What’s Solar Worth?
How can you determine the actual value of solar hot water?
Based on the number of occupants in your home, you can make a pretty good estimate at how much hot water you are using over the course of the year. Understanding how much hot water you are using helps with properly sizing your solar hot water system.
Knowing the system size allows you to determine the cost of your solar equipment. Although the labor costs associated with installing this equipment can vary from house to house, you can attain a reasonable approximation of what you might pay to get the work done. Your total installed cost will be the combination of the equipment cost and the labor cost.
Thanks to credits and incentives any many states and the federal government, your installed cost is not end of the story. In North Carolina, for example, that cost can be reduced by up to 65% once you’ve included your state and federal tax credits. We call this your net cost.
Knowing the system size also allows you to calculate how much solar energy will be produced over the course of the year. The energy that the solar system generates is energy that your natural gas or electric water heater does not need to generate, thus reducing your bill. It’s called the avoided cost of energy but you may just want to refer to it as “cash in your pocket” or savings.
Once you’ve determined the installed cost and the savings, you can calculate what really matters most to you… your return on investment, or R.O.I.! For those of you who actually managed to stay awake through economics class, you may recall the formula for R.O.I. as the following:
R.O.I. = Savings / Net Cost
R.O.I., also known as “rate of return”, is a useful way to measure the performance of any investment and compare it to others. For example, you may want to compare two different mutual funds before you put your money in one of them. If one mutual fund has a rate of return of 9% and the other has a return of 11%, you go with the 11%… no brainer!
One HUGE advantage of your investment in solar hot water is that the returns are not taxable! The mutual funds mentioned above would both have pre-tax returns of 9% and 11%. Their after-tax returns will be noticeably lower. Solar hot water doesn’t have this problem. You can’t tax savings… not yet at least. This is an important distinction to remember when you compare your solar hot water R.O.I. to other places you may already be parking your money.
If you live in North Carolina like I do, I’d highly recommend you get a free online analysis at http://www.ncsolarhotwater.info to see the numbers for yourself.