By researching the cash flows associated with going solar, we can compare investment in solar with other competing investments.
If you were to invest $23,000 in a solar system, you might expect to see electricity savings of about $1,200 in year 1, rising to $5,000 in year 25 (with inflation in utility rates).
These recurring (and increasing) annual savings represent real cash flows from your $23,000 investment.
Just like other investments, the initial outlay is rewarded by income. A good investment will, over time, have cash flows that exceed that upfront expense and grow your equity (your bank balance!)
As you can see below, the cash flows from electricity savings with solar do accumulate over time, meaning your bank account recovers from the expense and grows positively to create a significant amount of new money in your bank account.
To know if solar is the best investment for you, you need to look at what’s called the internal rate of return (IRR). The IRR of these cash flows is the pre-tax rate of return that represents the compound growth in your equity from your initial investment to the end of the investment.
This measure allows accurate comparison against other investment options on a pre-tax basis. Homeowners can compare putting hard-earned cash into solar (typically with an IRR greater than 10%) against investing in other long-term investments, like the stock market (typically less than 10%), or a bank savings account (typically 2-5%), or government bonds (typically less than 10%).
Lastly, let's look at payback analysis. This measure doesn't work so well for long-term investments like solar. Payback periods do not represent the full economic value of a solar system, as the systems are warranted for a full 25 years, creating savings long after the investment is “paid back.” As proof, consider that at an investment in your bank account at 4% wouldn’t reach payback for decades.