How to Calculate the Present Value of Solar Energy Savings

When buying a home with rooftop solar, it’s important to understand the financial value of future electricity savings. One of the most investment-savvy ways to do this is by calculating the Present Value (PV) of those savings. This method helps you understand how much those future benefits are worth in today’s dollars—just like evaluating rental income or dividends from an investment.

Here’s a step-by-step guide to help you make that calculation.

Step-by-Step: How to Calculate Present Value of Energy Savings

✅ Step 1: Estimate Annual Energy Savings

Start by figuring out how much the solar system currently saves you on electricity bills each year.

Example: $150/month × 12 months = $1,800/year

This is your projected annual savings going forward.

✅ Step 2: Determine Remaining Lifespan of the System

Most rooftop solar systems are designed to last 25 to 30 years. If the system is already several years old, subtract its age to estimate its remaining useful life.

Example: If the system is 8 years old: 25 – 8 = 17 years remaining

✅ Step 3: Choose a Discount Rate

This step accounts for the time value of money—a dollar saved today is worth more than a dollar saved 10 years from now. The discount rate reflects your alternative investment return if you put the same money elsewhere.

Common discount rates:

– 3–5% in stable markets

– Use 5% as a conservative, general-purpose estimate

✅ Step 4: Apply the Present Value Formula

Now, calculate the Present Value of future annual savings using this formula:

PV = ∑(S / (1 + r)^t)

Where:

• PV = Present value of savings

• S = Annual savings (e.g., $1,800)

• r = Discount rate (e.g., 0.05)

• n = Number of years remaining (e.g., 17)

You can simplify it using a financial formula for a stream of equal payments:

PV = S × [(1 – (1 + r)^-n) / r]

👉 Plug In the Numbers:

PV = 1,800 × [(1 – (1 + 0.05)^-17) / 0.05] ≈ 1,800 × 10.91 ≈ $19,638

This means the present value of 17 years of $1,800 in annual energy savings is approximately $19,600 today, when discounted at 5%.

Interpretation

This method treats your solar system like an income-generating asset, similar to rental real estate or stock dividends.

• If you were comparing investment options, the solar system offers $19,600 in current-value savings over its remaining life.

• This can be a useful number to reference during home purchase negotiations or solar system appraisals.

Final Thought

The Present Value method gives you a concrete, financially grounded way to assess a solar system’s worth—not based on sticker price, but on real, measurable savings over time. It’s especially helpful when comparing homes or deciding how much to pay for a property with existing solar.

[By Nevada Chinese Perspective]