Money Per Kilowatt Hour
When deciding to get solar for your home or business, it’s very important to understand the math. The numbers don’t lie. A "watt" is a basic unit of energy. For example, a typical incandescent light bulb may draw 60W. 1000 watts = 1 kW. 1000 watts consumed in one hour = 1 kWh.
When looking at energy prices, it’s all about what is known as the “$/kWh”. This number can be determined by dividing your average monthly utility payment (i.e. $250/ month) into the average amount of kWh, or “Kilowatt-Hours”, that you consume per month (i.e. 1000 kWh).
$250 / 1000 kWh = $0.25/kWh.
If you are a customer to a utility, the cost per kWh is derived by adding up the “Generation Charges” with the “Delivery Charges”. It’s very important to understand that the $/kWh for most utilities to “generate” power at a power plant is approximately $0.07 per kWh. This is the “Wholesale Cost”. Additional fees, approximately 60%-65% of the charges, are for the “delivery” of the electricity to your building. That’s how utilities make money. When you combine the cost to generate and deliver you get the “Retail Cost”. Most utility customers spend an average of $0.24-$0.29 per kWh, or more, due to the high delivery fees from For-Profit Utilities - which by the way, are publicly traded.
Homeowners mostly go solar to reduce their energy bill and there are three main ways to finance solar: Cash, Loan, Lease/PPA. The right choice depends on the home owner’s personal financial situation and energy goals. The $/kWh you pay is determined, in large part, by the financing method.
Most Leases and PPAs start at $0.15 per kWh and escalate at 2.5%-2.9% per year, ending at $0.26 per kWh, or more, after 20 years. I usually don’t recommend the “escalating payment”. Rather, a “Fixed” PPA in which the cost per kWh is fixed at an average of $0.17-$0.18 per kWh for 20 years. A Fixed PPA is a great way to hedge the inflation of utility electricity prices and go solar.
An “Unsecured Solar Loan” method is when you finance a solar system in your personal name. An Unsecured Solar Loan does not require a lien on your property. The finance charges, which vary based on lender, must be calculated into the $/kWh. This figure is determined by dividing “Total # of Payments” (i.e. $27,500 over 20 years) by the 25 Year Estimated Production (i.e. 170,000 kWh).
$27,500 / 170,000 kWh = $0.16 per kWh
The best ROI in solar by far is CASH. The cost per kWh is very easy to determine when buying a system with cash. The cash price for solar is almost always substantially lower than your utility. Like half. When buying solar with cash, you are essentially buying all your power for the next 25 years at a fixed price, that is equal to the wholesale cost of power that utility companies pay at power plants. The way to determine a cash $/kWh= Total Cost / 25 Year Production. Let’s look at the following example from my recent customer in Laguna Niguel, CA.
“Gross Cost” (Without 30% Solar ITC): $31,000 / 283,000 kWh= $0.11 per kWh!
“Net Cost” (With 30% Solar ITC): $21,700 / 283,000 kWh= $0.08 per kWh!!!
As you can see, the best Cost per kWh is cash and customers who qualify for the Solar Investment Tax Credit gain the most. At Helio Energy Solutions we are not a bank. Thus, we are not motivated to sell a certain solar financing “product”. Our goal is to help YOU get the lowest $/kWh while adding value to your home.