Return On Investment | Sun Volt Solar Blog

Renewable energy as an investment

With interest rates dropping like a lead balloon as the Fed tries to shore up the economy, it may be enlightening to do a little research into the investment aspects of a renewable energy systems. Assuming that one owns their own home (or if a business, their own commercial building) and were planning to stay at that location for the next 5-10 years, what would the payback for a solar system be? How much of that would be in increased property values realized during a re-sale?

Dave, at the Solar Power Rocks blog, pointed out that for every $1.00 saved in annual energy costs, the value of a property increased by $20.73. This is from the Appraisal Journal, Evidence of Rational Market Values for Home Energy Efficiency.

Two years ago, I added insulation to the house and replaced four old single pane windows with energy star replacement windows. Our heating oil use went from 630 gallons per year to 450 gallons, for a savings of 180 gallons, or at today’s prices $650.00 per year. The total cost of the project was around $2,000.00 dollars, but the increased value to the house is $13,474.50. That is a nice payback, and readers should note that increasing efficiency and reducing use is the first step in considering any renewable energy system.

Last year, I installed a Solar Hot Water system on my house. The total cost for that project was around $5,000.00. With federal and state tax rebates the final cost will be about $2,200.00 Since we have not operated the system over an entire year, it is hard to calculate exactly what the savings are for this system. I have, however, been able to project the savings based on the performance so far.

Before the solar system, our hot water was heated by electricity. Our electricity cost per kWh is creeping up, now somewhere around $0.14 or so. If the estimated reduced electrical use hold true, we should save around $560.00 per year, which translates to an increased property value of $11,608.80. It seems fantastic, but by my math, that is an 870% return.

We are not selling our house anytime soon, so the increased property value is dismissed for now, as completely irrelevant. A calculation of simple payback shows the following:

Year	Expenses (US$)	Savings (US$)* (includes inflation)	Total savings minus expense (US$)	Return (percent)
1	2,200.00**	560.00	(-1,640.00)	0
2	0	572.80	(-1,067.20)	0
3	0	586.00	(-481.20)	0
4	0	599.50	118.30	5
5	0	613.29	731.59	33
6	0	627.39	1,358.98	61
7	0	641.82	2,000.80	91
8	0	656.58	2,657.38	121
9	0	671.68	3,328.50	151
10	600***	687.12	3,416.18	122
11	0	702.92	4,119.10	147
12	0	719.08	4,838.18	172
13	1,000****	735.61	4,573.79	120
14	0	752.52	5,326.31	140
15	0	769.82	6,096.13	160
16	0	787.52	6,883.65	181
17	0	805.63	7,689.28	202
18	0	824.15	8,513.43	224
19	0	843.10	9,356.53	246
20	1,000***	862.50	9,219.03	192
21	0	882.33	10,101.36	211
22	0	902.62	11,003.98	229
23	0	923.38	11,927.36	249
24	0	944.62	12,871.98	268
Totals	4,800	15,470.62	12,871.98	268

*Utility inflation calculated at 2.3 percent per year
**Initial system cost, less refunds and rebates
***Replacement of circulator pumps, expected life 10 years
****Replacement of storage tanks, expected life 12 years

Over the twenty four year life of the solar thermal collectors, a $12,871.98 savings will be realized, which leads to a net return of 268% on the initial investment. Oh, and by the way, the IRS has not figured out a way to tax people for saving money, so that is tax free, at least for now.

Also note; solar thermal collectors manufactured today could well last 35-50 years depending on the climate.

For the sake of argument, lets say in year 8 we sell our house and realize the property value increase stated above. Our return in investment would then be 991% (property value increase plus savings, or 870% plus 121%). Okay, that seems very unrealistic, so lets say we realize half of the property value increase noted above, or 556%. Geez, that is still too high so we only see a quarter of the property value increase, or 338%.

My 401K was (before the current stock market troubles) earning 16%. My CD’s are around 7%. Savings, 4.1%.

Ummm, 338% vs 7%? I am not an accountant or anything, but it seems to be like installing the solar system last year was a pretty good idea.

I am going to work an a “Solar as an Investment” page with a savings/property value increase calculator that can spit this out for anyone who wants to see what their return would be.

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