How Big Should Your Solar Power System Be? - Sizing a Solar Electric System

Solar System Sizing, Payback, and Rate of Return
Tiered electric rates should effect your decision to install a solar electric system and the size of the installed system.  I discussed the tiered electric rates in last week's entry if you want an overview / review of Tiered Electric Rates. 

System Sizing, Payback Period, and Rate of Return are all drastically influenced by the tiered rate structure. 

Drastically Different Electric Rates Charged
The main reason for this impact is that the Tier 1 (up to 100% of baseline) electric rate and Tier 2 (100% to 130% of baseline) electric rate are considerably less expensive than the the Tier 3 and Tier 4 electric rates (above 130% of baseline).  The key to remember here is that Tier 1 and Tier 2 electricity usage is relatively inexpensive, but electricity used over that amount is expensive (as shown in this diagram).

Baseline Electricity - In case you were wondering:  Baseline electricity is a amount of electricity (in kilowatt-hours) that the utility company has calculated to be about 75% of the amount of electricity that the "average" household in the region uses.  Baseline changes between summer and winter as well as by the area of the county you live in.  Remember, the baseline amount is a measure of a quantity of electricity, not a price.  However, the price is set by the amount used relative to the "baseline" amount. 
Understanding Tiered Electricity Rates - An Example
To help understand the tiered electric rates here is an example to illustrate it.  It would be similar to the situation of: 
  1. the first 10 gallons of gasoline you purchase cost $3 /gallon
  2. then the next 3 gallons cost $3.50 /gallon
  3. then the next 7 gallons cost $8 /gallon
  4. and anything over 7 gallons cost $9 /gallon. 
Wouldn't you rather try to not use the $9 /gallon and $8 / gallon gasoline first or get it another way?  That's exactly what solar electricity does with your tiered electric rates.  It removes the most expensive electricity first.  So if you are trying to maximize your savings then you want to size your solar system so that it gets rid of (or "shaves off") the electricity that would be charged in the Tier 3 and Tier 4 rates.  This will improve your payback period and rate of return. 

Substantially Different Savings for Solar Electricity
The difference in the rates you pay is crucial to calculating Savings, Payback, and Rate of Return because when you generate solar electricity your savings or payback is based on what you avoided paying for that electricity.  For example, if you are currently in the Tier 4 electricity rate and your solar system "shaves off" electricity billed in Tier 4 then you will be saving about $0.32 to $0.34 per kilowatt-hour (kWh).  However if you are in the Tier 1 (baseline) electricity rate then you will only be saving about $0.13 per kilowatt-hour (kWh). 

This is a big difference because if your solar system is generating even a small amount of electricity like 300kWh per month then this means it is saving you about $39 ( = 300kWh x $0.13/kWh) if you are in Tier 1.  However, if you are in Tier 4 then your are saving about $100 / month ( = 300kWh x $0.33/kWh) .  This is substantial when you consider this happens month after month and year after year.  And these dollar savings are typically even higher for most properly sized solar electric systems that produce much more electricity than this. 

So be sure your solar electric system is sized properly for your specific situation.  This will help improve the savings, payback period, and rate of return.  Then sit back and enjoy the money you're saving while helping the environment. 


Robert Morse
BSEE, MSEE
SunCal Solar, Incorporated
www.SunCalSolar.com


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Posted by Robert at SunCalSolar.com at May 22, 2009
Categories: Solar Power,Residential Solar
Tags: Design Money Finances Costs Solar
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  • July 31, 2009 Solar Power Blog from SunCal Solar, Inc. wrote:
    Install the Right Amount of Solar Electricity for YOU Everyone's electricity usage is different. And so is everyone's goal for the size of their electric bill. In other entries I have mentioned there are reasons you may not want your electric bill to be "zeroed out". The main reason is that it may not be your most cost effective approach (see also Tiered Electric Rate structure and System Sizing). Also, if you oversize your system you will pay for a larger system, but will not get any benefit for producing more than you use (I'll ...
  • July 31, 2009 Solar Power Blog from SunCal Solar, Inc. wrote:
    Install the Right Amount of Solar Electricity for YOU Everyone's electricity usage is different. And so is everyone's goal for the size of their electric bill. In other entries I have mentioned there are reasons you may not want your electric bill to be "zeroed out". The main reason is that it may not be your most cost effective approach (see also Tiered Electric Rate structure and System Sizing). Also, if you oversize your system you will pay for a larger system, but will not get any benefit for producing more than you use (I'll ...
  • August 8, 2009 Solar Power Blog from SunCal Solar, Inc. wrote:
    Getting Rid of Your Electric Bill Completely May Not Make Financial SenseMany people dream of getting rid of their electric bill completely. However, this may not be the best financial decision. The reason is simple, but not that obvious. It all has to do with the tiered electric rate structure. (see also "System Sizing" BLOG entry). If you produce all of the power you need then you are producing power that you could purchase relatively cheaply in the Tier 1 and Tier 2 electric rates. It makes more financial sense to purchase the ...
  • August 8, 2009 Solar Power Blog from SunCal Solar, Inc. wrote:
    Getting Rid of Your Electric Bill Completely May Not Make Financial SenseMany people dream of getting rid of their electric bill completely. However, this may not be the best financial decision. The reason is simple, but not that obvious. It all has to do with the tiered electric rate structure. (see also "System Sizing" BLOG entry). If you produce all of the power you need then you are producing power that you could purchase relatively cheaply in the Tier 1 and Tier 2 electric rates. It makes more financial sense to purchase the ...
  • August 8, 2009 Solar Power Blog from SunCal Solar, Inc. wrote:
    Getting Rid of Your Electric Bill Completely May Not Make Financial SenseMany people dream of getting rid of their electric bill completely. However, this may not be the best financial decision. The reason is simple, but not that obvious. It all has to do with the tiered electric rate structure. (see also "System Sizing" BLOG entry). If you produce all of the power you need then you are producing power that you could purchase relatively cheaply in the Tier 1 and Tier 2 electric rates. It makes more financial sense to purchase the ...
  • August 8, 2009 Solar Power Blog from SunCal Solar, Inc. wrote:
    Getting Rid of Your Electric Bill Completely May Not Make Financial SenseMany people dream of getting rid of their electric bill completely. However, this may not be the best financial decision. The reason is simple, but not that obvious. It all has to do with the tiered electric rate structure. (see also "System Sizing" BLOG entry). If you produce all of the power you need then you are producing power that you could purchase relatively cheaply in the Tier 1 and Tier 2 electric rates. It makes more financial sense to purchase the inexpensive ...
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