Cutting Your Electric Bill with Solar

Reba
by Reba
1 min read
Mar 10, 2022 11:11:18 AM

Sometimes prospective customers of on-site solar arrays are skeptical about whether the financial returns are sufficient to warrant their time of investigating.

This piece will quickly lay out the economics today for an Xcel customer in Minnesota.


Energy Assumptions

  • The building roof or adjacent grounds can accommodate a system size large enough to produce 100% of what you’re consuming.
  • Your bill is $2,000 per month or $24,000 per year.

Assume system size therefore is 221.6 kW. (Inside energy baseball here. You just need to trust me that size matches up with a spend of $2K per month.)

Financial Assumptions

  • Your company is a subchapter S
  • You can take advantage of tax credits and depreciation deductions available for solar
  • The system is financed over a short time frame (4-6 years)
  • Cash flow is NEVER negative.

Result
At ten years, this hypothetical customer is $170,346 cash positive.

Now, if your Earnings before interest, taxes, and amortization (EBITA) is $2M that may not seem like very much. However, EBITA is not the same as cash. Ever take out a loan to pay your taxes even though the company made a lot of money according to EBITA?

If 10 years from now you could use a distribution of $170,346 to pay off your mortgage, then this likely sounds pretty good. As a bonus, the cash generated continues to accelerate over time as the loan is paid off and the cost of electricity from Xcel continues to increase. In this model, the 20-year cash flow number is $587,962. That is serious money to almost everyone.

One Last Note
As you continue doing your homework on whether or not solar is right for your business, keep this in mind: unlike other investments in your business, an investment in on-site solar is guaranteed to pay off as long as you continue using electricity and the sun comes up every day.

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