Economic Analysis of My Solar Power System

I invested in solar panels (25 of them -- see photo on left), inverter, storage battery, and supporting circuitry.

Summary

System cost (net): $42,000
Estimated annual savings: ~$1,200 (initial)
Payback period: ~21 years
Internal Rate of Return (IRR): ~6%
Net Present Value (NPV @ 5%): ~$5,000

System Description

The system was installed in 2017 at a cost of $60,000. After applying the 30% federal tax credit ($18,000), the net investment was $42,000.

Single-phase, grid-tied (PG&E)
Photovoltaic modules (panels): 25 Jinko Solar JKM325M-72 325W
Each module's output is processed by a Solaredge Power Optimizer P400
Inverter: SolarEdge Model StorEdge SE7600A-US(SI1) (7.6 kW)
Battery: LG Chem model RESU10H 9.6 kWh.

Energy Flows

Daily power production: ~24 kWh/day (4.5–5 peak sun hours/day in Oakland/East Bay; 25 modules x 325W = 8125W at peak sunlight.)
Battery charging: ~10 kWh/day (The battery supplies energy for approximately three hours after sunset, after which the system draws from the grid.)
Self-consumption during sunlight: ~7.5 kWh/day
Export to grid: ~6.5 kWh/day when sunny
The building draws 1-2kW continuously. It draws up to 10 kW when water heaters and car charger run.

Financial Model

The system is modeled as an upfront investment followed by a stream of annual savings from avoided electricity purchases. Initial annual savings are estimated at approximately $1,200, increasing at 5% per year due to rising electricity prices.

Dollar Flows

My typical monthly electric bill (without solar) is $250 to $350.
The solar system reduces the monthly bill by (on average) $40 (power returned to the grid) + $60 (power from the sun instead of the grid) = $100/mo = $1200/yr.
Thus, with solar, the typical monthly bill is $150 to $250.

Electricity economics (PG&E, 2026)

Average blended rate: $0.32–$0.37/kWh (OhmSnap)
Calculations use: $0.34/kWh (base case)
Rate escalation: 5%/year

Financial Assumptions

Discount rate: 5% (standard for household investments)
A discount rate is the interest rate used to determine the present value of future cash flows, reflecting the time value of money. It is crucial for calculating metrics like Net Present Value (NPV) and assessing investment opportunities.
System life: 25 years

Solar modules (panels) have a limited lifespan. When it is reached, they must be replaced.

Degradation: 0.5%/year

The performance (power production) of solar modules (panels) decreases over time. This degradation must be factored into their economic analysis.

Net Present Value (NPV)

Using a 5% discount rate, the system has a positive net present value of ~$5,000. That is, it adds modest financial value over its lifetime. The values to plug into the equation at left are:

r = 0.05 (5%)
N = 25 years
t goes from 0 to 25
c₀ = -42000, C₁ = 1200, C₂ = 1260, C₃ = 1320, ..., C₂₅ = 2700
C₀ is the initial cost (negative) and C₁, C₂, etc. are the (positive) yields in subsequent years

Internal Rate of Return (IRR)

IRR calculation starts with initial investment of $42,000. Annual savings are $1,200 growing at 5%. Thus, the internal rate of return is approximately 6%, comparable to a conservative long-term investment.

Breakeven

When does the system reach simple breakeven? That is, how long does it take for savings to equal the system's cost?

Annually, we consume ~1.5 kWh x 24 hrs x 365 days / 0.75 de-rate factor = ~17,520 kWh.

De-rate factor: temperature losses, wiring losses, inverter efficiency, and soiling. Standard practice.

For daily breakeven, we'd need ~1.5kW x 24 hrs = ~36 kWh. However, we generate only ~24 kWh. This is 36 kWh - 24 kWh = 12 kWh short of daily breakeven.
Annually, we produce ~24 kWh/day x 365 days = ~8,760 kWh. That's about half of the ~17,520 kWh we consume each year.
Looking at it another way, say we save $2,000/year (average savings per year over 25 years, starting at $1200 and ending at $2500). Disregarding the time value of money, reaching the $42,000 purchase price takes 21 years (42,000 / 2,000 = 21).

Discussion

While the financial return is moderate, the system provides several additional benefits:

Protection against rising electricity prices
Reduced dependence on the grid
Environmental benefits from reduced carbon emissions
Home resilience: the battery kicks in during power outages

It should be noted that solar installation costs have declined significantly since 2017. A similar system installed today would likely yield a higher financial return.

Electricity rates and rules are also a major factor. Net Energy Metering (NEM) 3.0 governs these. Alas, they are unfavorable to homeowners with solar systems, for several reasons.

First, PG&E's retail electricity rates are among the highest in the US and have been rising ~5–8%/year historically. Second, the buy and sell prices are not symmetric. PG&E pays much less for a kWh than it charges. Under NEM 3.0 ("Net Billing"), a self-consumed kWh is worth five to ten times as much as an exported kWh.
A self-consumed kWh is worth what PG&E would have charged for it (residential rates):

$0.30–$0.38/kWh off/mid-peak

$0.45–$0.55/kWh peak (4–9pm)

A kWh exported to PG&E is credited on the bill (export value):

$0.05–$0.08/kWh average

Midday often $0.03–$0.05

Best hours maybe $0.08–$0.15

Today, ~$60/month is saved by self-consuming solar instead of buying it from the grid. That number grows each year as utility rates rise. In 10 years, that could be worth $200/month. Clearly, self-consumption is the best strategy.

What Could Have Made It Better

The system is undersized for its load. At 1.5 kW average draw, we generate about 67% of what we need on a sunny day (24 kWh generated vs. 36 kWh needed). For a building that also charges EVs and runs electric water heaters, the load profile is simply too large for 25 panels. A system sized for this actual load would need to be 50–100% larger.

The other culprit is the battery. It added $15K to the system cost and has a ~10-year lifespan, so must be replaced long before breakeven. Fortunately, newer batteries are much less expensive. However, financially, batteries rarely pencil out in grid-tied systems. Their value is resilience and backup power, not ROI.

Risks and Uncertainties

Changes in utility rate structures and net metering policies
Variability in solar production due to weather
Future electricity price trends
System repair/replacement necessitated by unanticipated failures or damage

Conclusion

Overall, the system represents a reasonable long-term investment with stable returns and meaningful non-financial benefits. It's not a financial home run but does have a positive NPV and a moderate IRR. It is a strong inflation hedge. It yields environmental and resilience benefits. While not a high-return investment, it performs well relative to low-risk alternatives.

-- Dan Keller, April 2026