Solar Power Generators

Solar power inverters convert DC to AC for PV systems, using MPPT to optimize yield; supports grid-tie, off-grid, battery storage, string and microinverters with high efficiency, monitoring, and safety features.

What Are Solar Power Inverters?

Devices that convert PV DC to AC, with MPPT for efficiency, enabling grid-tie, off-grid, and battery-backed systems.

✅ DC-AC conversion with MPPT for optimal energy harvest

✅ Supports grid-tie, off-grid, and hybrid battery storage

✅ Options include string, microinverters, and central inverters

Solar power inverters are an indispensable component of virtually all elec­tric‑generating renewable energy systems. Inverters come in three basic types: those designed for grid‑con­nected systems, those made for off‑grid systems, and those designed for grid‑connected systems with battery backup. For broader context on system types and design goals, the overview of renewable energy systems highlights how inverters fit within complete installations across different technologies.

Grid‑Connected Inverters

Today, the vast majority of renewable energy systems ‑ both solar and wind electric ‑ are grid‑connected. These systems require inverters that operate in sync with the utility grid. They produce electricity that is identical to that available on the grid. This type of electricity is known as grid‑compatible sine wave AC electricity.

Grid‑connected solar power inverters are also known as utility‑tie inverters. They convert DC electricity from the array in a PV system into AC electricity. Electricity then flows from the inverter to the breaker box and is then fed into active circuits, powering refrigerators, computers, and the like. Surplus electricity is then back‑fed onto the grid, running the electrical meter backward. For a step by step view of components and power flow, see how a solar PV system interfaces with inverters, panels, meters, and household loads.

Grid‑tied inverters produce electricity that matches the grid both in frequency and voltage. To do this, these inverters monitor the voltage and frequency of the electricity on the utility lines. They then adjust their output so that it matches that available on the grid. That way, electricity that is fed from a PV system onto utility lines is identical to the electricity utilities are transmitting to their customers.

Grid‑compatible inverters are equipped with anti‑islanding pro­tection ‑ a feature that automatically disconnects the inverter from the grid in case of loss of grid power. That is, grid‑connected invert­ers are programmed to shut down if the grid goes down. The inverter stays off until ‑service is restored. This feature protects util­ity workers from electrical shock.

Grid‑compatible inverters also shut down if there's an increase or decrease in either the frequency or voltage of grid power outside the inverter's acceptable limits (established by the utility compa­nies). If either varies from the inverter's pre‑programmed settings, the inverter turns off.

The inverter shuts down entirely in the case of blackouts, because it requires grid connection to determine the frequency and voltage of the AC electricity it produces. Without the connection, the inverter can't operate.

Grid‑connected inverters also come with a fault condition reset ‑ a sensor and a switch that turns the inverter on when the grid is back up or the inverter senses the proper voltage and/or frequency.

To avoid losing power when the grid goes down, a homeowner can install a grid‑connected system with battery backup. Although inverters in such systems disconnect from the utility during out­ages, they can draw electricity from the battery bank to supply active circuits. As noted in the previous chapters, such systems are typically designed and wired to provide electricity only to essential circuits in a home or business, supplying the most important (crit­ical) loads.

Grid‑connected inverters also frequently contain LCD displays that provide information on the input voltage (the voltage of the electricity from the PV array) and the output voltage (the voltage of the AC electricity the inverter produces and delivers to a home and the grid). They also display the current (amps) of the AC output.

Some inverters, like the Trace SW utility‑intertie series invert­ers, come with automatic morning wake‑up and evening shutdown. These features shut the inverter down at night (as it is no longer needed) and wake it up in the morning (to get ready to start con­verting DC electricity from the array into AC electricity.) This sleep mode in the SW series inverters uses less than 1 watt of power.

Grid‑connected inverters operate with a fairly wide input range. The DC operating range of the SW series, for instance, ranges from 34 to 75 volts DC (you might see this listed as "VDC"). Inverters from Fronius and Oregon‑based PV Powered Design are designed to operate within a broader DC voltage input range: from 150 to 500 volts DC. This permits the use of a wider range of modules and system configurations. Moreover, high‑volt­age arrays can be placed farther from the inverter than low‑voltage arrays. In addition, high‑voltage DC input means that smaller and less expensive wires can be used to transmit electricity to a home or office from the array. With the cost of copper skyrocketing as a result of higher energy prices and higher demand, savings on wire size can be substantial. To evaluate the financial impact of these wiring and voltage choices, an introduction to solar power economics explains typical cost drivers, payback periods, and sensitivity to material prices.

Off‑Grid Inverters

Like grid‑connected inverters, off‑grid inverters convert DC elec­tricity into AC and boost the voltage to 120 or 240 volts. Off‑grid inverters also perform a number of other essential functions, dis­cussed here. If you're installing an off‑grid system, be sure to read this section carefully.

If you are new to remote designs, this practical guide to off grid solar power systems outlines configurations, sizing steps, and common reliability practices.

