Investing in Renewable Energy for Household Electricity:
Can It Be Profitable?
Who likes to pay their electricity bills? I don't, and most likely, neither do you. According to the latest data released by the U.S. Department of Energy, the average American paid around $110 every month for electricity in 2013. And although it hasn't been released officially, the number has climbed closer to $145 for 2016.
That amount, according to American Power, equals 5% to 22% of the after-tax income of Americans. You might think 5% is not big, but a twentieth of your total pay can be added to your savings, investments, or simply to treat yourself to one or two fancy dinners or nice dresses.
How then, can we save more money on electricity bills?
Here are a few things you might try:
● Unplug Your Devices when not in use. They can account for 5% to 10% of your total electricity bills. Computers, televisions, modems, and coffee makers are among the appliances that will eat energy, even on standby mode.
● Refrigerator usage will be one of the major electricity usages of your household and can often be 20% of your total electricity bill. Besides using it efficiently, do regular maintenance to keep it in check.
● Appliances and lighting with more efficient energy usages can be more expensive up front, but will save more money eventually. Look for appliances with Energy Star labels and LED lighting.
● Careful maintenance of air conditioners and keeping them clean can save up to 5% of your total energy usage.
● Home heating and cooling systems will eat a lot of electricity. Lowering your thermostat by just 2 degrees F can save 6% of total energy spent. Wall insulation and careful placement of windows can reduce the need to use heating and cooling appliances.
Careful home heating or cooling can save a lot of energy in the long run. In winter, set your thermostat at 68 F (20 C) at daytime and 55 F (13 C) at night. Even lowering your thermostat by just 2 degrees can save 6 percent on energy.
-Front loading washing machines might be more expensive, but can be a lot more efficient by 60%-70% of traditional ones.
Still not enough? There is another extreme, yet effective and popular, method to save more from electricity bills: building your own independent renewable energy resource.
Investing in Renewable Energy Sources
There are five forms of renewable energy that can be harnessed nowadays; they are:
● Solar Power
Using solar panel to transform sunlight into electrical energy!
● Wind Turbines
Using wind turbine to generate electricity from wind movements!
Transforming kinetic energy from water into electricity with the help of a generator!
Using the earth's heat to generate electricity!
Using organic matter as fuel to generate energy, the common example is wood pellets!
However, for independent household electricity generation, only solar and wind powers are viable, with hydro (water) power being a niche for certain areas. Let's learn a bit more about wind and solar power generators for household usage.
Using Solar Power for Household Electricity
Generating electricity with solar panels has never been cheaper. The cost to install a solar energy system has decreased by roughly seven-fold in the past two decades. During the past decade alone, the cost to install a solar electricity system has decreased from $9 per watt to just $4 per watt. If you are doing it DIY, the cost can drop further to just $2 per watt.
This means you will need 'only' $20,000-$35,000 to install a 10kW solar system, or roughly $2,500 investment per kilowatt, on average. The size of solar systems today is also varied; and you can invest in sizes from 3.5kW up to 10kW and more.
Using Wind Power for Household Electricity
Wind turbines used to be cheaper than solar panels. However, since the significant decrease of the price of solar systems, now the costs are more or less equal. Wind turbines can cost higher, from $2,500 up to $8,000 per kilowatt.
Wind turbines can be a great alternative if your location has fewer peak sun-hours or often exposed to rainy weather and other conditions that might affect sunlight exposure.
Wind turbines can be as tall as 42 feet and can be noisy, so make sure your local regulations will permit those necessities if you decide on using one. The optimal wind speed for efficient electricity generation is 12MPH, with the minimum requirement being 10MPH.
Which One to Choose? Solar or Wind
This issue has been a common topic for debate among those interested in renewable energy generation, and although there is no clear answer, here are a few things that might affect your decision:
1. Geographical Location
Meaning, which energy is more available to your location? Some areas have better exposure to sunlight, and some areas are more prone to rainy conditions, so solar panels are not viable. Some areas have better wind speed exposures.
Wind turbines must also be tall, and the height requirement might be limited by your local law. However, contrary to popular belief, a wind turbine won't require much land space. Solar panels will require more horizontal space.
2. Tax Incentives and Other Economic Advantages
Because our main motivation in this article is economical, we might as well get all the benefits we can get. Depending on your location, your local government might offer a tax credit or other forms of incentive for those who produce renewable energy in their households.
Nowadays, governments are giving more tax incentives to households with solar panels, but there are still some who offer a tax incentive for wind power generation or both. Consult your local authority to get better information regarding your tax benefits and consider which option will benefit you more.
Usually, solar panels will be the better option, especially since more governments are giving benefits to solar panel projects.
