Money Matters: Page 2 of 3

Does an RE System Make Economic Sense?
Beginner

Inside this Article

Step E:

Calculate the output of the system over its expected lifespan—typically 20-plus years for a wind system and 30-plus years for a PV or solar hot water system. Multiply the lifespan by the kWh figure used to calculate Step B.

5,000 kWh/year x 30 years = 150,000 kWh

Method 1: Cost of Energy Comparison

One of the simplest ways to analyze a renewable energy system’s economic performance is to compare the cost of energy produced by the system to the cost of electricity from the local utility.

Step 1:

Estimate the cost of RE-generated energy in kilowatt-hours (for solar- or wind-electric systems) or in therms (for solar hot water systems) by dividing the total cost of the system by the total output.

From Step E, we know that our example system will produce about 150,000 kWh over its lifetime. To calculate the cost per kilowatt-hour, divide the system cost ($10,710) by the output (150,000 kWh). In this case, your electricity will cost about 7 cents per kWh.

Step 2:

Compare the cost-per-unit energy generated by the system over its lifetime to the cost of energy from the local utility.

Considering that the going electric rate in Colorado is currently about 9.5 cents per kWh (including all fees and taxes), the PV system is a decent investment.

Variables

The cost-of-electricity comparison does not take into account a few key economic factors, such as interest on any money borrowed to purchase the PV system, which increases the per kilowatt-hour cost of PV-produced electricity. For those who purchase without borrowing, this economic analysis does not factor in lost opportunity value (i.e., lost potential income from interest the money could have been earning).

On the other side of the ledger, this analysis does not factor in the rising cost of electricity. Nationwide, electricity rates have increased an average of 4.4% per year over the past 35 years—twice that rate in some parts of the country. It’s a fairly safe assumption that the rising cost of utility electricity will offset the interest paid for a loan or interest lost from the outright purchase of a system.

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