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Ruminations on ROI and Solar PV

Aug 22, 2011

We hear a lot about ROI in our industry. People want to know what kind of return they can expect on their solar photovoltaic (PV) system, and understandably so. ROI is a tool, one of many, that helps to evaluate a potential investment and tells one piece of a broader story.  What I find interesting is where ROI is applied, and not applied. 

For example, I enjoy a tall black coffee on a daily basis from a well known coffee establishment. I’ve never once sat down to calculate the ROI for this investment because it would be a pretty poor outcome. Still, I continue to invest my money in this endeavor without another thought. Take automobiles, too. Here is something that we pay tens of thousands of dollars for and the second we drive it off the lot it has dropped in value, and we'll never see that original purchase price again. Not to mention the continued investment of fuel and upkeep.

“Yea but”, you say. Those investments have other less tangible returns. That tall black coffee probably boosts my productivity somehow bringing a return on that investment. And that car, that car makes me feel good and like I’ve accomplished something.

My goal in this article is to encourage people to consider the less tangible benefits that solar PV can provide and to apply a similar logic to this investment that we bring to most everything else in our lives that we invest our hard earned money in.

Protection: A Hedge Against Rising Energy Costs - There’s no debate that fuel prices are on the rise and there are some startling facts that coincide with this. China just surpassed the U.S. as the world’s largest consumer of fuel and India isn’t far behind. The days of cheap abundant fuel are becoming part of our history books and were only possible when the U.S. enjoyed unfettered dominance in the global arena both economically and technologically. There’s a lot more people sitting at the big boy table these days and each of them want what we have, understandably so.

Southwest airlines applied this logic back in 2007 when they made the critical decision to lock in jet fuel prices just before fuel prices sky rocketed. The other major airlines went into a tailspin trying to figure out how to avoid bankruptcy.

Predictable: Results You Can Bank On - The world of “third-party-owned systems” has brought an innovative business model that is literally a game changer for this industry. With significantly less upfront investment necessary, these systems are producing results that even the most ardent investor would jump on – instant ROI’s and zero out-of-pocket costs. It’s been interesting helping consumers understand this business model. With the third party owning the liability (equipment on the roof), the consumer enjoys the benefits of the asset (kWh’s generated by the system). When an inverter goes out or hail damage is reported, the third party is responsible for repair. If the system does not perform as expected, the third party guarantees production with a refund of kWh’s not met. This has simplified going solar immensely and spurned the growth of thousands of new solar roofs.

Re-sale: Increased Home Value - Thanks to Berkley Labs we finally have a legitimate study on the effects that solar PV has on home values. The study evaluated thousands of homes in California that sold, some with solar and some without, to determine if there was verifiable evidence to support the claim that solar PV adds to the value of your home. They concluded that as little as three kW can add $18,000 to the value of a home. The study landed at somewhere between $3.90 and $6.40 of value for every watt of solar. If people sold cars with all of the fuel costs covered for 20 years who wouldn’t pay a premium for that? That’s effectively what you are doing when you sell a home that has solar PV.

There are very few things in life that we apply ROI towards and demand the kind of results that many homeowners are asking for from solar PV. What other investment can you make that will literally save you thousands of dollars over the next 20 years? The upfront investment was a legitimate objection and the biggest hurdle for people wanting to manage their energy costs. With third-party ownership that excuse has been mitigated.

I’m not saying that solar is right for every home because your solar resource is still a major issue. Despite advances in solar modules we still can’t put them in the shade, on a North facing roof, or when there are major space constraints. There is also the unquestionably important role that local incentives have on this decision. What I am saying is that while ROI is an important tool, it doesn’t tell the whole story. The tide of solar PV is on the rise and I encourage you to jump in!

The information and views expressed in this blog post are solely those of the author and not necessarily those of RenewableEnergyWorld.com or the companies that advertise on this Web site and other publications. This blog was posted directly by the author and was not reviewed for accuracy, spelling or grammar.

Erick's interest in renewable energy began during the two years he lived and studied in China. It was there that he realized that the United States as a country MUST reinvent its approach to energy consumption, production and delivery. In early 2009, Erick entered the solar industry by working f...

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