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Solar is a Bright Investment

Sunshine in trees

Investing in a solar system seems like a great idea, but what are the financial implications? How much will it cost and what is the “payback?” These are common questions that are easily answered.

When you partner with SunPeak, we will guide you through the factors that impact financial feasibility and overall return on investment:

  1. Electrical consumption and rates. How much are you currently paying for electricity?
  2. SunPeak PV system production. How much energy will a SunPeak system produce?
  3. System price. How much will a SunPeak system cost?
  4. Incentives and tax benefits. What assistance are you eligible for to finance the project?
  5. Return on investment. Will this system save you money? How much?

How to determine your Electrical Consumption & Rates

The first step is digging up your old electric bills. These abstract documents don’t typically get a lot of attention, but if you look closely, you will notice a number of key pieces of information that are important considerations to the overall payback model of a solar PV system.

It is important to first understand that there are two usage metrics that electric companies measure to bill customers, each with different rate structures:

1. Energy consumption. Energy is measured in kilowatt-hours (kWh) and is what most people think of when they think of what the electric company is selling. It measures a quantity of electricity that is consumed per month. If you were to compare this to a water bill, it would be like measuring gallons of water. Energy is billed in $/kWh, and a ballpark rate of $0.05-0.20/kWh is common today.

  1. Peak rates. Typically during the time of day when demand is highest, the utility will increase the price per kWh. This makes the value of energy during the day worth a premium, which is one of the reasons solar is attractive. When energy prices are the highest, the solar array is producing the most energy.
  2. Off-peak rates. Any time of the day that is not considered a “peak rate” is simply called “off-peak.” Off-peak rates can easily be ½ the cost per kWh of peak rates, and typically correspond to nights, weekends and holidays…when electrical demand is lower. Peak and off-peak rates correspond to a billing scheme that is generally referred to as “time of use” billing. It is more common for commercial and industrial customers than residential customers.

2. Demand charges. For commercial and industrial customers, there is another charge that is in addition to the energy consumption, which relates to power demand. If energy is gallons of water, power is like gallons of water per hour. It is a measure of energy flow rate. This demand charge is not found on residential bills, but is common for larger consumers. Demand charges are in units of power, which is in kilowatts (kW). This charge puts a premium on consuming a lot of energy in a short period of time and is impacted by how much drain is being put on the electrical grid at a given moment.

  1. System demand. The utility company keeps track every month of the maximum amount of power that is demanded at any one time. How much electricity are you consuming per unit of time? The highest power demand reached in a given 15-minute window per month is multiplied by the system demand rate to establish the system demand charge.
  2. Customer demand. This charge is exactly like the system demand, but the maximum value is tracked per year rather than per month. Therefore, the highest power demanded within a 12-month timeframe becomes the “high water mark” on power demanded. This is effectively like a “double charge” for the time every year when you are consuming the most power at a given moment.

All of the information, both usage and rates, are found on each electric bill. If we look at 12-months of electric bills, we can quickly understand how much energy is being consumed and at what cost.

FINANCIAL METRICS TO EVALUATE INCLUDE:

  • Net Annual Cash Flow
  • Cummulative Cash Flow Payback Period (CCFP)
  • Simple Payback Period (SPB)
  • Net Present Value (NPV)
  • Internal Rate of Return (IRR)
  • Levelized Cost of Energy (LCOE)

Complete the information below to download a full 15-page detailed cash-financed solar case study. The case study will go through all 5 factors that impact financial feasibility of a solar investment.

 

Request your own custom solar financial analysis for your facility.

 

844-NO-CARBON  •  844.662.2726 (toll free)  •  608.535.4554 (local)
440 Science Drive, Madison, WI 53711
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