Battery‑based inverters used in off‑grid and grid‑connected sys­tems with battery backup typically contain battery chargers. Battery chargers charge batteries from an external source ‑ usually a gen­set in an off‑grid system. But isn't the battery charged by the PV array through the charge controller ?

The charge controller in battery‑based systems does indeed charge batteries, however, its job is to charge batteries from the PV array, not a gen‑set. The charge controller therefore receives DC electricity from a wind turbine PV array, then sends it to the bat­tery bank. The charge controller also prevents batteries from being overcharged. A battery charger in the inverter, on the other hand, converts AC from a gen‑set and converts it to DC. It then feeds DC electricity to the batteries. For deeper background on settings and features, see how a solar power controller manages charging stages, safety limits, and integration with inverters.

In off‑grid systems, battery charging gen‑sets are used to restore battery charge after periods of deep discharge. This prolongs battery life and prevents irreparable damage to the plates. Battery chargers are also used during equalization. In some cabins and mobile applications, portable solar power generators can supplement gen sets to reduce fuel use and noise during moderate loads.

High‑quality battery‑based inverters also contain programma­ble high‑ and low‑voltage disconnects. These protect various components of the system, such as the batteries, appliances, and electronics in a home or business. They also protect the inverters.

The high‑voltage disconnect is a sensor/switch that terminates the flow of electricity from the gen‑set when the batteries are charg‑ing if the battery voltage is extremely high. (Remember: high battery voltages indicate that the batteries are full.) High‑voltage protection therefore prevents overcharging, which can severely damage the lead plates in batteries. It also protects the inverter from excessive battery voltage. The low‑voltage disconnect (LVD) in an inverter monitors battery voltage at all times. When low battery voltage is detected (indicating the batteries are deeply discharged) the inverter shuts off and often sounds an alarm. The flow of elec­tricity from the batteries to the inverter stops. The inverter stays off until the batteries are recharged.

Low‑voltage disconnect features are designed to protect batteries from very deep discharging. Although lead‑add batteries are designed to withstand deep discharges, discharging batteries beyond the 80% mark causes irreparable damage to the lead plates in batteries and leads to their early demise. Although complete system shutdown can be a nuisance, it is vital to the survival of a battery bank.

Batteries can be recharged by a supplementary wind turbine or by a gen‑set. Gen‑sets may be manually started, although some inverters contain a sensor and switch that activates the generator automatically when low battery voltage is detected. The fossil fuel generator then recharges the batteries using the inverter's battery charger.

Multifunction Inverters

Grid‑connected systems with battery backup require multifunc­tion inverters ‑ battery‑ and grid‑compatible sine wave inverters. They're commonly referred to as multifunction or, less commonly, multimode inverters.

Multifunction inverters contain features of grid‑connected and off‑grid inverters. Like a grid‑connected inverter, they contain anti­islanding protection that automatically disconnects the inverter from the grid in case of loss of grid power, over/under voltage, or over/under frequency. They also contain a fault condition reset to power up an inverter when a problem with the utility grid is cor­rected. Like off‑grid inverters, multifunction inverters contain battery chargers and high‑ and low‑voltage disconnects.

If you are installing an off‑grid system, you may want to con­sider installing a multifunction inverter in case you decide to connect to the grid in the future. However, even though multi­function inverters allow system flexibility, they are not always the most efficient inverters. That's because some portion of the elec­tricity generated in such a system must be used to keep the batteries topped off. This may only require a few percent, but over time a few percent add up. In systems with poorly designed inverters or large backup battery banks, the electricity required to maintain the batteries can be quite substantial. It is also worth noting that as batteries age, they become less efficient; more power is consumed just to maintain the float charge, that is, a constant "resting" voltage. This reduces the efficiency of the entire PV system.

For best results, I recommend inverters that prioritize the deliv­ery of surplus electricity to the grid while preventing deep discharge of the battery bank, such as OutBack's multifunction inverters and Xantrex's XW series inverters.

If you want the security of battery backup in a grid‑connected system, I suggest that you isolate and power only critical loads from the battery bank. This minimizes the size of your battery bank, reduces system losses, and reduces costs. Unless you suffer frequent or sustained utility outages, a batteryless grid‑connected system usually makes more sense from both an economic and environ­mental perspective. When comparing backup versus batteryless designs, a balanced review of solar power pros and cons can clarify environmental impacts, reliability needs, and budget constraints.

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Off grid solar power systems integrate PV arrays, MPPT charge controllers, battery storage, and inverters to deliver AC/DC power, engineered for load profiles, autonomy, grounding, and protection without utility interconnection.

What are off grid solar power systems?

Standalone PV with batteries, MPPT charge controllers, and inverters supplying AC/DC loads without utility connection.

