Two-and-a-half years ago I wrote a post examining whether you should buy solar panels for your home.
If you haven’t read the article, I’d suggest you read it here, as the analysis will be much clearer.
Since that post, solar panel prices have dropped, Nova Scotia has introduced a rebate for solar installation, and there are more installers.
2016 Payback Period
In my last analysis, payback period was about 16 years, excluding the pricing of carbon.
Environmental impact should always be priced when examining new projects. Ignoring environmental impact is naive and dangerous. Carbon pricing is one way to do this.
However, this isn’t money that people directly see in their pocket, so I recognize it is harder to grasp than direct savings on a power bill.
2018 Solar Payback Period Calculations
The new calculations are summarized in two spreadsheets linked below.
I would encourage you to make a copy (File > Make a Copy), use the data sources provided in my previous article, and fill in the spreadsheet using values that apply to your own location, home size, anticipated installation size, etc.
The first spreadsheet calculates the payback period relying on direct cost savings only (via the power saved on your bill). In addition, it shows the equivalent “investment return”, which I’ll explain later.
The second spreadsheet takes into account carbon pricing (sources can be seen in previous post).
2018 Solar Payback Period Results
The results were pretty astonishing.
Modern panels are warrantied for 25 years, and expected to last for 35-40.
The payback period, excluding carbon pricing, so only on direct power bill cost savings, is now just 12 years in Nova Scotia.
Including carbon pricing, the payback period is only 9 years!
The solar installation I examined will return over 2.5 times the initial investment value in the first 25 years, and over 4 times the value in 35 years.
There are other considerations which may make installing solar even more attractive.
Solar Increasing Resale Value
A 2015 study based in the US showed that home buyers are “consistently willing to pay PV home premiums across various states, housing and PV markets” (PV = photovoltaic = solar panels).
Average premiums were found to be about $4/W - this equates to an extra $41,600 for a home with a 10.4kW system like that examined in the spreadsheet above!
Solar as an Investment Alternative
From a purely monetary perspective (assuming we don’t care about the environment), the argument against solar power is the opportunity cost of the money invested.
Even that argument is starting to break down.
The factors affecting solar payback period are relatively stable - average yearly sunlight, power prices, panel efficiency, home energy consumption - compared to say, the stock market.
The annualized average return for the S&P 500 for the past 90 years is 9.8%.
Most investors won’t see anything near that - broker fees, fund fees, market timing, etc. means most investors will realize far less.
If we look at the cost of purchasing solar purely as an investment (which I’ve added in both spreadsheets above), we see that on direct costs, solar panels will provide an average 5.18% return over 25 years.
I’d bet this is better than the return of most average investors, and much steadier than the stock market!
As a reminder, this also excludes the other benefits (environmental impact, home value increase, etc.).
(Disclaimer: Keep in mind steady/decreasing power rates will negatively affect this return - make sure to understand the factors in the spreadsheet).
Conclusion: Solar if You Can
With the current solar efficiency and rebate program, the only reason I can see not to invest in solar is if you don’t have the up-front capital.
Even then, to figure out whether it’s feasible, you can find out your cost of capital and subtract that from the expected returns of solar. If you can finance it through a mortgage when purchasing or building a new home, or in a similarly beneficial way, it may still make sense. Check with your local banker/accountant.
In a time where environmental concerns should be top-of-mind for everyone, it’s encouraging to see that technology like solar has reached a point where it makes sense for even the most pessimistic buyers.