Solar panels seem to be sprouting up everywhere these days: on roof tops, on walls and even in fields. Between 2008 and 2012 the cost of photovoltaic panels plunged by 77 percent. With these lower costs, many Vermonters wonder if it now makes financial sense for them to install solar panels on their homes.
With that question in mind, two of my students at the Tuck School of Business, Brandon Burd and Dustin Cathcart, analyzed the data from the 215,000 residential installations currently connected to the electric grid throughout the United States. They studied the costs and benefits of installing a photovoltaic system purely from a financial perspective and produced a financial calculator or dashboard. That dashboard is now available and can be accessed here.
To utilize the financial calculator, a homeowner needs to answer five simple questions like: how long do you plan to live in your home? And how much electrical energy do you use? If you don’t know what number to input, the dashboard will suggest average numbers for the State of Vermont. Almost all of the underlying data comes from government sources.
The outputs generated by the dashboard tell a homeowner how many panels they would need to install and how many years it will take to get back the initial investment. According to the dashboard, for most Vermonters, the payback will be between 5 and 8 years.
In 2014, it generally costs more to produce electricity from the sun than to buy it from a local utility. However, there are a number of subsidies that help to close the gap. Vermont utility companies are obligated to offer long term contracts based on the cost of solar generated electricity, even though that means paying the homeowner a premium above the current retail rate. The Federal government currently provides a 30 percent investment tax credit which greatly reduces the upfront costs.
In addition to providing tax incentives, in 2011 the Federal Government launched the Sunshot Initiative to make photovoltaic systems competitive, without subsidies, by 2020. So far Sunshot seems to be on track.
With continued advances on the horizon, some homeowners may be tempted to wait. However, as the cost of producing electricity from the sun goes down, many of the subsidies will disappear.
Installing solar panels is not cheap and most people don’t treat it as simply a financial decision. Norwich homeowners, Beth Krusi and Sandy Harris installed solar panels at their home in Norwich about a year ago. “After rebates we’re getting an after tax return of about 10 percent,” Beth explains. “So now we’re looking at buying a plug in, hybrid car to use our extra electricity.”