✅ Load sizing: kWh/day, peak demand, autonomy, DoD, inverter surge

✅ Core components: PV array, MPPT, batteries, inverter/charger

✅ Electrical design: wiring, grounding, OCPD, earthing, voltage

Off‑grid systems are designed for individuals and businesses that want to or must supply all of their needs via solar energy ‑ or a combination of solar and wind or some other renewable source. As shown in Figure 1a, off‑grid systems bear a remarkable resem­blance to grid‑connected systems with battery backup. There are some noteworthy differences, however. The most notable is the lack of grid connection.

Broader design principles from renewable energy systems help frame choices around storage, redundancy, and load management.

As illustrated in Figure 1, electricity flows from the PV array to the charge controller. The charge controller, monitors battery voltage and delivers DC electricity to the battery bank. When elec­tricity is needed in a home or business, it is drawn from the battery bank via the inverter. The inverter converts the DC electricity from the battery bank, typically 24 or 48 volts in a standard system, to higher‑voltage AC, either 120 or 240 volts, which is required by households and businesses. AC electricity then flows to active cir­cuits in the house via the main service panel. For a refresher on each building block, see this overview of a solar PV system and how components interact under varying loads.

Off‑grid systems often require a little "assistance' to make up for shortfalls. Additional electricity can be supplied by a wind tur­bine, micro hydro turbine, or a gasoline or diesel generator, often referred to as a gen‑set. "A gen‑set also provides redundancy' notes National Renewable Energy Laboratory's wind energy expert Jim Green. Moreover, "if a critical component of a hybrid system goes down temporarily, the gen‑set can fill in while repairs are made:' Gen‑sets also play a key role in maintaining batteries. Guidelines for sizing and operating solar power generators can clarify fuel use, runtime targets, and maintenance intervals.

Fig 1. Off -grid System.

Off‑grid systems with gen‑sets require another component, a battery charger. They convert the AC electricity produced by the generator into DC electricity that's then fed into the battery bank. Battery chargers are built into the inverter and operate automati­cally. When a generator is started and the inverter senses voltage at its input terminals, it then transfers the home loads over to the gen­erator through an internal, automatic transfer switch. It also begins charging the battery from the generator. When selecting equipment, detailed comparisons of solar power inverters can inform waveform quality, surge capacity, and charger integration.

Like grid‑connected systems with battery backup, an off‑grid system requires safety disconnects ‑ to permit safe servicing. DC disconnects, with appropriately rated fuses or breakers, are located between the PV array and the charge controller, between the charge controller and the battery bank, and between the battery and the inverter.

These systems also require charge controllers to regulate battery charging from the PV array. Charge controllers also protect the batteries from overcharging.

As is evident by comparing schematics of the three types of sys­tems, off‑grid PV systems are the most complex. Moreover, some systems are partially wired for DC ‑ that is, they contain DC cir­cuits. These are supplied directly from the battery bank. DC circuits are used to service lights or DC appliances such as refrig­erators or DC well or cistern pumps. Why include DC circuits ?

Many people who install them do so because DC circuits bypass the inverter. Because inverters are not 100% efficient in their conversion of DC to AC, this saves energy. Operating a DC refrig­erator, for example, over long periods can save a substantial amount of energy.

The problem with this strategy is that DC circuits are low volt­age circuits and thus require much larger wiring and special, more expensive plugs and sockets. DC appliances are also harder to find. In addition, they are typically much smaller than those used in homes, and they are less reliable.

If you are thinking about installing an off‑grid system in a home or business, your best bet is an AC system ‑ unless your home is extremely small and your needs are few.

To simplify installation of battery‑based systems, many installers recommend use of a power center, such as the one shown in Figure 2. Power centers contain many of the essential components of a renewable energy system, including the inverter, the charge con­troller, and fused safety disconnects ‑ all prewired. This makes an electrician's job easier. Power centers also provide busses (con­nection points) to which the wires leading to the battery bank, the inverter, and the PV array connect.

Pros and Cons of Off‑Grid Systems

Off‑grid systems offer many benefits, including total emancipation from the electric utility (Table 1). They provide a high degree of energy independence that many people long for. You become your own utility, responsible for all of your energy production. In addi­tion, if designed and operated correctly, your system will provide energy day in and day out for many years. Off‑grid systems also provide freedom from occasional power failures. These benefits align with widely cited advantages of solar power such as resilience, predictable costs, and modular growth options.

Off‑grid systems do have some downsides. One of the most significant is that they are the most expensive of the three renewable energy system options. Battery banks, sup­plemental wind systems, and generators add substantially to the cost ‑ often 60% more. They also require more wiring. In addition, you will need space to house battery banks and generators. Although cost is usually a major downside, there are times when off‑grid sys­tems cost the same or less than grid‑connected systems ‑ for example, if a home or business is located more than a few tenths of a mile from the electric grid. Under such circumstances, it can cost more to run electric lines to a home than to install an off‑grid system. For planning and budgeting, practical primers on solar power economics explain lifecycle costs, incentives, and payback scenarios.

