Over the past month the Skagit Valley Herald has had a lead article and several letters to the editor on solar panels. What I find missing in all the pieces is detailed information on the economics associated with the panels. In one letter, the author implied that solar panels require subsidies to make economic sense but again provided no details.
I would like to share some general numbers based on the system we have in Anacortes. If installed today, this system would cost approximately $18,000 and generate 7,000 kW/yr (60% of our power use). At 11.5 cents per kW/hr (PSE tier two price plus Anacortes tax), this generates $805 a year.
This system generates an Internal Rate of Return of 2.2 percent (Excel). This is without any direct subsidy. I have also assumed no inflation in electricity costs, so this number is quite conservative.
While earning 2.2% on an investment is not great, it is acceptable for millions of investors who get about the same from T-Bills — so solar can make economic sense. Both investments are low risk, and T-Bill income is taxable.
It is recognized that Western Washington is one of the worst places in the U.S. for solar panels, due to limited sun and cheap power. Moving our system to Eastern Washington would increase the return to 6.5 percent (very good for tax- free, low-risk investment), and in the desert Southwest the return will exceed 10 percent.
With all the incentives, our panels have a 10-plus percent return. We did not really invest for a rate of return but felt that if we could help the planet and provide a bit cleaner air for my neighbors and kids, it was something we should do.