The Return On Investment, or ROI, is one of the most important aspects of determining if the solar lighting project you are looking to complete is better than going with standard electric lighting. This can be one of the most difficult things to determine, but there is information that can help you determine what the return of investment of the project will be. Here are some simple steps to help you find out what your payback period will be and the ROI of your project.
1. Determine the total cost of the project for solar
The first step is to determine the total cost of the project. This includes purchasing of the solar lighting systems, installation costs, and any other associated fees that may occur, like permitting. These should all be accounted for in the overall project cost.
You should also make sure you calculate any incentive to using solar that can be accounted for. This can include any Federal, State, and Local government incentives that are available. Other incentives can also be included with your local utility company.
2. Determine the total cost of the project for electrical
Just like the section above, make sure to total all the associated costs for going electrical. This includes not only the cost of the equipment and installation, but also the bringing in of the standard electric power, any meters, wiring, trenching, and other associated costs that come along with the electrical lighting systems.
3. Determine the current electrical rates
Current electrical rates need to be determined and figured for energy bills over the life of the lights. These do increase and should always include the standard inflation rate for accurate calculations. This is only used for the calculations of the electrical side of the project as the solar lighting systems have a life span of over 20+ years and do not require any electrical costs over their lifespan.
4. Determine the maintenance costs for electrical and solar
Both solar and electrical lights will require some maintenance over their lifespan. Solar will require battery changes every five to seven years or so. Occasional maintenance of inspecting and cleaning of system components may also be necessary, but not standard.
Standard electrical lights need maintenance such as photocell replacements, lamp replacements, LED upgrades, wire connection checks, and any other standard maintenance that is required. These costs all should be added to the 20+ year lifespan of both setups.
Say the area requiring lighting calls for 5 lights. If your solar lighting project is a total of $27,500 and bringing in electric for standard lighting is $12,500 for example, you would need the following formula to determine the ROI:
Solar: $27,500 Equipment – 26% Federal Tax Incentive = $20350 + $3750 Installation ($750 per pole for foundations and installation of equipment) = $24,100 + $12,000 Maintenance (battery changes every 5 years) = $36,100 total cost of project over 25 Years (remember, no electrical costs ever).
Electric: $13750 Equipment and Grid Extensions / Wiring / Trenching + $3750 Installation = $17500 + $11500 Electricity Costs (3% Inflation over 25 Years) = $29,000 + $12,500 Maintenance (photocell, lamps, fixture upgrades, etc) = $41,500 total cost of project over 25 Years.
Now to determine the ROI of the project: The initial investment of $24,100 vs $17,500 for the purchase of the systems and the installation shows a difference of $6,600 in the favor of electric; however, the next section can show where things start to change.
The average electrical usage is around 6 kWh per day used by five 100 Watt lights and the national average of electrical costs are 13.31 cents per kWh. That makes the average cost around $0.80 per day x 365 days per year, totaling around $291.50 per year for the five lights.
Maintenance and electrical costs over the five years are $4922 for electrical lights and $3000 for solar lights. This leaves a difference of $1922 in the favor of solar. Repeat this formula over the life of the solar and electrical and this will continue to change. This example has an ROI of around 6-10 years or half the life of the solar lights. This formula is also under the assumption that electric is available nearby and there isn’t much for electrical installation to occur.
With so many vitiating factors, including other incentives that can reduce your solar lighting costs, speaking to your lighting specialist can help determine the exact ROI of your project.
Remember, there are always multiple factors that can change the return on investment on your project, but knowing all the costs going in each direction will help you determine what the best is for your money. If that doesn’t work, just remember, you are lighting up your world with free solar energy and providing a green option to your project.
*NOTE: The above example is just that, an example. Contact your lighting representative for your project costs and information.