When installing an off‑grid system, remember that you become the local power company and your independence comes at a cost to you. Also, although you may be independent" from the utility, you will need to buy a gen‑set and fuel, both from large corporations. Gen‑sets cost money to maintain and operate. You will be dependent on your own ability to repair your power system when something fails. If you are weighing tradeoffs, a balanced look at the solar power pros and cons can sharpen expectations about reliability, maintenance, and total ownership.

An off‑grid system also comes at a cost to the environment. Gen‑sets produce air and noise pollution. Lead‑acid batteries are far from environmentally benign. Although virtually all lead‑acid batteries are recycled, battery production is responsible for considerable envi­ronmental degradation. Mining and refining the lead are fairly damaging. Thanks to NAFTA and the global economy, lead pro­duction and battery recycling are being carried out in many poor countries that have lax or nonexistent environmental policies. They are responsible for some of the most egregious pollution and health problems facing poorer nations across the globe, according to small wind energy expert Mick Sagrillo. So, think carefully before you decide to install an off‑grid system.

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Solar power controller regulates PV array output, using MPPT or PWM for efficient battery charging, load management, and system monitoring, protecting inverters and DC circuits in off-grid and grid-tied photovoltaic installations.

What Is a Solar Power Controller?

A device that manages PV output to safely charge batteries, control loads, and optimize efficiency via MPPT or PWM.

✅ MPPT/PWM algorithms maximize PV harvest and battery lifecycle

✅ Protects against overcharge, overdischarge, reverse polarity, surges

✅ Interfaces with inverters; provides logging, remote monitoring

A charge controller is a key component of battery‑based PV systems. A charge controller performs several functions, the most important of which is preventing batteries from overcharging. In the broader context of a solar PV system, the charge controller coordinates with modules and storage to balance energy flow across the day.

How Does a Charge Controller Prevent Overcharging?

To prevent batteries from overcharging, a controller monitors batteryvoltage at all times. When the voltage reaches a certain pre‑determinedlevel, known as the voltage regulation (VR) set point, the controller either slows down or terminates the flow of electricity into the bat­tery bank (the charging current), depending on the design. In some systems, the charge controller sends surplus electricity to a diver­sion load (Figure 1). When paired with a solar power inverter, advanced charging profiles can optimize efficiency and reduce stress on the battery bank.

This is an auxiliary load, that is, a load that's not critical to the function of the home or business. It is often a heating element placed inside a water heater or wall‑mounted resis­tive heater that provides space heat. These strategies align with best practices for integrated renewable energy systems, ensuring surplus generation is put to practical use.

In PV systems, excess power is often available during the summer months during periods of high insolation. In these instances, the diversion load may consist of an irrigation pump or a fan to help exhaust hot air from a building. This is especially valuable in off-grid solar power systems where seasonal loads can be scheduled to match daytime production.

Diversion loads must be carefully sized according to the National Electrical Code, something an installer will be sure to do. Thoughtful sizing helps capture the pros and cons of solar power in a way that maintains safety and long-term reliability.

Why Is Overcharge Protection So Important?

Overcharge protection is important for flooded lead‑acid batteries and sealed batteries. Without a charge controller, the current from a PV array flows into a battery in direct proportion to irradiance, the amount of sunlight striking it. Although there's nothing wrong with that, problems arise when the battery reaches full charge. Irradiance is the light energy each photovoltaic cell converts to electricity before array output is managed by the controller.

Without a charge controller, excessive amounts of current could flow into the battery, causing battery voltage to climb to extremely high levels. High voltage over an extended period causes severe out gassing, water loss, and loss of electrolyte that can expose the lead plates to air, damaging them. It can also result in internal heating and can cause the lead plates to corrode. This, in turn, will decrease the cell capacity of the battery and cause it to die prematurely. Selecting appropriate solar power batteries also mitigates these risks by matching chemistry and charge limits to the controller's algorithms.

Fig.1: Diversionary charge controllers send surplus electricity to a dump load, either a resistive heater or fan or pumps, as explained in the text.

Overdischarge Protection

Charge controllers protect batteries from high voltage, but also often incorporate overdischarge protection, that is, circuitry that prevents the batteries from deep discharging. When the weather's cold, overdischarge protection also protects batteries from freez­ing. This feature is known as a low‑voltage disconnect.

Charge controllers prevent overdischarge by disconnecting loads ‑ active circuits in a home or business. Overdischarge pro­tection is activated when a battery bank reaches a certain preset voltage or state of charge but only protects against deep discharge caused by DC circuits. This feature prevents the batteries from dis­charging any further. Overdischarge not only protects batteries, it can protect loads, some of which may not function properly, or may not function at all at lower than normal voltages.

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What is a photovoltaic cell? A semiconductor PN-junction device that converts sunlight to DC electricity via the photovoltaic effect, used in solar panels for renewable energy, power generation, efficiency optimization, and IV curve performance.

What Is a Photovoltaic Cell?

A PV cell is a semiconductor PN junction converting sunlight into DC electrical power via the photovoltaic effect.

✅ Converts photons into electron-hole pairs at a PN junction.

✅ Generates DC output; modules wired for desired voltage/current.

