EME 810
Solar Resource Assessment and Economics

7.7 Use of SAM for Residential SHW with Discounted Payback


Try this!

You can use SAM software directly to calculate the annualized cash flows (and solar savings) for a simple solar hot water system retrofit (the old hot water tank that used all natural gas is to be replaced by a new SHW system). However, the annualized and life cycle cash flows do not appear to be quite right.

The case simulation that you are provided with (Lansing, MI) is similar by many factors and in scale to the example in Discussion Activity earlier in this Lesson. The array should be sized to accommodate the daily hot water usage for a family of 4 (2 panels of highly efficient evacuated tube collectors (ETCs).

Why do you think that the SHW system seemed to pay off quickly in your simpler spreadsheets from Discussion Activity, but are seemingly way off for the SAM Solar Hot Water case presented? It may require you to dig into both SAM and the financial analysis of a residential solar hot water system (including financing, utility rates, and incentives). All of the modeling components (the vertical blocks along the far left) are important to you, especially check "SHW System Costs," "Financing," "Incentives," and "Utility Rate." You should observe that many of our reading topics are well integrated into the SAM software. This is because SAM used the document by Short et al. to assemble their financial components.

The goal of this exercise is to provide a client with a reasonable financial payback scenario by exploring and adjusting the SAM financial tabs. This is an opportunity to learn by doing, using a predefined template.

Note #1: a SHW system uses an electrical pump to circulate water. That means that electricity is involved in this system as a cost. As a hint, you will note that there is no electricity cost "without the system," but there is an electricity cost with the SHW system installed.

Note #2: "Out-year Escalation" is set very ambitiously, allowing electricity prices inflate faster than inflation. See what happens when you change it.

Note #3: SAM only knows how to calculate for electricity systems. Assume the original "non-solar" hot water tank is heated normally by natural gas combustion (you can pick a rate for gas in your write up to convert to electricity equivalent units--this will require some guessing, which is fine).


  1. Go to the appropriate Module in CANVAS and download the SAM file: "Activity_7_2.sam"
  2. Open SAM and load the file and save a copy as "Name_Activity_7_2.sam". There are two tabs shown in this saved file.
  3. Run the simulation by clicking a button in the lower left. You will see one tab using a MI locale, while the other uses a MA locale -run simulation for both.
  4. Compare the following metrics for these two cases (take some notes for comparison later):
    • Solar Fraction (Annual F = 0.6-0.8)
    • Auxiliary Energy with Solar (Annual Fuel Costs with Solar)
    • Auxiliary Energy without Solar (Annual Fuel Costs without Solar)
    • LCOE Nominal (Real)
    • Electricity Cost without System
    • Electricity Cost with System
    • Net Savings with System (hmm, what is happening here?)
    • NPV
    • Payback
  5. Start pulling apart at the problem to find the underlying financial assumptions for LCOE, NPV, and Payback. You may wish to duplicate a case to provide a space to work in and modify without changing the original.
  6. Modify input parameters and do the necessary additional calculations to estimate a new NPV and Payback.

You do not need to find the single perfect answer, and you are encouraged to exchange ideas on the forum to find the best scenario.  Just try to flesh out the problem and suggest a solution for the client to see a reasonable payback.

Note: this is an optional assignment, which will not be evaluated for grade, but may provide you with additional learning benefits. 


If you have any questions, please post them to the Lesson 7 General Questions and Comments Discussion Forum. I will check the forum regularly to respond. While you are in a discussion, feel free to post your own responses if you, too, are able to help out a classmate.