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One of the discussions I have with homeowners who are considering investing in a solar power system for their home is about how long the payback period is. We hear this term used with almost any cost-saving product, including hybrid cars. With solar power, the payback can be from Day 1, depending one a combination of the price you pay for electricity and the interest rate you pay to finance your solar power equipment. In this article, I will show you how you can determine your payback period.

Solar power is at an opportune time in this country, and especially in states such as Pennsylvania and New Jersey, where state and utility rebates can offset most of the cost. In Pennsylvania, the state is currently rebating $2.25 for each watt of DC power that your system produces. Thus, if you purchase a system with 30 panels, each rated at 200 Watts, you are purchasing 6,000 Watts of DC power. Thus, you would get a rebate of $13,500 from the State. The average cost of a solar power system is about $7 to $8 per DC Watt. The price varies depending on the company that makes and installs the system. Using the high end, this example system would cost $48,000. Once you subtract the state rebate, you are left with a cost of $34,500. Next, the IRS lets you take a 30% tax credit against this difference. Thus, when you do your taxes, you get back $10,350, bringing your cost down to $24,150. This is the amount you need to finance with long term financing.

Lets assume that you live in the Philadelphia area, which includes all of the Delaware Valley, in the counties of Bucks, Montgomery, Philadelphia, Chester and Delaware. The average cost of electricity from PECO is about 16 cents per KWH. Based on industry standard calculations that show how many Kilo Watts on average a solar power system will produce over the year, this 6,000 Watt system (DC capacity) will produce 7,200 KWh of AC power, which is what comes in from your utility company. All this is explained at my website, PhillySolarPower.com. This averages out to 600 KWh of power per month. At 16 cents per KWh, you would spend $96 per month on electricity. This is your current cost. To get an idea of what a Kilo Watt hour is, if you have a 100 Watt light bulb burning for one hour, you have consumed 1 KWh, which cost you 16 cents.

With this sample system, theoretically you are now producing all the power you need from your solar system. During the day, your system will be producing more power than you are consuming, and the extra power is sold back to your utility at the same price you are paying (your meter actually runs backwards). At night, you pull power back from "the grid". Over the course of the year, you essentially have produced an amount of power equal to what you consume with this example system.

Next, lets look at the financing side of the equation. If you use your home equity to finance the $24,150 for 15 years at 6% interest, your monthly payment would be $204. So far, you have not achieved any instant payback, as you are spending $108 per month more than you are saving in electricity costs. However, the state of PA also mandates that the utility pay you back for generating power, even if you are consuming it. For every 1,000 KWh you produce, you get a certificate that gets traded back to the power company for about $240. Thus, this sample system earns 7 certificates, for a rebate of $1,680 per year (for every year), or $140 per month. Now, add your $96 per month in electric bills you are not paying, and you are saving $236 per month. Since your loan payment is only $204 per month (with interest that is tax-deductible if financed with a home equity loan), you are saving $34 per month, from Day 1! Now, as the cost of electricity continues to increase, your savings will continue to grow.

Since the rebates vary in each state, you need to contact a local solar power installer to see what your system will cost. If you live in South Eastern PA, or South Jersey, you can go to [http://phillysolarpower.com/] to do your own savings analysis and learn more about how to get a reliable solar power system installed that gives you an instant payback.

Joseph Kamenar is owner of Philly Solar Power, a network of trained solar consultants who provide solar power systems from BP Solar that are installed and supported through The Home Depot. Their network of solar consultants service the areas of Reading, West Chester, Chester, Philadelphia, Yardley, Bensalem, Allentown, Bethlehem, Easton, and all of South Jersey. He is also the author of Hot Home Based Jobs (http://HotHomeBasedJobs.com), a guide book for those looking to work for themselves.

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