✅ Key metrics: efficiency, fill factor, IV curve, temperature coefficient.

Photovoltaic cells are solid‑state electronic devices like transistors, diodes, and other components of modern electronic equipment. These devices are referred to as solid‑state because electrons flow through solid material within them. Most solar cells in use today are made from one of the most abundant materials on the planet, silicon, which is extracted from quartz and sand.

For a broader overview of how solar fits into the alternative energy landscape, the alternative energy solar power guide provides helpful context for newcomers.

Like all atoms, silicon atoms contain electrons that orbit around a central nucleus that contains protons and neutrons. In silicon, some of the electrons can be jolted loose from their orbit around the nuclei of the silicon atoms when struck by sunlight. These loose electrons can be made to flow together, creating an electrical current.These loose electrons can be made to flow together, creating an electrical current. Understanding how this microscopic process translates into real-world benefits and tradeoffs is central to the pros and cons of solar power that homeowners often weigh.

Because numerous solar cells are wired in series in a PV module, numerous electrons can be gathered up and conducted away from the array to power household loads. This module-level wiring is one part of a complete solar PV system that also includes racking, conductors, and balance-of-system hardware.

Most solar cells in use today are thin wafers of silicon about 1/100th of an inch thick (they range from 180 microns (μm) to 350 μm in thickness). As shown in Figure 1, most solar cells consist of two layers ‑ a very thin upper layer and a much thicker lower layer. The upper layer is made of silicon and phosphorus atoms; the bottom layer consists of silicon and boron atoms. These material choices underpin many advantages of solar power related to durability and scalability.

Fig1. Cross Section through a Solar Cell. Solar cells like the one shown here consist of two layers of photosensitive silicon, a thin top layer; the n‑layer; and a thicker bottom layer; the p‑layer. Sunlight causes electrons to flow from the cell through metallic contacts on the surface of most solar cells, creating DC electric­ity. Solar‑energized electrons then flow to loads where the solar energy they carry is used to power the loads. De‑energized electrons then flow back to the solar cell.

In remote applications, many designers consider off-grid solar power systems to ensure autonomy during grid outages.

When sunlight strikes the silicon atoms in solar cells, it jars electrons out of the atoms in both layers. These electrons flow preferentially toward the surface (for reasons beyond the scope of this book). These electrons flow into the metal contacts located on the front of solar cells. Numerous solar cells are wired in series in a solar module. Because of this, electrons extracted from one cell flow to the next cell, and then to the next cell, etc., until they reach the negative terminal of the module. Electrons flow from the array through wires connected to the house to power a load (any device that consumes electricity). After deliv­ering the energy they gained from sunlight to the load, the de‑energized electrons return through a different wire to the array. The electrons then flow back into the solar cells, filling the empty spots left in the atoms created by their ejection. This permits the flow of electrons to continue ad infinitum. Before this DC electricity can serve typical household circuits, a solar power inverter converts it to AC safely and efficiently.

For extended resilience and load shifting, many systems integrate solar power batteries that store excess generation for use after sunset.

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Solar power economics evaluates ROI, LCOE, CAPEX, OPEX, payback periods, tax credits, net metering, financing, and grid parity to quantify solar project viability, cash flows, and lifecycle costs under tariffs and incentives.

What Is Solar Power Economics?

Quantifies solar project costs and revenues via ROI, LCOE, payback, and incentives to evaluate financial feasibility.

✅ Model LCOE, CAPEX, OPEX, and degradation rates

✅ Forecast cash flows, payback period, and IRR

✅ Account for incentives, net metering, and tax credits

Does a Solar Electric System Make Economic Sense?

At least three options are available to analyze the economic costs and benefits of a solar electric system: (1) a comparison of the cost of electricity from the solar electric system with conventional power or some other renewable energy technology, (2) an estimate of return on investment, and (3) a more sophisticated economic analy­sis tool known as total cost of ownership.

Cost of Electricity Comparison

One of the simplest ways of analyzing the economic performance of a solar system is to compare the cost of electricity produced by a PV system to the cost of electricity from a conventional source such as the local utility. This is a five‑step process, two of which I've already discussed. For readers new to PV components, this overview of solar PV systems explains how modules, inverters, and meters work together in practice.

The first step is to determine the average monthly electrical con­sumption of your home or business, preferably after incorporating conservation and efficiency measures. Second, calculate the size of the system you'll need to install to meet your needs. Third, calcu­late the cost of the system. (A solar provider can help you with this.) Fourth, after determining the cost of the system, calculate the out­put of the system over a 30‑year period, the expected life of the system. Fifth, now estimate the cost per kilowatt‑hour by dividing the cost of a PV system by the total output. To frame those calculations within a broader decision context, consider the practical advantages of solar power that complement purely numerical comparisons.

