How to Calculate the Benefit of a Solar PV System

We hear a lot about solar power these days. Government institutions and other energy companies promote solar power in every country in the world. There are numerous benefits of solar power. Solar power can reduce your electricity bill to zero. Some people install solar PV systems because it reduces their carbon footprint. It will also increase the value of the building. Although people install more and more solar power at their residencies and commercial building for the benefits, it also carries a significant cost. This article helps you to do a cost-benefit analysis of solar power for your home.

What is Solar Power?

Scientists introduced solar power to the world back in the 1950s. With research and development, they could produce solar panels at lower costs so that common people can afford them. Until around 2010, solar was a luxury item due to the high price. Only those who are interested in reducing the carbon footprint and could pay a huge price were using solar power. But in the 2020s, solar power is a widespread technology where common people could use solar PV energy to power their own homes.

The main component in a solar PV system is the solar panel. The solar panel is the component that converts sunlight into electrical energy. You can find solar panels in different capacities and sizes. The capacities of solar panels vary from 300 Watts to more than 600 Watts in the market these days. However, the real output of the solar panels depends on the capacity factor. The capacity factor for a solar PV system is usually between 15% - 30%.

A 5kW solar PV system with a capacity factor of 15% will produce:

Please note that the capacity factor will change from region to region from one system to another system. In tropical countries, the capacity factor is usually high because the sun’s path is directly above those countries. Also, when you use high-efficiency monocrystalline solar panels with better inverters with higher efficiencies, the capacity factor may increase. 

Costs Involved When You Purchase a Solar PV System

Solar panels and the inverter are the main two components of the solar PV system. As mentioned earlier, solar panels convert sunlight into electricity in the form of DC. We cannot use DC power in our daily life. Therefore, we use an inverter to convert the DC power generated into AC power. All the appliances in our homes are designed to work with AC power. 

More than 60% of the cost is for these two components (solar panel and inverter). The aluminum structure, switchgear, cables, and labor will share the rest of the cost. Therefore, you will have to bear close to 70% of the cost upfront. If you are getting the help of a solar PV installer, they will charge you close to 60% of the cost initially. Then they will gradually charge the rest of the 40%. 

Some even install battery-powered solar PV systems in their households. The advantage of using battery-powered solar PV systems is that you can store the generated electricity in batteries. But in turn, you will have to spend on a good battery pack with a good warranty which will cost you a significant amount of money. When you store electricity in batteries, you can consume it later without using the electricity from the grid at all. 

Solar PV Systems come with less maintenance. But the solar panels require a wash now and then to remove the dirt on the glass of the solar panel. When there is dirt on the glass, it will reduce the amount of light falling on the solar cells inside the solar panel. In turn, it will reduce the generation. Therefore, there will be some cost for the labor for cleaning the solar panels.

Benefits of Solar Power

The main benefit of solar power is that you can reduce or make the electricity bill zero. The degree to which you can reduce the electricity bill depends on how much electricity your solar PV system will produce. As mentioned earlier, the amount of solar power generated depends on the capacity factor. You will have a better capacity factor if there is enough sunlight to generate a higher amount of energy. That is the reason why the solar generation in tropical countries is quite high compared to countries that are farther away from the equator. 

The next benefit is the timing. Solar generation is high in the summer. It is because you have ample amounts of sunlight in the summer. Because of the humidity and the heat, people use air conditioning to reduce the heat to manageable levels. Air conditioners require higher power. Therefore, it will consume a lot of electricity to work. Having solar power to power the air conditioners can significantly reduce the burden of increased electricity bills.

You also can solar PV system to get some extra income. This scheme is present only in a few countries like the UK. In this particular scheme, you can use the energy to reduce the electricity bill of your home. If you produce extra energy, you can simply sell it to your utility provider and earn some cash from it. However, in countries like the USA, the story is a little different. In the USA, if you install a solar PV system, you can apply for a tax rebate of close to 30% of the system cost. This is an incentive to promote solar power in the country.

Turning your energy source into solar PV can also uplift your image in society. You will be recognized as someone who is caring about the environment and who is actively participating in the struggle to solve the global warming issue. You are helping to reduce the amount of carbon dioxide released to the environment that will harm humans and all other living beings on the planet. 

These are the key benefits you have if you install a solar PV system on your roof. Now, let's look at how to compare the costs and benefits of going solar.

Weighing Costs and Benefits

If you consider solar power as an investment, one way of evaluating the costs and benefits of electricity is by discounted cash flows. You will incur costs at the installation phase only because the maintenance costs are negligible compared to the initial costs. Therefore, costs will include the major cash outflows like the cost for components and labor. The cash inflow is the offset of the cost for electricity in the future. 

In addition, we can calculate the viability of the solar PV system using the LCOE method. LCOE is an abbreviation for “Levelized Cost Of Electricity”. Once we calculate the LCOE, you can then compare it with the current cost of electricity and decide whether you invest in solar power or not. Here is how you calculate LCOE.

The lifetime of a typical solar panel can vary between 25 years and 40 years. The cost of ownership includes the initial cost and the maintenance costs discounted to the year of installation. Once you calculate the LCOE, you can compare it to the electricity costs of the utility to decide the feasibility of the solar PV system.