright sunny weather. Shorter winter days mean less power is produced, and the same is true during overcast weather, foggy, or smoggy conditions. So a system may produce more energy in one environment than another. Again, this information is readily available on the Internet or from solar panel dealers so there's no need for guesswork. Additionally, you'll need to consider the location of your building. Panels that are mounted to receive full sun all day will provide the most power. South facing panels are best, and the angle of installation is also important. The lower the angle, the more solar energy it can receive.

Once you have decided on your solar panel system and you have a price for it, you are ready to explore the financial incentives available to you. Tax incentives in the form of tax credits, rebates, and exemptions are available from both federal and state governments. Each state offers its own package of tax breaks, so you need to find out what is available where you live. These tax incentives can be considerable. The combination of state and federal tax breaks can amount to thousands of dollars. Also there may be local energy efficiency programs that will offer grants to defer your initial cost. Additionally, your utility company may offer either a one time rebate or credit, or a reduction in the rate you pay for your energy. This money can really add up, so it is well worth doing your research. With all the financial incentives, it is possible to defray nearly half of your original investment.

After factoring in what you can expect to deduct from the cost of installing your system, you are left with your actual up-front cost. Now you can figure out how quickly you can recover that cost.

To do this you need to calculate what you currently spend on energy. Then, take whatever percent of that amount your solar energy will provide, and subtract. That amount is your annual energy savings. Divide your up-front cost by your annual energy savings, and you'll find how long it will take for your solar energy system to pay for itself.

For example, if you choose to install a grid-tie system to supplement 50% of your energy needs, with the ability to store power, you might have an installation price of $18,000. Depending on your state tax incentives, and combined with federal incentives and utility rebate, you might have deductions totaling $8,500, reducing your up-front cost to $9,500.

If you currently pay $3,200 per year for heat and $1,300 per year for electricity; then a 50% savings on those two utilities would be $2,250 per year. At that rate, it will take you a little over four years to recoup your investment. And just to note, that the rate of recovering your costs would be based upon current energy prices. As energy prices continue to rise, your investment will be recovered even more quickly.

Do the research and make sure you find out what solar energy system is optimal for your energy needs. Take the time to find out all the financial incentives and rebates that you are entitled to claim. You can significantly cut your initial costs, immediately reduce your energy bills, recover all of your initial investment, and gain energy independence for the future.