Suppose you live in Colorado and are interested in installing a grid‑connected solar electric system that will meet 100% of your electric needs. Your super‑efficient home requires, on average, 500 kWh of electricity per month. That's 16.4 kWh per day. Peak sun hours is 6. To size the system, divide the electrical demand (16.4 kWh per day) by the peak sun hours. The result is a 2.7 kW sys­tem. Adjusting for 78% efficiency, the system should be 3.46 or 3.5 kW. For the sake of simplicity, let's assume that the system is not shaded at all during the year. Site specifics and design choices inevitably involve tradeoffs, and a concise review of solar power pros and cons can clarify expectations before you commit.

Your local solar installer says she can install the system for $7 a watt, or $24,500. You'll receive a rebate from the utility of $3.50 per watt of installed capacity or $12,250. The system cost is now $12,250. You'll also receive a 30% tax credit from the federal gov­ernment on the cost of the system. The federal tax credit is based on the initial cost of the system ($24,500) minus the utility rebate ($12,250 in this example). Thirty percent of this amount equals $3,675. Total system cost after subtracting these incentives is $8,575.

According to your calculations or the calculations provided by the solar installer, this system will produce about 16.4 kWh of elec­tricity per day or 6,000 kWh per year. If the system lasts for 30 years, it will produce 180,000 kWh.

To calculate the cost per kilowatt‑hour, divide the system cost ($8,575) by the output (180,000 kWh). In this case, your electric­ity will cost slightly less than 4.76 cents per kWh. Considering that the going rate in Colorado is currently about 9.5 cents per kWh, including all fees and taxes, the PV system represents a pretty good investment.

Return on Investment

 Another relatively simple method used to determine the cost effec­tiveness of a PV system is simple return on investment (ROT). Simple return on investment is, as its name implies, the savings gen­erated by installing a PV system expressed as a percentage of the investment. When comparing projects across technologies, resources on renewable energy systems can help you understand how ROT varies by technology and market.

Simple ROT is calculated by dividing the annual dollar value of the energy generated by a PV or wind system by the cost of the sys­tem. A solar electric system that produces 6,000 kWh of electricity per year in an area where electricity sells at 9.5 cents per kilowatt‑hour generates $570 worth of electricity each year. If the system costs $8,575, after rebates, the simple return on investment is $570 divided by $10,710 x 100 which equals 6.6%. If the utility charges 15 cents per kWh, the 6,000 kWh of electricity would be worth $900 and the simple ROT would be 10.5%. Given the state of the economy, both of these represent decent rates of return. (If only our retirement funds performed half as well these days!) Even in good economic times, these are respectable ROTs.
 

Weaknesses of Economic Analysis Tools

Comparing the cost of electricity and return on investment are both simple tools. Both fail to take into account a number of economic factors. For example, both techniques fail to account for interest payments on loans that may be required to purchase a PV system. Interest payments will add to the cost of electricity produced by the system. For those who self‑finance, for example, by taking money out of savings, both tools fail to take into account opportunity costs ‑ lost income from interest‑bearing accounts raided to pay for the system.

Both methods fail to take into account the rising cost of elec­tricity. Nationwide, electric rates have increased on average about 4.4% per year over the past 35 years. In recent years, the rate of increase has been double that amount in some areas.

Although these analytic tools fail to account for key economic factors that would decrease the value of a PV system, the rising cost of electricity from conventional sources will in all likelihood offset the opportunity cost or the cost of financing a system. For a quick primer that situates PV within the broader clean energy landscape, see this guide to alternative energy solar power for additional context.

That said, these techniques do not take into account system maintenance, insurance, or property taxes, if any. All of these factors add to the cost of a system over the long term.

Despite these shortcomings, the cost comparison and simple return on investment are convenient tools for evaluating the economic performance of renewable energy systems. They're infinitely better than the old standby, payback (also known as "simple payback").

Why ?

Payback is a term that gained popularity in the 1970s. It was used to determine whether energy conservation measures and renewable energy systems made economic sense. Payback is the number of years it takes a renewable energy system or energy effi­ciency measure to pay back its cost through the savings it generates.

Payback is calculated by dividing the cost of a system by the anticipated annual savings. If the $8,575 PV system I've been look­ing at produces 6,000 kilowatt‑hours per year and grid power costs you 9.5 cents per kWh, the annual savings of $570 yields a payback of 18.8 years ($8,575 divided by $570 = 15 years). In other words, this system will take 15 years to pay for itself. From that point on, the system produces electricity free of charge.

While the payback of 15 years on this system seems long, don't forget that the return on investment on this system, calculated ear­lier, was 6.6%, which is a very respectable rate of return on your investment ‑ or any investment these days.

While simple payback is fairly easy to understand, it has some very serious drawbacks. The most important is that payback is a foreign concept to most of us and, as a result, can be a bit misleading.

Besides being misleading, simple payback is a concept we rarely apply in our lives. Do avid anglers ever calculate the payback on their new bass boats ($25,000 plus the cost of oil, gas, and trans­portation to and from favorite fishing spots divided by the total number of pounds of edible bass meat at $5 per pound over the lifetime of the boat.) Do couples ever calculate the payback on their new SUV or the new chandelier they installed in the dining room ?

