[jyl]

Interesting. Here are some scenarios:

Scenario #1

Take the system cost James gave above (the one with total cost $14.2K with $1.50/watt panels and generates mid-point 24kwh/day.). The net present value (cost) of that system is simply -$14.3K since all of the cost is incurred in year 1. Assume the system lasts for 20 years.

Then take current grid rate for electricity of, say, $0.11/kwh (picked because happens to be my grid rate). Suppose you pay grid rate for 24kwh/day for 20 years, assuming grid rate rises 5%/yr and discount rate (time value of money) of 3%/yr. The net present value (cost) is -$24.7K.

To recap this scenario: NPV of PV system = -$14.2K. NPV of paying grid = -$24.7K. Payback in 12 years. Then PV system saves you $10.5K (today's dollars) over next 8 years.

Lesson: at $0.11/kwh, the PV system makes financial sense under a discounted cash flow analysis.

Now try out some different scenarios.

Scenario #2 - you're in California
- Change the current grid rate to $0.30. NPV of PV system = -$14.2K. NPV of paying grid = -$67.3K. Payback in 5 years. Then PV system saves you $53.1K (today's dollars) over next 15 years.
- Lesson: the PV system is financially almost a no-brainer in California, under that feed-in tariff. Well, do have to adjust for higher installation cost.

Scenario #3 - panel cost falls more
- Change the panel cost to $1.00/watt, leave other system costs the same. NPV of PV system = -$12.2K. NPV of paying grid = -$24.7K. Payback in 11 years. Then PV system saves you $12.5K (today's dollars) over next 9 years.
- Lesson: a 33% decline in panel prices, alone, is helpful but doesn't radically change the financial analysis.

Scenario #4 - interest rates go up
- Increase discount rate to 5%. NPV of PV system = -$14.3K. NPV of paying grid = -$20.2K. Payback in 14 years. Then PV system saves you $6.0K (today's dollars) over next 6 years.
- Lesson: if interest rates go up, the PV system becomes less financially attractive (as does any long-duration investment).

These scenarios ignore any tax incentives, etc.