If 62% of Americans responded to a survey agreeing that they would like to use solar in their homes, why do only about .35% of households in the U.S. have a solar installation? For one, many people understand that a solar installation produces cost savings over time, but the upfront costs of installation can be a hindrance. This hesitancy is greater if a potential solar energy consumer is worried that they may move out of their house or business before they expect to see savings. Thus, calculating the payback period, or the amount of time it would take for the installation to return the initial capital investment to the solar energy system owner, is an important consideration.
Unfortunately, calculating the payback period can be a bit tricky. Depending on the local cost of energy, and other factors involved with installing an array, payback period estimates can be anywhere from 4 years in states such as Massachusetts to over 16 years in other states such as Florida.
One important element to consider in solars’ payback period is the sale of the solar renewable energy credits (SRECs) in eligible states such as New Jersey, Massachusetts, D.C., or Maryland. SRECs are credits produced per 1000 kWh and can be sold on the spot market or through a long-term contract. The revenue generated by selling SRECs is an important factor to consider when calculating payback periods.
One way to further reduce a solar energy system’s payback period is through the Sol Combo SREC contract. Similar to our Sol Annuity, Sol Combo pays a fixed rate for SRECs for the duration of the contract. What differentiates Sol Combo is that it frontloads the payment amounts, paying solar energy consumers a higher price per SREC during the first three years of the contract, which helps to shorten the payback period. For example a 10-year Massachusetts contract could pay $266 per SREC for the first 3 years, followed by $165 for the next 7 years.
By using SRECs to accelerate a payback period, solar can be an achievable reality for home and business owners. SRECs and other mechanisms coupled with dropping solar prices, and rising energy prices will continue to shorten payback periods in the years to come. Shorter payback periods are also crucial to installers, and will help them communicate the value of a solar installation to potential customers.
About Sol Systems
Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 180MW solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management. Inc. Magazine named Sol Systems on its annual Inc. 500 list of the nation’s fastest-growing private companies for a second consecutive year, ranking it No. 6 in the nation’s top solar companies in 2014. For more information, please visit www.solsystemscompany.com