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The Right Way to Measure the Value of a Solar System

Posted by AllEarth Renewables on July 27, 2016 in Sizing a Solar System, Cost of Solar Systems, Types of Solar, Maximizing Power Production, Consumer, Dealers

Static_Capacity_vs._Dynamic_Power_Production.pngWhen considering any investment in solar it is critical to look beyond the simple math of the installed cost of the system. In business, an investment is assessed not on the upfront capital expenditure but rather on the longer-term return on investment. In a similar fashion, when assessing the value of a solar installation, it is critical to look beyond the upfront installed cost and focus on the long-term energy production.

Static Capacity Rating Is The Wrong Approach

The industry still markets solar systems based on a very simplistic installed-cost model, in which the installed cost is divided by the system size to come up with the cost per watt—a number that represents nothing more than a theoretical value of the static capacity of the system.

The appeal of this approach is that it is very easy to explain and makes it easy to compare systems, especially if they use different racking or mounting systems. It avoids the complications and confusion of having to provide site-specific performance expectations. While this approach has its appeal, the static capacity number can be misleading. It is difficult for a system to approach its full theoretical capacity, and the site variables can have an large impact on the actual output of the system. The factors that impact the efficiency of a system include:

Local weather conditions

The amount of sun a given location receives each day.

Seasonality

The difference in the sun's position and path across seasons.

Siting

Complex site challenges that compromise panel orientation.

Shading

Panel shading from both man-made and natural objects (such as trees).

The current focus on installed cost and cost/W does not account for the impacts of these factors--two systems with the same static capacity and cost per watt could have vastly different production levels due to geographic location or siting constraints. By focusing solely on the cost/W we are painting an incomplete picture of a solar system's performance, and doing our customers a disservice.

Dynamic Power Production — A Better Measure

Like with any capital investment, the initial upfront cost is just one part of the picture. The true measure of the value of any investment is the return over time. What is the revenue generated and how long does it take to pay off the investment? In the solar world, this means changing our focus from the installed cost/W to a more nuanced and realistic cost/kWh. By focusing on the performance of the system and its overall energy output, the customer gets a more complete picture. This approach moves beyond the cost of installing the system to focus on dynamic power production (measuring how much power, and thus revenue, the system generates). 

This approach requires a bit more time and energy to calculate, but in the end it creates a much better way to measure and assess the best system to install for a customer. When assessing the real value of any system it is critical to focus on what really matters—namely, maximizing the energy production. Looking at the system’s dynamic output over time (measured in kWhs) is the true measure of the solar benefit.

In short, by moving from a comparison of the initial static capacity cost to the more dynamic production cost, the customer will get a much more accurate picture of the return on their solar investment. Even if a system has a higher cost/W, if it outperforms on cost/kWh, its value is clear.

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