What is the parameter in Solar power that specifies the amount of time it takes to pay back your investment?

Question

This is an awkward question.

So let's say you buy a solar panel and it costs you $750, and at the current price of electricity (and other factors), it will take x years for the solar panel to SAVE you $750 on your electricity bill, thus paying for itself.

What is this phenomenon or duration of time called?

I guess you could compare it to "breaking even", except you were not investing money for the purpose of making money. You were investing money for the purpose of saving money.

Answer 1

In business, you'd call it amortization. To simplify, it's the process of spreading your cost over a number of years.

In this case, if the panel lasts long enough, you wind up amortizing your cost over the number of years it takes you to recover in "free" electricity

a) the initial $750 purchase/install price, plus
b) the interest you didn't make on the $750 over that number of years (the "value" of your money), plus
c) any maintenance costs.

less

d) any government rebates or tax incentives available at the time. If you're lucky, they'll be providing these when you decide to install.

Answer 2

In some cases the cost of solar is less from the get go. Putting a radio repeater on a mountain top could be powered by your $750 solar panel, or you could pay $5000 to have an REA line run in and wait a year or two for it to be installed. a lot of rural homes in Wyoming opt for solar/wind energy for this reason.

Answer 3

I think the term you're looking for is 'simple payback.' The amount it costs divided by the amount it makes in 1 year gives simple payback in years.

If it makes more money than it cost, in one year, you get a simple payback that's less than one.

For any major project, simple payback is a quick and easy comparison - but to do it right, you need to do a more extensive analysis over the life of the asset, figuring in maintenance, inflation, and so on. Then you're looking for a "positive net present value." Look for the NPV function in Excel...