The Economics of a Small Solar Electric System

The economics of the small solar electric or photovoltaic (PV) system are determined by both the capital and operating costs. Capital costs include the initial costs of designing and installing a PV system. Operating costs include the costs associated with maintaining and operating the PV system over its useful life.

The factors that affect both capital and operating costs include system components, system size, whether a system is grid-connected or stands alone (off-grid), and the amount of sunlight at your location. A professional solar installer can help you examine these variables and develop a solar installation quote that will include your expected monthly cost savings.

Electricity Consumption

Before selecting system components and sizing a PV system for an existing home, you should evaluate your energy consumption patterns and try to reduce your home's electricity use. You can start by performing a load analysis, which includes looking at your utility bills over the past year, calculating energy consumption, and recognizing consumption trends.

By understanding your "energy habits" and becoming more energy efficient, you can reduce the size of the PV system you'll need, lowering both your capital and operating costs.

If you're designing a new home, you should work with the builder and the solar professional to incorporate your PV system into your whole-house system designï¾—an approach for building an energy-efficient home.

PV Cost Considerations

Ask your PV provider how much electricity your new PV system will produce per year (measured in kilowatt-hours) and compare that number to your annual electricity usage (called demand) to get an idea of how much you will save. As a rule, the cost per kilowatt-hour goes down as you increase the size of the system.

You should also compare the purchase price of utility-generated electricity to the higher costs of smaller PV systems. PV-generated electricity is usually more expensive than conventional, utility-supplied electricity. However, these costs will vary by geographic location.

Solar rebate programs, subsidies, and other incentives can help make PV more affordable. Tax incentives may include a sales tax exemption on the PV system purchase, a property tax exemption, or state personal income tax credits, all of which provide an economic benefit to consumers by lowering high capital costs.

Some solar rebate programs are capped at a certain dollar amount. Therefore, a solar electric system that matches this cap maximizes the benefit of the solar rebate.

Many homeowners use PV systems because other considerations - such as environmental benefits and energy independence - tip the balance in their favor.

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Source: U.S. Department of Energy Office of Energy Efficiency and Renewable Energy