What is a good NPV to target for a residential solar project?

March 21st, 2023 in Solar Power Economics
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To understand how well a residential solar project will work for your home, it helps to understand various terms used to estimate its value. NPV (Net Present Value) is one of those terms. It’s used in many industries, including solar energy, to calculate the quality of an investment. At its simplest, it represents long term value minus upfront cost. 

Since the upfront costs of a home solar system can be high, knowing the NPV will help you determine if the long term gains can deliver a beneficial return. Ideally, you want to see a positive NPV value as this will indicate you’re actually saving money.

Net Present Value is calculated using a formula that takes into account the time value of the money invested. Because solar power systems are designed to last for decades, the time value compares the value of the money today versus the projected value over the lifetime of the project. Several factors are taken into consideration to determine the numbers on both sides of the equation. For example, the present value adds up all of the upfront costs of installation and is weighed against inflation, risk, energy bill savings, plus losses from alternative investments.

Homeowners want to see savings from their solar power system. Therefore, after subtracting the costs of the initial investment from the projected savings over the lifetime of the system, the NPV value should be positive. If the calculated value is zero, the return will equal what you invested. In this case you can decide if other incentives, like getting off the grid, or switching to a renewable energy source makes it worth it. A negative value means you’ll be spending more upfront than you’ll be getting back long-term. You want to avoid this.

All of this can be a bit complicated and confusing, however we are here to help. We assist homeowners in determining their residential solar costs and NPV value so they can make an informed decision on what system works best for them.

Contact NetZero Solar and start saving money, today! We are local energy professionals, here to help guide you through the complex world of solar energy. 

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