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Solar Energy - Who Says Money Doesn't Grow On Trees?

Updated on April 7, 2015

Making an Investment In a Solar Panel Array

The investment return that solar panel technology provides includes a reduced energy bill to manage a homes temperature and run appliances which is also an income tax free savings that will become even more valuable as inflation increases power rates.

Investors who have money in CD's earning less than 2% or any other fixed income instrument (like long term bonds) which are susceptible to drastic decrease in value when interest rates rise can safely re-position a portion of their money into a solar panel investment that will provide a return for years while also increasing their homes value. After all, if a potential buyer is looking to buy a new home with all other things being equal, which one do you believe they would prefer? The home with higher energy bills or the home with a solar panel array that drops the total cost of owning the home?

How Solar Panels Work To Create Electicity

When the sun beats down on a solar panel, the energy from the sun in converted to electrical energy that can be used by the home. One solar panel produces 250 watts of power when the sun is hitting it. Depending on the location on Earth and the season, the sun will hit the panel for several hours each day.

An array of 10-250 watt solar panels will create 2,500 watts of energy. This is 2.5 kilowatts (1 kilowatt = 1000 watts.) Each hour the sun hits the solar panels, this 10 panel array will create 2.5 kilowatt hours (kwh) of power. Power companies bill customers based on the amount of kwhs they consume each month. Therefore, if a 10 panel solar array experiences 5 hours a day of sunlight hitting it each day for a month, the investment will create about 375 kwh of power (5 hours x 2.5 kw x 30 days = 375 kwh.) Based on the price of $0.12 per kwh, this solar array would reduce the household power bill by $45/month or $540/year.

How Much Do Solar Panels Cost

A 10 panel solar panel array like the one described above should cost around $12,000. This price includes the price for the solar panels and all the parts and labor needed for insulation. In order to facilitate the sale of solar panels, the Federal Government currently provides a 30% tax credit to the purchaser. Tax credits are not tax write offs. They are dollar for dollar reductions in a tax bill which reduces the cost of acquiring a system like this to $8,400.

When you look at a $540 yearly return on a $8,400 out of pocket investment, one can quickly calculate that the return is about 6.4%. This 6.4% return from an investment in solar panels is also not susceptible to tax. Therefore, it is currently equivalent to an 8% return when considering a 20% tax bracket.

Power Demand Is Only Increasing

The basic economic law of supply and demand states that as demand increases, so does prices. Power companies are scrambling to build extra capacity to meet customer demand and they are lobbying for price increases to build new power plants. Add to this the federal governments demands that older coal powered plants need to invest in technology that reduces greenhouse gas admissions, then one can easily see that power prices are only going to go up from here.

Unlike the past when the only alternative for person to get the energy they needed was to buy it from a large power company, today people have the ability to produce their own energy. a In producing their own power, a homeowner will no longer need to be enslaved to the prices dictated by the energy company allowing them to have more control over their household budget.

The Shift Away From Polluting Fossil Fuels

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