Simple payback and simple return on investment are closely related metrics. In fact, ROl is the reciprocal of payback. That is, ROl = 1/Payback. Thus, a PV system with a 10‑year payback rep­resents a 10% return on investment (ROT = 1/10). A PV system with a 20‑year payback represents a 5% ROT.

Although payback and ROT are related, return on investment is a much more familiar concept. We receive interest on savings accounts and are paid a percentage on mutual funds and bonds ‑ both of which are a return on our investment. Most of us were introduced to return on investment very early in life ‑ when we opened our first interest‑bearing account. Renewable energy sys­tems also yield a return on our investment, so it is logical to use ROT to assess their economic performance.
 

Adjusting for Incentives

When calculating the cost of electricity from a solar electric sys­tem, be sure to remember to subtract financial incentives from state and local government or local utilities ‑ as in the previous exam­ple. Financial incentives can be quite substantial. In Wisconsin, for example, more than 30 utilities participate in a statewide program called Focus on Energy through which they provide customers who install PV systems a rebate of up to 25% of their system cost with a maximum reward of $35,000. Other utilities and even several states, like New York, offer generous incentives as well. The best PV incentives are found in Colorado, New Jersey, Massachusetts, California, and Oregon.

The federal government also offers a generous financial incen­tive to those who install PV systems. Their incentive is a 30% tax credit to homeowners and businesses. However, the feds also allow businesses to depreciate a solar electric system on an accelerated schedule, which means they can deduct the costs faster than other business equipment, recouping their investment more quickly. This further reduces the cost of a PV system. The US Department of Agriculture offers a 25% grant to cover the cost of PV systems on farms and rural businesses. Their minimum grant is $2,500 (for a $10,000 system) and the maximum is $500,000. To learn more about state and federal incentives in your area, log on to the Database of State Incentives for Renewables and Efficiency at www.dsireusa.org. Click on the map of your state. To learn more about USDA grant program, log on to www.rurdev.usda.gov/. Up-to-date guidance on eligibility and claiming benefits is available in this overview of alternative energy tax credits for homeowners and businesses.

Because financial incentives can reduce the cost of a PV system, most PV system installations are driven by incentives.

Discounting and Net Present Value: Total Cost of Ownership

For those who want a more sophisticated tool to determine whether an investment in solar energy makes sense, economists offer up dis­counting and net present value. This method, referred to as total cost of ownership, allows you to compare the cost of a PV system to the cost of the electricity it will displace. Unlike the previous economic tools, this one takes into account numerous economic parameters, including initial costs, financial incentives, maintenance costs, the rising cost of grid power, and another key element, the time value of money. The time value of money takes into account the fact that a dollar today is worth more than a dollar tomorrow and even more than a dollar a few years from now. Economists refer to this as the discount factor.

To make life easier, this economic analysis can be performed by using a spread sheet. This method is discussed in Powerfrom the Sun.

Alternative Financing for PV Systems

Not everyone has access to the money required to purchase a PV system ‑ even with incentives ‑ or wants to incur that kind of debt. If you are one of these people, there are some alternative financing mechanisms that could still make your dreams of a PV system come true: power purchase agreements (PPAs) and leases.

In a power purchase agreement, a private company installs a solar electric system on a customer's home mostly at their expense. (They do require a down payment to help offset the cost of the sys­tem and installation.) The company owns and"operates" the system, selling the electricity generated by the system to the homeowner at a low rate ‑ usually a rate that increases much more slowly than utility rates for the duration of the lease, typically around 18 years. Homeowners benefit because they incur no upfront costs while enjoying lower electric bills and living a more environmentally friendly lifestyle. They also own a residence that will probably sell more quickly when the time comes to put it on the market.

Another option is a lease. Once again, the PV system is installed by a private company and the system is leased to them. Customers that lease PV systems typically end up paying slightly less for elec­tricity. The lease also guarantees a fixed rate for the term of the agreement, providing a hedge against rising electric rates.

Lease programs are available in California, Arizona, Oregon, Colorado and Connecticut. Expect to see other companies enter the market in other states.

Lease programs and power purchase agreements are really quite similar. The main difference is that in lease programs there's typi­cally no down payment. However, as author and market analyst Charles W. Thurston explains in an article in Home Power maga­zine (issue 128), "if you can afford to invest up front in part of the system cost (through a PPA), you'll pay less as time goes on, and your savings can be greater at the end of the contract. In that case, a PPA may be more beneficial.'

Despite Thurston's analysis, representatives from both indus­tries argue that the financial costs are not that different over the long haul. "The bottom line is that a solar lease or PPA makes it possible for any homeowner to stop talking about tomorrow and act now," says Thurston. If you'd like to power your home with solar electricity, but can't afford a system or don't want to borrow the money, consider a lease or a power purchase agreement.
 