One thing we've established is that we should think about power generation as an investment, rather than an appliance. As an investment, one of the key points we need to discuss is its ROI (return on investment) or investment payback.
There are a few ways to calculate ROI on solar panel investment, and let's start with the simplest one:
Simple Solar Investment BEP Formula
Neglecting the assumption of tax benefits and other factors, here is the simplest way to calculate the BEP of your solar investment:
Break Even Point = Total Investment Cost/Value of Generated Electricity/Electricity Usage in A Year
Let's use these following assumptions to make an example:
● The average US household uses roughly 11,000 kWh electricity a year.
● A 10kW system will cost you about $20,000 to $32,000; let's make an assumption of a 6kW system with $10,000 price in total (installation fee not included).
● The current average price for a kWh of electricity in the U.S. is $0.129.
With those assumptions, the calculation will become:
$10,000/0.129/11,000 = 7.04 years
Remember that, by using this simple calculation, there are things you ignored: the tax benefits, the peak sun-hours conditions, and installation fee. The average installation fee is around $1.4 per watt, so you will need an additional $8,400 for a 6kW system, ballooning the payback time to almost 13 years. If possible, do (at least most) the installation yourself.
The simple calculation will give you a rough picture of your investment, and in an ideal condition, it would mean making a profit of roughly $10,000/7.04 years (your total investment divided by payback time), or $1,381 per year after the 7th year.
After we've understood the basics, we can delve deeper into the more detailed calculations.
Detailed BEP Calculation
Let's incorporate more factors to get a more detailed calculation. Hopefully, this can help you make a better decision whether investing in solar power is a good investment.
We will begin by evaluating the overall breakdown of your system cost:
● Determine your specific needs, which can be determined by your monthly average electrical use, the cost per kWh for your location, the average number of daily sun-hours, the brand for your solar system, and whether you would offset your total electricity usage or partial, if partial, at what percent?
● Don't forget to include your federal and state rebates, depending on your location.
● Shipping costs can vary greatly, and solar systems can be very heavy, so do a careful calculation.
● Last, don't forget your sales tax.
As we've mentioned before, installation costs can also be costly; here are some of the notable installation processes you would need to cover:
● Even if you want to do it DIY (or most of it), your location's electrical code might need installations to be done by professionals, so check your local regulations.
● Assuming you will install your panels on your roof, you will need to install racks and flashings; you might need a roofing contractor to do this process.
● Your local electrical code might also require underground cabling, so you will need to dig holes and build trenches. This could be a complicated and tiresome process, so you might need to hire a professional here.
There are many DIY solar panel installation guides out there, but check your local regulations first. Also, some states and counties will charge a fee to inspect your solar system installation before it's permitted. On average, this fee will be around $500 for installations below 10 kW.
Another consideration is whether you will need a financing or leasing to purchase your solar system. As with any investments, ideally, you shouldn't lease your solar system, as the interest can damage your overall profitability.
Instead, save more before deciding to borrow money; there's no hurry in starting your investment, anyways. If it's necessary, choose loans with low interest rates. Research all the loan options before deciding on taking one.
Maintenance and Other Operational Costs
● Panel Lifetime
As with any electronics, a solar panel will have a lifetime expectancy. The good news is, the degradation each year is low, with an average of 0.5% to 1% per year. This means, your average solar panel will still have 75% of its efficiency after 30 years of usage.
● Component Replacements
Solar panels have gotten more efficient, and while in the past, the inverters must be replaced regularly, such case will not be found on newer systems. There is little to no maintenance cost during its payback time of 5 to 10 years (7 years for our assumptions).
● Battery Banks
How would you store excess solar energy to be used during the night? The answer is using battery banks. Newer batteries, with Tesla's Powerwall being a popular choice nowadays, will cost you more initially, but will have a long lifetime expectancy, so you won't need to replace as often.
The cost for batteries is also expected to decrease even more in the years to come, so the investment will be even more viable than ever.
The cost to invest in solar panels has become affordable in recent years and will continue to decrease.
The maintenance and replacement costs required during your BEP tenure will also be very minimal, making it a very safe long-term investment.
If you hadn't planned to start your solar panel project, maybe it's a decent time to start! Not only is it cheaper than ever, most states and locations also offer tax incentives nowadays, and it's a good opportunity to exploit.
Check your local regulations, including offered tax rebates and other benefits, and requirements regarding permit and installation processes.
Investing in solar energy might be expensive, but will be a very promising long-term investment. Due to the offered tax incentives and rebates, the investment can be more profitable than even the best performing stocks in a long-term basis.
Author: Marina Kingston