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Producing, Using and Selling Electricity

On average, a 1 kW system in the Phoenix area would produce 2,355 kWh of energy per year.As a result, the 1 kW system would produce 196.25 kWh of clean, renewable energy every month.  Because of the net metering policy adopted by Arizona in 1981, the homeowner can “sell back” 15 percent of the electricity the system generates to APS.  This is possible because the estimated electrical demands of the household are fairly small compared with the amount of electricity produced by the system at peak hours of sunlight.

Table 2: Net metering sell back in kWh

Total kWh Generated by PV System (per month)

Percent “Sold” to APS

Total kWh “Sold” to APS

196.25

15%

29.44

The homeowner sells back 29.44 kWh of energy to APS during the daytime.  Unfortunately, under net metering regulations, APS is only required to pay the wholesale avoided cost of the energy, which varies from about $.02 cents per kWh for nuclear generated power to $.04 for coal generated power.  APS will in turn sell the energy the system generates at the retail price of approximately $.082. The homeowner will receive a maximum credit of $1.18 on the next energy bill.

 
Table 3: Net metering monthly payback.

Total kWh “Sold” to APS

Avoided Cost ($)

Total Credit Received ($)

29.44

.04

1.18
The supplemental power will reduce dependence on APS to provide energy.    Because this home consumes the Arizona average of 1056 kWh/month, with the PV system providing 166.81 kWh of pollution-free energy (remember: 29.44 is sold to APS), the electric bills after the installation of the 1 kW system would be $72.91.

Table 4: Monthly electrical bill after solar consumption

Total Monthly Consumption (PV + APS in kWh)

Total Energy Generated and Consumed From PV

Total Energy Purchased and Consumed From APS

Residential Rate ($)

Energy Bill (subtotal in $)

1056

166.81

889.19

.082

72.91

Table 5: Net monthly bill after net metering reduction

Total generated and “Sold” to APS (kWh)

Maximum Total Credit Received From APS ($)

Subtotal ($)-Total Credit ($)

Total Energy Bill ($)

29.44

1.18

(72.91)-(1.18)=

$71.73

Considering the average residential rate in Arizona is $.082/kWh, all of the consumed electricity (1056 kWh) purchased through APS, would produce a monthly consumption charge of $86.59.  With the PV system in place, the homeowner would save an average of $14.86 per month on electricity ($86.59 - $71.73). The yearly savings would be $178.32. Using the so-called Simple Payback Period (the time required to recover the investment made from the savings received) the homeowner will recover the $700 invested in roughly 4 years. After this initial period the savings will be $178.32 per year for the expected 15-20 year life of the system.

     A more sophisticated method for evaluation investments is the net present value method.  This method calculates the value in dollars today of the future savings promised by the investment so that this value can be compared to the cost today of the investment.  Using an estimated interest rate of 7.5%, and a savings of $178.32 per year for a fifteen year expected lifespan of the system, the homeowner can determine that the value today of savings due to the installation of the PV system is $1,574.  Considering the out of pocket cost of the solar panel is $700, this shows that the homeowner will regain more than the full purchase price of the system in today’s value of the future savings. As such, the investment is a good one since the net present value is a positive $874. If one assumes a twenty year expected lifespan of the system the value of the future savings rises to $1,818, for a net present value of positive $1,118.

Another method of evaluating the investment is the Internal Rate of Return. The IRR returns a percentage value that is the return on the investment which can then be compared to returns on other investments of similar risk. In this case the IRR based on 15 years is 24.5%. In other words, if the owner invests $700 in the solar panel system, they will receive a 24.5% return on the investment. The IRR assuming a 20 year life for the system is 25.2%!  

The homeowner may not only be concerned with the purely financial aspects of the solar system, but also the environmental implications of the decision to go solar.

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