Putting It All Together

Here, you've seen that there are several ways to save money on a PV system. Efficiency measures lower the initial size and cost of a system, saving huge sums of money. Tax incentives and rebates also lower the cost. Some states exempt PV systems from sales taxes or property taxes, creating additional savings. I encourage those who are building superefficient passive solar/solar electric homes to view savings they'll accrue from efficiency measures and passive solar design as a kind of internal subsidy or rebate for their PV systems. My own solar electric system cost about $17,000 and has generated about $4,000 worth of electricity in the first 12 years. The return on investment is pretty low. However, my passive solar home has saved me approximately $18,000 in heating bills during this same period. Savings on electricity from the PV and savings on heating bills resulting from passive solar heating have more than paid for my PV system. If your site lacks reliable utility service, the cost-benefit picture can shift, and planning for off-grid solar power systems involves different assumptions about storage, backup, and maintenance.

Economics is where the rubber meets the road. Comparing solar electric systems against the "competition" and calculating the return on investment gives a potential buyer a much more realistic view of the feasibility of solar energy at a particular site. Remember, however, economics is not the only metric on which we base our decisions. Energy independence, environmental values, reliability, the cool factor, bragging rights, the fun value, and other factors all play prominently in our decisions to invest in renewable energy.

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Advantages of solar power include high-efficiency photovoltaic systems, clean renewable energy, low O&M costs, grid integration with inverters and MPPT, distributed generation, net metering benefits, and improved resilience via energy storage and microgrids.

What Are the Advantages of Solar Power?

They enable efficient, low-emission supply, lower LCOE, reduce peaks, and improve grid reliability via storage.

✅ Distributed generation lowers feeder losses and voltage drops.

✅ MPPT inverters optimize DC-AC conversion and power quality.

✅ Solar plus storage enables peak shaving and frequency support.

Although solar electricity, like any fuel, has some downsides, they're clearly not insurmountable and, many believe, they are outweighed by their advantages. One of the most important advantages is that solar energy is an abundant, renewable resource. While natural gas, Oil, coal, and nuclear fuels are finite and on the decline, solar energy will be available to us as long as the Sun continues to shine ‑ for at least 5 billion years. For a broader context on trade-offs, see this solar power pros and cons overview that compares benefits and limitations in practical terms.

Solar energy is a clean energy resource, too. By reducing our reliance on coal‑fired power plants, solar electricity could help homeowners and businesses reduce their contribution to a host of environmental problems, among them acid rain, global climate change, habitat destruction, and species extinction. Solar electric­ity could even replace costly, environmentally risky nuclear power plants. Nuclear power plants cost upwards of $6 to $ billion, and no long term solution has been enacted to store the high‑level radioac­tive waste they produce. Additional background on how renewables mitigate pollution is outlined in this guide to renewable energy sources that highlights lifecycle impacts.

Solar energy could help us decrease our reliance on declining and costly supplies of fossil fuels like natural gas. Solar could also help us decrease our reliance on oil. Although very little electricity in the United States comes from oil, electricity generated by solar electric systems could be used to power electric or plug‑in hybrid cars and trucks, reducing our demand for gasoline and diesel fuel, both of which come from oil. And, although the production of solar electric systems does have its impacts, all in all it is a relatively benign technology compared to fossil fuel and nuclear power plants. As transportation electrifies, insights on alternative energy power can help consumers plan charging and efficiency.

Another benefit of solar electricity is that, unlike oil, coal, and nuclear energy, the fuel is free. Moreover, solar energy is not owned or controlled by hostile foreign states or one of the dozen or so influential energy companies that largely dictate energy policy, espe­cially in the United States. Because the fuel is free and will remain so, solar energy can provide a hedge against inflation, caused in part by ever‑increasing fuel costs. For policymakers, curated alternative energy solutions illustrate market mechanisms that stabilize costs.

An increasing reliance on solar and wind energy could also ease political tensions worldwide. Solar and other renewable energy resources could alleviate the need for costly military operations aimed at stabilizing the Mideast, a region where the largest oil reserves reside. Because the Sun is not owned or controlled by the Middle East, we'll never fight a war over solar or other renewable energy resources. Not a drop of human blood will be shed to ensure a steady supply of solar energy to fuel our economy. Understanding diverse forms of alternative energy also clarifies how energy diversity reduces geopolitical risk.

Yet another advantage of solar‑generated electricity is that it uses existing infrastructure ‑ the electrical grid ‑ and technolo­gies in use today such as electric toasters, microwaves, and the like. A transition to solar electricity could occur fairly seamlessly. Grid integration best practices and alternative energy solar power case studies show how adoption can proceed with minimal disruption.

Solar electricity is also modular. You can add on to a system over time. If you can only afford a small system, you can start small and expand your system as money becomes available. Homeowners exploring upgrades can consult resources on renewable alternative energy to plan phased system expansions.

Solar electricity could provide substantial economic benefits for local, state, and regional economies. And solar electricity does not require extensive use of water, an increasing problem for coal, nuclear, and gas‑fired power plants, particularly in the western United States and in and regions.

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