The break-even point refers to when the investment in a solar system is paid off meaning the system has ‘paid for itself’ and starts generating income if it is selling to a grid. The concept applies to every type of grid-connected system. For an off-grid system, this is when it starts producing electricity ‘for free’ (apart from maintenance costs).
When exactly the break-even point occurs depends on many factors that vary depending on the type of system, such as:
- Initial capital cost of all system components, including the costs of planning, shipping, installation, testing and commissioning.
- Cost of finance (interest rates).
- Operational and periodic costs, such as replacing inverters, batteries and other equipment which has a shorter life than PV modules, and other incidentals.
- Maintenance costs (preventive, predictive and corrective).
- Costs associated with grid outages for back-up systems providing security of supply.
- Price at which electricity is sold to the grid (for grid-connected systems).
- Price of electricity purchased from the grid if it is being replaced by electricity generated by the PV system.
- For off-grid systems, savings associated with not using a diesel generator (fuel, generator, servicing).
- For off-grid systems, savings associated with not connecting to the grid (this can be very expensive in remote areas, or may not be even possible).
- Annual solar irradiation at the site.
- Rate of system degradation as system components age over time and system losses increase (electricity production decreases).
- The service life of the system and the related performance ratio, which depends on the quality of design; sizing and planning; quality of the components used, and quality of the installation; quality of maintenance; and the previous two points.
Example of cost and payback structure with break-even point for a solar power plant selling electricity to the grid. This will be similar for many grid-connected systems. Estimating the break-even point for grid-connected systems which offset electricity normally purchased from the grid and/or have batteries to provide energy security will be more complex. This will also be the case with many off-grid systems.
The investment in a PV system, can be seen as upfront purchase of a quantity of electricity for a specified time period at a more or less predetermined price.