A solar system in New Mexico will pay for itself in about ten years. It does this by generating electricity you would otherwise buy from the grid, that you can use to power your electronics, iron your shirts, keep your drinks cool, whatever you want to use it for. At current costs (and they get cheaper to install every year), your solar system will have saved you enough on your utility bills in a decade to equal the money you initially spent on it. After that, it’s all gravy.
And that gravy is worth talking about rather extensively, because while ten years may seem like a long payoff period to many, it’s actually a fairly remarkable return on investment. Let’s do the numbers.
An 7kW solar system will cost you about $15,000, once you’ve factored in the longstanding 30% federal tax rebate. New Mexico is a fairly sunny place (6.37 sun hours per day average), so on average, your 7kW system will generate just over 44 kWh per day. Around here, that much power costs about $4.84 if bought from the grid, but of course you won’t be buying it from the grid because you’re making it yourself.
So for an initial investment of $15,000, you can save $4.84 per day, or $1,776 per year. That’s an annual return of over 10%. In less than ten years, you will have recuperated the full amount in savings, and will essentially be making a profit from that point on. 19 years out, you will have doubled your money. Compare this 10% APY to any other investment, and you’ll see it’s actually very attractive.
Solar vs. Annuity
Solar vs. Savings Account
Solar vs. Mutual Fund
Solar vs. Treasury Bills
Many of these investments have one slight advantage over solar that is worth considering. You can cash them out much sooner–some of them at any time–in the event you need cash for something urgent. You can also leverage some of them–particularly mutual funds and real estate–as loan collateral. It’s highly unlikely that someone will buy your solar panels off you in a pinch, at least for a price close to what you paid for them.
But if recurring cash flow is your primary objective, as it is with most people, solar is a very solid investment, in that it permanently lowers the cost of everyday living and frees up cash.