Money Matters

Does an RE System Make Economic Sense?

Inside this Article

In a recessionary economy where money can be a make-it-or-break-it variable for considering a renewable energy system, the burning question is: Does investing in a renewable energy system make economic sense?

The answer is rather nuanced and complex, but fear not—we will walk you through three methods of analyzing the economic costs and benefits of an RE system, giving you the tools to determine if an RE system fits your financial goals.

Preliminary Calculations

Step A:

Determine the average monthly electrical consumption of your home or business, preferably after incorporating conservation and efficiency measures. This figure can be calculated from past utility bills.

For example, we’re going to assume that your super-efficient home in sunny southern Colorado requires an average of 420 kWh of electricity per month, or about 5,000 kWh per year or 13.7 kWh per day.

Step B:

Calculate the size of the system that will meet your needs—whether you want to offset all of your energy use or just a portion. A professional installer can perform this calculation, or you can do it yourself.

You’ve calculated your example daily electricity consumption: an average of 13.7 kWh. Now, you need to figure out how big your PV system needs to be, which is based on peak sun-hours. In this region, average daily peak sun-hours are 5.8. (Obtain average peak sun-hours for your site at

To size the system, divide the electrical demand (13.7 kWh per day) by the average daily peak sun-hours (5.8). This will give you an estimated system size—in this case, 2.36 kW. But you’ll need to take efficiency losses into account. High temperatures, soiling, and equipment and wiring losses can shave about 30% off your array’s rated output. After adjusting, you’ll need a 3.4 kW system. For the sake of simplicity, let’s assume that the system is installed in a shade-free location.

Step C:

Determine the cost of the system. Typical installed costs per rated watt range from $7 to $9, depending upon location and the complexity of the installation. For the most accurate pricing, get a bid from an RE professional.

Your local solar installer says the system can be installed for $8 per watt ($8 x 3,400 W = $27,200).

Step D:

Don’t forget to account for financial incentives, which can shave off a significant amount from the bottom line. Visit the Database for State Incentives for Renewables & Efficiency Web site at to see what’s available in your location (see “RE Incentives” sidebar).

In our example scenario, the utility offers a rebate of $3.50 per watt of the installed capacity ($3.50 x 3,400 watts = $11, 900)—bringing the system cost to $15,300. Assuming you have a large enough federal tax liability to warrant it, you’ll also receive a 30% tax credit from the feds (0.3 x $15,300 = $4,590). After subtracting all available incentives, the total system cost is $10,710 ($27,200 - $11,900 - $4,590 = $10,710).

Comments (0)