A PV system can be an investment that produces an attractive financial return for the income oriented investor. A grid-tied PV system can be considered an alternative to investing in the financial markets (money markets, mutual funds, stocks or bonds) because the PV system produces electricity that has a quantifiable cash value. Just as you would â œbuy and holdâ a dividend-paying stock, you can buy and hold a dividend-paying PV system. The money spent on the system is recouped when the house is sold.

The PV System and Installation

After shopping around, I choose a local Ojai solar company to do the installation, for which I paid a total of $19,404. The system I had installed is a 2.5 kW system, made up of 18 Sharp 165 watt PV panels and a Sunny Boy 2500 watt inverter, and is connected to the Edison grid. There were significant financial incentives available for my solar installation including a â œbuydownâ of $4.50 per watt from the California Energy Commission (CEC) and a 15% California Solar Tax Credit. My PV system has been in place for a little over 6 months, and I’ve averaged 425 kW hours a month in electrical production.

Calculating the investment return

I have paid as much as $0.25993 per kWh for electricity from Southern California Edison. The state of California has net metering, so for each kWh produced by my system, I am credited this $0.25993. Keeping the analysis simple, the value of the electricity produced is the dividend. The initial cost of the system is my investment.

Total system cost:

• $19,404 CEC buydown - $9,604 15% Solar Tax Credit - $1470
• My net cost $8,330

What is an appropriate return? The 10- year US government treasury bond yields about 4 percent. A money market fund is returning somewhere below 2 percent and the stock market is anybody’s guess. These days, I would be happy with a return of 7% on my money. Is it reasonable for me to expect that a PV system would produce this kind of return? My 2.5 kW system is producing 425 kW hours a month, which creates a “dividend” of $1260 year by simply eliminating the two highest tiers of my Edison bill:

• 225 kWh X .23645 =$53.00 + 200 kWh X .25993 =$52.00
• 425 kWh/month = $105.00 X 12 months = $1260/savings a year
• $1,260/$8,330 (net cost of the solar) = 15.12%

So, the PV system will produce for me a dividend return of over 15%, and if this were a taxable investment I would have to earn almost 30% to achieve this kind of return!

Of course, this depends on all the factors that influence the output of the PV system (amount of sun, temperature, shade, etc.) and the price you pay for electricity. If I bought my electricity at the lower rates ( .13, .16 or .19 ), my investment return would be closer to 7.6%!

The risk to the dividend is if electricity prices decrease. If this happens, the dollar value of the electricity produced will be less and the dividend will decrease. But, I am willing to take that risk.

According to the tariffs schedule on the Edison website, electricity prices have risen every year (except one) since 1985. I believe it is reasonable to assume that electricity prices will continue to rise.

What other investment attributes have I gotten with this investment?

1. 1. A hedge against rising oil, natural gas, and electricity prices. In this case, when electricity prices rise, my return increases.
2. As energy prices are a key component of inflation indexes, I have acquired a hedge against inflation.
3. I have diversified away from exposure to the financial markets.
4. Low risk. There is not going to be a lot of variability to this return. Its not likely to be 300 percent, but it also won’t be negative.

Conclusion

PV is often dismissed or not considered by individuals because it is “too expensive.” However, if PV makes sense as an investment, individuals can no longer conclude that it is too expensive. In California, the combination of incentives, electricity prices and available sunshine make grid connected PV attractive as an investment, so that the “too expensive” argument can be disregarded.

I’ll be watching my electricity production for years to come to evaluate the actual return of my grid-tied PV system. Unlike many investments in the stock market I have made, I am not subject to accounting smoke and mirrors, corporate misconduct, or outright fraud. I will receive a dividend each month and I am not subject to the current mood of the market. With a projected annual dividend of seven to fifteen percent (and a bias toward increasing over time), this is an investment that I am very happy I made.