What to consider when thinking about solar
The financial return on a solar electric system in Massachusetts can be very favorable if your home is in a suitable site. Solar electric systems in Massachusetts often have a six-to-eight-year payback period and will continue to produce financial returns long after the system is paid off. The life of a solar electric system is typically 20 years or longer. The cost of solar electric systems has declined considerably over the last decade. Actual costs will vary based on system size, site characteristics, permit fees and any optional equipment additions. To learn about current solar electric system pricing reported across Massachusetts, please refer to our Solar Costs and Performance article.
Electricity generated by a solar electric system displaces what would otherwise be purchased from the local utility. Avoiding these costs is a fundamental benefit of installing a solar electric system. Purchasing a solar electric system upfront or contracting for a lease or power purchase agreement can establish a level of predictability for consumer electric costs, insulating you from potential electric cost increases that may arise from fuel price changes, demand shifts, and supply constraints.
Given the variety of ownership options, the range in upfront costs, and how savings and revenues are realized over an extended time frame, it can be complex to assess relative benefits when comparing proposals. There are both key financial inputs and methods to interpret the inputs that can be helpful when assessing economic benefits.
Important financial inputs to a solar project include:
The amount paid for the system at the time of installation.
Costs paid over time, including financing or leasing costs and any operation or maintenance costs such as replacing an inverter.
Benefits received initially, such as rebates or tax incentives.
Benefits received over time, including expected electricity cost savings and production-based incentives.
You may see some of the following assessments on installer proposals, which can help you understand the economic benefits of installing a solar electric system:
- Cash flow: An estimate of costs and savings and when they will be realized over the life of the system.
- Total savings: An estimate for the total savings realized compared to the scenario without solar. This provides a sense of overall savings but may not differentiate future benefits from current benefits.
- Payback period: The number of years it will take the savings realized from your system to equal the upfront costs.
- Net present value: An analysis that demonstrates how upfront costs and benefits compare to long-term costs and savings. To do this, future costs and savings are normalized into a net present value that recognizes the alternative of investing money. For example, the present value of receiving $10 next year would be $9, assuming the alternative exists to invest $9 and earn $1 in interest over the course of the year. The assumed investment rate, or discount rate, is an important assumption to understand when comparing options.
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