In Part 1 I explained the mechanics of how solar panels work, and how they connect to both your house and the power grid. In Part 2 I’ll explain how solar panels can save you money on your monthly electricity bill, and even generate some income (depending on your local rules).
Let’s start by defining some terms you’ll need to understand, and then we’ll use those terms to talk about how solar panels can save you money.
What’s a kilowatt hour?
Watt – a basic unit of electricity that plugged in items consume. The typical incandescent light bulb that we all grew up with used 40 – 100 watts per hour.
Kilowatt – 1000 watts
Kilowatt Hour (KWh) – What your electric meter measures. If a 100 watt bulb burned for 10 hours that was 1 kilowatt hour (10 * 100 = 1000).
A few other examples of 1 kilowatt hour:
- If you have 10 lights, each with a 100 watt bulb, on for one hour
- If you have 25 lights, each with a 40 watt bulb, on for one hour
- Using a 1000 watt hair dryer for one hour
- Using a 1000 watt microwave for one hour
Megawatt Hour (MWh) – 1000 Kilowatt hours
So, how many KWh does a typical household use? Well, I can’t speak for every household, but here’s our recent usage:
Note 1: The cost of the meter is rolled into the electric bill calculation. The real spend for determining our payback is about $100 less per year, as I will get an $8.26 charge per month for the meter, even if net consumption is 0. So, as of now, I think about our annual spend as about $1433.
Note 2: We used a lot more electricity in January and February of 2018 than in 2019 because of extra work in taking care of a senior pet. I believe the rolling 12 month number (10,560 KWh/year) is more indicative of our annual usage, which is still decreasing from month to month compared to last year.
Pause here to deep dive into an electric bill. If you are able to, please get one of your bills to see how this deep dive applies to you. Here is the electric usage details portion of our last bill before we went solar:
First, note the meter readings – there are two of them – the last conventional reading, at 625 KWh used and the first reading from the new meter at 12 KWh, for a total usage of 637 KWh for this billing cycle.
On Monday, March 25th about 7:30 AM a guy from our electric utility knocked on our door to let us know he was replacing our meter with the newer two-way net-meter. I asked if I could throw the switch to turn on the panels, but he explained that they still had to do the paperwork back at the office to get me on the new billing system. The new net-meter started at 00000. So by the time they closed out the last bill and started me on the new billing period, we had used 12 KWh.
As you can see, our electric bill is divided into 3 parts:
- Supply – About .09 per KWh these days (price can vary)
- Delivery – About .04 per KWh (plus the meter charge of $7.90).
- Taxes (AKA, the government’s share) – a little over .01 per KWh
Unlike pizza, there is no option to pick up the electricity, we have to pay the delivery fee. This supports the infrastructure that connects us to the power grid.
The government gets a piece of almost every transaction – check out your phone bill, internet bill and/or cable bill and you will see taxes and fees there as well.
Except for the 2 meter readings, your bill should look something like mine.
How much will we save on our monthly electric bill?
First the simple answer: if our system produces enough electricity each month to equal or exceed the production we’ve seen so far, and we hold at current consumption levels, we’ll save $1433 per year.
But life is not that simple.
Each month that we produce more KWh than we consume, the extra is retained by the utility company as a credit, just like the old cell phone plans with rollover minutes (except these are rollover kilowatt-hours). If we accumulate a surplus one month, and then have a deficit (meaning, we use more electricity than the panels produce) the next month, the utility company applies our “rollover KWh” to our bill. We only pay for electricity if we’ve used more KWh than we produced, AND we’ve used up all of our credits from previous months.
Because the billing calculations are done monthly, we can still end up owing money to the utility company some months, if we use more electricity than we’ve produced that month (and didn’t have any “rollover credits”). If that happens, it would subtract from our annual savings, even if annually, the total amount of electricity our panels produced is more than the annual amount of electricity our household used.
Wait. What happens at the end of the year if you still have extra “rollover credits”? Do they roll into the next billing year? Unfortunately, no. At the end of every billing year (every April), the utility company cashes out our extra credits. I don’t know how much they’ll pay for them (yet), but my understanding is that they’ll pay a wholesale rate. When this payout happens, we start our next billing year at 0 credits.
Because our electricity company buys electricity wholesale and sells to us at retail, I am expecting that they will pay us perhaps .05 per KWh or $50 per MWh. They only compensate us for the energy supply portion of the bill, not the delivery or taxes and fees portions.
One last factor: SRECs – these are Solar Renewal Energy Certificates – we earn these for each MWh our system produces. The price will vary over time. For the purpose of this exercise we will use $20 per MWh.
If our solar panels produce 12 MWh per year, we would earn $240 cash for these SRECs.
Putting this together, our projected annual savings is the sum of:
Electricity generated (and therefore not billed), plus electricity sold back, plus SRECs. For example, if we consume 10.5 MWh and produce 12 MWh this works out to:
$1433 – amount we would have spent on electricity
+ $75 – payout at .05 per KWh for the extra 1.5 MWh generated.
+ $240 12 MWh * $20 per SREC
= $1748 per year. $315 of this is cash returned each year.
I will use this number in my next post when I discuss the economics of going solar.
Will it really be that precise or clean? Probably not. Some factors that could complicate these calculations:
- If the price of electricity goes up, the amount avoided gets larger and our savings goes up.
- If we use our credits during a low producing month and owe the electric company a small amount.
- If we produce less than 12 MWh we do not earn as much in payback credits at the end of the year, or as much in SRECS.
- If the value of SRECs go down.
- If our electricity consumption goes down, the amount of extra electricity we can sell back to the utility company is higher.
The solar panel installer expects us to produce about 11 MWh per year, but they admit that they purposefully underestimate by 10%. They want to under-promise and over-deliver.
In Part 3 I’ll discuss the economics of going solar – what it really costs and perhaps some guidelines as to whether this decision is right for any one specific home.