Economics of Solar Power

What are the Economics of Solar?

The solar industry began with a single burden - demonstrate that a solar investment makes financial sense. We aim to expound on the richness of the larger embrace of solar energy, but we are still almost always asked to quantify the ROI of a solar project. To reach our goals, those of Lighthouse and those of our planet, we need to remove all the barriers to adopting solar. To this end, let’s recap the fundamental financial attributes of a solar investment.

At its most basic, solar can be evaluated as a simple payback, calculated as the time it takes to recover the initial investment using the cost of electricity over time. We can assume either a conservative increase or no inflation in energy. In either case, the other choices to buy electricity come with a practical option to consider an ROI. Further considerations come with this calculation. 

1. A Powerful Hedge: Fixed Pricing on electricity rates for at least 30 years. Buying solar now locks in a price that is amortized over the life of the system. We call this Levelized Cost of Energy (LCOE). While Utility rates increase, your solar kilowatt hour will stay the same. Imagine if you had bought 25,000 gallons of gasoline in 1982 and stored it in your backyard. (Actually, that’s quite scary). Utility rates reflect general Inflation, but they also respond to general growth. New power generation has to come from somewhere to serve the growing population and growing electrification of our lives. As the transportation sector electrifies, the same number of people will use substantially more juice. We have to pay for new generation- a cost reflected in utility rates.
2. The Cleanest Energy is now the Cheapest. Yes, solar is the cheapest and cleanest form of new energy generation. While Texas is the leader in new solar, there is still the cost to transport electricity from West Texas- something that is avoided by putting the power plant on your roof. We see that, considering the challenges of moving power around the grid, the most practical solution is to locate the generation right where you use it. Solar is the only viable, scalable solution that co-locates where the load is, without noxious fumes- think fossil fuels, or still expensive fuel sources- think hydrogen. For those with EVs but no solar, remember that the electrons are coming from somewhere, and in our neck of the woods, that’s 65% likely to be from fossil fuels. A great podcast exploring these issues and more is: The Energy Transition.
3. Resale value on average you gain 4-5% of your total home value. Solar is a part of your home and it increases equity like other improvements. Think of it as the granite countertop that pays for itself over time but is also functional.

These are just the most basic tenets. In talking with our customers, we have heard as many different motivations as you could count.