# Solar-Hot-Water Payback

L. David Roper
http://www.roperld.com/personal/roperldavid.htm
6 April, 2016

## Introduction

Solar energy is an inflation-protected investment; it reduces electricity costs at the current rate instead of future rates. The economics of solar energy include:

The first thing you should do is make your house as energy-efficient as possible, so that renewable energy does not have to supply so much energy.

## Assumptions

Several assumptions have to be made to calculate payback for solar hot water; here is an example:

• Initial electricity rate: ~\$0.10/kWh for Blacksburg VA
• Average yearly increase in grid-electricity rate: ~6%/year
• Cost per peak kilowatt to install: ~\$3000/(actual kW) (from my experience with an apartment house)
• Loan interest rate: ~5% per annum
• Average sunshine hours per day for a year: ~4.5 hours in Blacksburg VA. (See this web page for the hours for other locations.)

The 30-tube Apricus collector, what a normal house uses, is about 2 kW actual power, according to my experience.

There are some ephemeral situations that may reduce payback periods:

• State or federal rebates for installing renewable energy
• State or federal tax deductions or reductions for installing renewable energy
• Solar Renewable Energy Credits (SRECs) that may be saleable

Contrary to the case for solar PV, solar-hot-water systems will require some maintenance (e.g., replacement of pumps, valves, gauges, etc.). This ephemeral situation is difficult to estimate. I assume that maintenance will equal the original cost over 25 years after the first 10 years.

In the spreadsheet described below there are two worksheets; one for true cost and one for including ephemeral reductions.

## Payback Calculation

There is a downloadable Excel spreadsheet for doing the calculation. (The spreadsheet may be changed in the future, so you may want to download it again if you need it in the future.) Doing the calculation for the parameters given above and varying the initial electricity rate (\$0.10, \$0.15, \$0.20) and the average rate increase per year (6%, 8%, 10%, 15%), I get the following true-cost payback periods, not including any rebates, tax deductions/reductions or SRECs::

 Payback (years): 5-year loan @ 5% Rate Inc.|rate \$0.10 \$0.15 \$0.20 6% 17 12 9 8% 15 11 8 10% 13 10 8 15% 11 9 9 Payback (years): 10-year loan @ 5% Rate Inc.|rate \$0.10 \$0.15 \$0.20 6% 18 13 7 8% 16 12 6 10% 14 11 5 15% 11 7 4

These numbers do not include any of the ephemeral situations which would reduce the payback periods:

• State or federal rebates for installing renewable energy
• State or federal tax deductions or reductions for installing renewable energy
• Solar Renewable Energy Credits (SRECs) that may be saleable

Inclusion of these, depending on their values, can make the payback period to be zero!

Here is a specific calculation with ephemeral situations included:

 Parameters: Actual kW 2 Loan Period (years) 5 Loan rate 5% Cost/peak kW \$3,000 Sun hours per day over year 4.5 Grid energy initial rate \$0.10 Grid rate increase 6% Rebate 30% SREC/kWh \$0.30 tax rate for 5-year depreciation 20%

I assume that maintenance will equal the original cost over 25 years after the first 10 years.

The payback graph for these parameters is:

The payback is 0 years.

## Green Investment

A Home Power Magazine study showed that, with reasonable assumptions, investing in green infrastructure for your home and business can return as much or more money savings as investing in the stock market earned over the last twenty years. And if enough information were available to calculate the money saved by not dumping carbon into the atmosphere, the energy-efficient investment would be even more favorable. This is a good time for U.S. citizens to buy products from companies to make their homes and businesses more energy efficient instead of buying stock in companies, which may go into increasing the salaries of executives. Make companies earn the money they receive from you by actually creating products you need for energy efficiency.

## Energy Payback and Carbon-Emissions Payback

As important as money payback are energy payback and carbon-emissions payback for solar-hot-water systems. Some good references for these calculations for solar PV are, which should be similar for solar-hot-water systems.:

All of these calculations agree that the energy payback and carbon-emissions payback are both less than 4 years.

## References

L. David Roper, http://www.roperld.com/personal/roperldavid.htm
6 April, 2016

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