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Life Off-the-Grid

The Payback on Renewable Energy

By Cam Mather

For 10 years I have been giving workshops at colleges about renewable energy. Eventually this workshop morphed into my “Thriving During Challenging Times” talk that ended up as a book, but renewable energy is still an important component of my workshops. One of the questions that I have been asked most often at my workshops is “What’s the payback on renewable energy?” For 10 years I’ve used various answers to convince my workshop attendees of the many reasons to get going with solar.

One of the things that I have begun to point out to people is that we don’t ask about the payback for many of our other purchases.  For example “What’s the payback on your furnace, or hot water heater?” Well there isn’t one, but you probably purchased those items anyway. Heat and hot water are nice things to have.

Recently I was reminded of one of my favorite examples of this “lack of payback” concept. I was at my neighbors returning the manure trailer and there was a Lincoln Town Car parked in the driveway. The owner of the car (which had been given to him) asked me what I thought it was worth. It was a 1997 model, but I’m not a “car guy” so I didn’t have a clue. He told me that when it was new it cost close to $50,000 but the book value on it today was about $1,000. So, in about 13 years the value of that car had gone from $50,000 to $1,000. What’s the payback on your car?

Got you there, didn’t I? Most of us own a vehicle and they are a depreciating asset whose value eventually reaches zero. For lots of Americans they are in a similar situation with their homes. A Harvard economist has projected that by 2011, 50% of Americans will be “underwater” or have negative equity in their homes. So their mortgage will be larger than the value of their house. Ouch! That’s brutal.

In our book The Renewable Energy Handbook William Kemp came up with a payback chart. It shows that the fastest payback is in energy efficiency. The cheapest kilowatt is the one you “save”. Replacing light bulbs with compact fluorescents, upgrading appliances and making other energy-efficient changes will ensure that when you eventually put up a solar panel, the energy it produces will be used efficiently. For every $1 you spend on efficiency you would have to spend $4 or $5 on generation, so spend your money on efficiency first.

Once you’ve squeezed all the energy efficiency you can out of your home you move into generation and the fastest payback is on “thermal” energy or using the sun’s energy for heat. Perhaps this isn’t as exciting as solar PV panels, but the payback is faster. Depending on how you heat your hot water and how energy prices increase over time, the payback on a $5,000 or $6,000 investment in a Solar Domestic Hot Water Heater (SDHW) system is probably 5 or 6 years. A 5-year payback is a 20% return on investment. That’s a pretty amazing return on investment! Better than the payback on your car! A better return than you can get in your bank account, your savings bonds or your mutual funds! Try and get that return in any legal financial instrument, and you’ll discover that it just can’t be done right now. Solar thermal also includes geothermal systems like ground source heat pumps. As the price of natural gas goes up these make more and more sense with faster and faster paybacks. I won’t even mention how much less carbon dioxide you will be creating with these awesome green technologies versus natural gas.

Our solar thermal panel

While the payback on a solar electric system will not be as good as on a solar thermal system, it’s still excellent. Let’s say it took 20 years to pay back – that’s a 5% return on investment. What’s your savings account paying right now – 2%? The beauty is that lots of governments now have incentives to put photovoltaic panels on your roof and they’ll buy your green electricity at a premium. In Ontario right now the government will buy your solar power at .80¢/kWh for rooftop generation, which means your system should be paid for in 10 to 12 years. Once your system is paid for, all of the income goes into your pocket and since solar panels will continue to produce electricity indefinitely, they will continue to provide you with income.  A ten-year payback is a 10% return on investment (ROI). Try to earn that in a mutual fund! At the same time that you are reducing your carbon footprint you’ll be making a better, guaranteed return than if you chose to take a roller coaster stock market ride.

One of our PV arrays

I haven’t even touched yet on the security that having a power plant on your home will offer you. In “Thriving During Challenging Times” one of my themes is the importance of making yourself more independent. You need to make yourself more resilient to the shocks the system is experiencing. Stop being so reliant on others to provide the essential services that your comfort depends on. Solar panels allow this. It just doesn’t make sense anymore not to have them on your roof. What was the return on investment of your trip to Cancun? What’s the payback on your cottage? What’s the ROI on that new SUV? If my neighbor had taken his $50,000, bought a $10,000 used Honda Civic and put the remaining $40,000 into solar panels 12 years ago, he’d have paid less for gas, would be close to paying off his solar panels and then he’d have free solar electricity for life. Current solar panels come with a 25 or 30-year warranty and will work much longer than that.

What’s the payback on solar panels? Let’s rephrase the question. How about showing me where you can get a better payback than you get from renewable energy right now. I bet you can’t.

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3 Comments

  1. Hi,

    Interesting article. Although I question the maths around the % return calculations – you need to factor in inflation on how long the solar panels take to achieve unity return; i.e. you get back the same buying power for the initial investment. $20k back in 30 years is not the same as $20k now..

    Secondly a straight rate of return comparison with an interest account is not right – the interest on the account is accumulative, i.e. you earn interest on interest.

    Basically you need to run a simulation over the investment period to get a true comparison and you also need to include any costs in ‘servicing’ the capital investment – i.e. maintenance and replacements. For instance inverters do not last as long as solar panels and cost upwards of $1000 each to replace.

    Myself I’m waiting a little on the efficiency/cost ratio of solar panels to improve by about 15% – so underlying ROI of a sufficiently scaled installation is essentially guaranteed independent of any government grants or feed in tariffs.

    See my name for a link to a ROI calculator for solar that will help you see how I came to this conclusion.

  2. Larry

    “For instance inverters do not last as long as solar panels and cost upwards of $1000 each to replace.”

    A car like the one above will cost $1000 a year to keep running. Do you have to replace the inverters every year? If not, you have to factor that into your equation, since this story was based on the cost of the car vs the panels over time.

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