In order to determine financial returns, it is important to have a solid understanding of the basic economics that dictate PV system costs. There are two general categories of PV systems costs: capital costs and operation and management (O&M) costs.
Capital costs refer to the fixed, one-time costs of designing and installing the system. Capital costs are categorized into hard costs and soft costs.
Hard costs are the costs of the equipment, including modules, inverters, and BOS components, as well as installation-related labor.
Soft costs include intangible costs such as permitting, taxes, customer acquisition costs, etc.
Operation and Management Costs
O&M costs refer to costs that are associated with running and maintaining the system. These can include fuel, repairs, and operation personnel. PV systems generally have low O&M costs.
Incentives and Policies that Benefit Solar Energy
The high capital costs are one of the biggest factors that discourage people from going solar. To combat this, there are a number of incentives and policies in place to make PV systems financially competitive.
Cost based incentives, such as the Solar Investment Tax Credit (ITC), allow those who invest in a solar system to apply a tax credit towards their income tax. The incentive is determined by the cost of the system, and is independent of its performance.
Performance based incentives (PBIs) encourage PV system owners to install and maintain efficient systems through payments that are based on the monthly energy production of the system.
Net Energy Metering
In addition to incentives, many states, such as California, implement a net energy metering (NEM) policy that allows consumers who generate excess electricity to be reimbursed at the then-prevailing rate of electricity. For instance, if a residential PV system produces an excess of 100 kWh over the course of the month, the owner will be reimbursed for 100 kWh at the market rate of electricity for that time period. The owner is then free to use that reimbursement credit towards electricity they consume from the grid when solar is not meeting their current energy load. Therefore, households with solar PV and NEM are able to significantly reduce their electricity bill.
via Aurora Solar