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What is the financial feasibility of solar in Arizona?

11/4/2018

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The state Arizona is situation in the south western region of the United States of America. In this post I will discuss the financial feasibility of the residential solar in Arizona. The system is financial feasible if it offers more return than the risk free return offered by the state. The risk free return in USA on 20 year bond is 2.9%. If my solar system offers return higher than 2.9% then my solar system is feasible otherwise it is not. Let's quantify the financial feasibility of the state.

Location

  • ​34° North and 112° West

Solar radiations

  • It receives average solar radiations of 6.44 KW-hr/m²/day
Solar radiations in Arizona

System cost & electricity rate

  • The cost of 5 KW system in the state is around $ 15750 or $ 3.15 per watt
  • The cost of electricity in Arizona is 12.20 cents per unit or KW-hr and the escalation rate is 2.95% per year.  The electricity will escalate to 25 cents per unit in the next 25 years. Please see the chart below:
Grid rate in Arizona

Financial feasibility

  • The actual cost of the system ($ 15,750) < The break even cost of the system ($ 17,017)* Good
(*The break-even cost is that cost at which your system will offer you the risk free rate of return)
  • Actual return (3.7% per year) > Expected return (2.9% per year) Good
  • Cost of solar electricity (10 cents per unit) < cost of grid electricity (12.20 cents per unit) Good
  • The payback period is 17.89 years
Payback period
  • Net Present value ($1465) > 0 Good
  • Average units generated per month by 5 KW system: 550 units
  • Feasible: YES

Conclusion

As you can see that the actual return offered by the system is 3.7% per year than the risk free rate of return of 2.9% per year, making the system feasible to be installed on the rooftop. Although I have not taken in account the incentives/rebates offered by the state government and if you consider that then the solar become even more lucrative energy option in the state.
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