Detailed explanation of solar power generation system cost and return on investment (ROI) calculation

1. Total cost

Initial investment = solar panel cost + inverter + bracket + installation fee + others (such as energy storage system, intelligent monitoring)

Operation and maintenance cost ≈ 1-2% of initial cost/year (mainly used for component cleaning and equipment maintenance)

2. Annual power generation estimation

Annual power generation (kWh) = system capacity (kW) × number of sunshine hours × system efficiency

The average annual sunshine in Los Angeles County, California is about 5.5 hours/day (about 2000 hours per year)

System efficiency: about 75-85% (considering component attenuation, inverter loss, etc.)

3. Electricity bill savings and income

Annual electricity bill savings = annual power generation × electricity price ($0.30/kWh, average residential electricity price in California)

Net metering income: excess electricity is sold back to the grid at retail price (supported in some areas of California)

Government subsidies: IRA Act federal tax credit 30% (2023-2032), additional subsidies in California (such as Self-Generation Incentive Program)

4. Return on investment indicators

Payback Period = Initial Cost / Annual Net Income

Internal Rate of Return (IRR): Discount rate that makes Net Present Value (NPV) zero

Net Present Value (NPV): The sum of discounted future cash flows minus the initial cost

II. Case Analysis (Taking California 5kW System as an Example)

Assumptions:

System Capacity: 5kW

Initial Cost: $15,000 (Including Installation, California Average of about $3/W)

Annual Power Generation: 5kW × 2000 Hours × 80% Efficiency = 8,000 kWh

Electricity Price: $0.30/kWh (Residential)

Federal Tax Credit: 30% × $15,000 =$4,500(Deductible from Federal Taxes)

California Subsidy: None (Assuming Users Do Not Apply for Additional Subsidies)

Component Degradation: First Year 2%, then 0.5% per year

System life: 25 years

Step 1: Calculate annual net benefit

Annual electricity savings: 8,000 kWh × $0.30 = $2,400

Operation and maintenance costs: $15,000 × 1% =$150

Annual net benefit = $2,400 - $150 = $2,250

Step 2: Calculate payback period

Actual initial cost = $15,000 - $4,500 (tax credit) = $10,500

Payback period = $10,500 / $2,250 ≈ 4.67 years

Step 3: Calculate IRR and NPV

Assuming a discount rate of 8% (reflecting the cost of capital):

NPV = ∑(annual net benefit /(1+8%)^n) - initial cost

Calculation result: NPV ≈ $13,500, IRR ≈ 18%

Step 4: Consider the impact of component degradation

Power generation decreases over time:

Power generation in the 10th year: 8,000 × (1 - 2% - 9×0.5%) = 7,400 kWh

Power generation in the 25th year: 8,000 × (1 - 2% - 24×0.5%) = 6,400 kWh

Adjusted average annual net income ≈ $2,100, payback period extended to 5 years

Increase power generation

Choose high-efficiency components (such as HJT cells, efficiency 25%+)

Install bifacial components (power generation increased by 10-15%)

Optimize tilt (the best tilt in Los Angeles County is about 33°)

Reduce costs

Bulk purchase (corporate users)

Use local installers to compete to lower prices

Superimpose policy subsidies

IRA federal tax credit 30%

California commercial users can apply for Property Assessed Clean Energy (PACE) loans

Net metering policy (NEM 3.0) Allows for storage of excess electricity

Energy storage system

Install batteries (such as Tesla Powerwall) to store nighttime electricity to avoid peak electricity prices

Example: After adding energy storage, annual electricity bill savings increase to $3,000 and payback period shortens to 3.5 years

Component degradation: Power generation may drop to 80% of the initial level after 25 years

Policy changes: Federal tax credits may expire or be adjusted

Grid connection restrictions: Access may be restricted when grid capacity is insufficient

Installation risks: Roof structure problems may increase additional costs

Take a 5kW system in California as an example:

Initial cost: $15,000 ($10,500 after tax)

Average annual net income: $2,250 (without energy storage)

Payback period: 4.67 years

IRR: 18%

Conclusion: Solar power generation systems are significantly economical in areas with abundant sunshine and high electricity prices such as California, and the ROI after adding policy subsidies far exceeds traditional investments. It is recommended to give priority to high-efficiency components, combine with energy storage systems, and pay attention to policy trends to maximize benefits.