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PAYBACK PERIOD

PAYBACK PERIOD / IRR

Summary of Expenses & Income

 

We’re going to use our example roof and typical costs and credits to calculate our expected Payback Period and Internal Rate of Return (IRR).

 

Here is the result of our calculations. Scroll down to see how we came up with these numbers.

 
Payback Period

The Payback Period is how long it will take for you to recover your initial expense of installing solar panels.

 
Internal Rate of Return (IRR)

The Internal Rate of Return is a measure of the profitability and is used to evaluate the attractiveness of an investment.

SYSTEM COST

Estimating the Cost of Installing Solar

Price per watt, or $/W is a common way to compare the costs of installing solar panels. It refers to the number of dollars one would have to spend to buy a system capable of producing one watt of electricity. It is calculated by dividing the total project cost by the nameplate capacity of the system.

 

For our purposes we’ll use an estimated cost of $ 3.10/Watt.

FEDERAL/STATE Incentives

Federal incentive.

 

The federal solar tax credit, also known as the investment tax credit (ITC), allows you to deduct 30 percent of the cost of installing a solar energy system from your federal taxes. The ITC applies to both residential and commercial systems, and there is no cap on its value.

State Incentive (Illinois)

 

The Illinois Solar and Wind Energy Rebate Program was providing a rebate of up to 25% of project costs for residential and commercial solar installations.

 

Sadly this rebate program is now closed and is not likely to come back.

 
 
SRECs - 2017

Solar Renewable Energy Credits (SRECs)

 

The Illinois Renewable Portfolio Standard (RPS) requires electricity suppliers to secure a portion of their electricity from renewable energy sources. The SREC program provides a means for Solar Renewable Energy Certificates (SRECs) to be created for every megawatt-hour of solar electricity your panels create. In Illinois you own these SRECs and the Illinois Power Agency (IPA) will purchase your SRECs from you under 5 year contracts. Once under contract, you will receive a check four times (quarterly) every year for the duration of the 5 year contract.

 

For our example roof we will use an example SREC value of $167.

 

Our 5 year SREC contract is worth $ 4,400

You would receive a quarterly check for $ 220

 

This is an additional income stream on top of and separate from offsetting your utility provided electricity use (Spinning your meter backwards).

 

The value of an SREC is determined by the market and is subject to supply and demand constraints.  Your solar installer will assist you in determining the value of an SREC at the time of your installation and in getting your first 5 year contract in place.

 
ADJUSTABLE BLOCK PROGRAM - 2018
Adjustable Block Program has replaced the 5 year SRECs

 

The (December 2016) passage of the Illinois Future Energy Jobs bill will change the way renewable energy generation is incentivized.  Under this new program, instead of a 5 year SREC contact paid quarterly, the SREC contract is for 15 years and paid up front in a single check at the time of system installation.

 

This 15 year contract paid upfront is much better deal than a 5 year contract. 

First Year Income
 
Initial cost for this system.

Our estimated installation cost after Federal Credit and Illinois State Rebate will be: $9,100.

First year Income for this system.

The value of the electricity produced in our first year will be $1,437. This amount is from our two sources of income which are the electricity our panels produce ($557), and the checks we receive ($880)  for our renewble energy credits (SRECs)

25 Year Analysis

Taking all known variables into account.

 

This table shows all the variables that can affect your financial income for the 25 lifespan of your solar panels.

 

Notice there are two ways you make income from the panels:

  1.  The $ Value of the electricity you generate so you don’t have to buy it from the local electric utility.

 

Notice we start out with Net Metering crediting you 100% of the retail rate for the next 8 years and then take it down to 90% after that. This is to account for the likely switch to “Energy Only” Net Metering once Illinois reaches it’s 5% renewable energy threshold.

 

  2. The SREC Credits (2017) paid to you quarterly in 5 year contracts for producing renewable energy.

 

In this chart you will notice we’re only accounting for the income for your first 5 year SREC contract. After your first 5 year SREC contract expires you will of course line up another contract to continue to sell your SRECs. We don't include this second SREC contract because we're being very conservative with our numbers and don't want to estimate the SREC value for this example.

Final Results

Final Financial Results for our Example Roof
 
Payback Period = 7 Years

The Payback Period is how long it will take for you to recover your initial expense of installing solar panels. You will continue to financially benefit well beyond the payback period, but that is not reflected in this number.

Internal Rate of Return (IRR) = 10%

The Internal Rate of Return is a measure of the profitability and is used to evaluate the attractiveness of an investment.