Solar not actually a good investment?

A friend of mine has been telling me for ages that solar panels at home are not a good investment. I didn't believe him, and instead believed what I hear from companies that install solar panels, that they are a great investment. Eventually I got around to create a spreadsheet to figure out who I should actually believe.

I started with these assumptions:

• Located in Bellingham, WA, I could produce 1028 kWh per year for each 1 kW of installed system.
• I would install a system at my house rated at 8.75 kW
• I would install a Washington-build system, so the state would pay me $0.54/kWh produced through June 2020.
• 30% federal tax credit on installed system price
• Install price of $5 per rated Watt
• I pay $0.11/kWh flat rate to the power company (and would get credit via net metering for the same amount)
• I use about 1500 kWh of power per month (average).
• Having solar panels will increase my property value by $20,000
• General inflation is 3%
• Electricity cost inflation is 4%
• Property value inflation is 5%

With these assumptions, I can calculate:

• Cost of install = $43,750
• Federal tax credit = $13,125
• Generated kWh per year = 8,995
• State production credit per year: $4,857.40 (through June 2020)
• Saved grid cost per year = $989.45 (today's dollars, first year)

Using these, I can figure cashflow for each year:
2013: Install at very end of year, cost $43,750, tax credit $13,125, net cashflow -$30,625.00
2014: Save $989.45 in my power bill, get $4,857.30 in state production credit, net cashflow $5,846.75
etc...

The cumulative cashflow starts at -$30,625.00, then gets bigger (less negative) until it becomes positive in 2019, at which point the system has "paid for itself". If you include my property value (as if I was going to sell my house), it "pays for itself" in just a couple years.

After 10 years, I will have gained (in cash flow and property value) $45,404.79, in 2023-dollars, which is about $33,785.42 in today's dollars.

If I had instead taken my original $30,625.00 and invested it in stocks, real estate, etc. earning 10% APY, in 10 years it would be worth $79,433.36 in 2023-dollars.

So the question then becomes: WHY would I put solar panels on my roof? I can't say it's because I don't want to use fossil fuels and such -- I already don't. I subscribe to "Green Power" from Puget Sound Energy, and of course I have an electric car. The only other primary reason would be to save money. But as my calculations demonstrated, if I wanted to do that, I'd be better off investing it in something else.

Don't get me wrong -- I WANT to have solar panels at my house. I just need to be able to justify it to myself (and my wife) somehow. How can I do it?

Computerizer said:

A friend of mine has been telling me for ages that solar panels at home are not a good investment. I didn't believe him, and instead believed what I hear from companies that install solar panels, that they are a great investment. Eventually I got around to create a spreadsheet to figure out who I should actually believe.

I started with these assumptions:

• Located in Bellingham, WA, I could produce 1028 kWh per year for each 1 kW of installed system.
• I would install a system at my house rated at 8.75 kW
• I would install a Washington-build system, so the state would pay me $0.54/kWh produced through June 2020.
• 30% federal tax credit on installed system price
• Install price of $5 per rated Watt
• I pay $0.11/kWh flat rate to the power company (and would get credit via net metering for the same amount)
• I use about 1500 kWh of power per month (average).
• Having solar panels will increase my property value by $20,000
• General inflation is 3%
• Electricity cost inflation is 4%
• Property value inflation is 5%

With these assumptions, I can calculate:

• Cost of install = $43,750
• Federal tax credit = $13,125
• Generated kWh per year = 8,995
• State production credit per year: $4,857.40 (through June 2020)
• Saved grid cost per year = $989.45 (today's dollars, first year)

Using these, I can figure cashflow for each year:
2013: Install at very end of year, cost $43,750, tax credit $13,125, net cashflow -$30,625.00
2014: Save $989.45 in my power bill, get $4,857.30 in state production credit, net cashflow $5,846.75
etc...

The cumulative cashflow starts at -$30,625.00, then gets bigger (less negative) until it becomes positive in 2019, at which point the system has "paid for itself". If you include my property value (as if I was going to sell my house), it "pays for itself" in just a couple years.

After 10 years, I will have gained (in cash flow and property value) $45,404.79, in 2023-dollars, which is about $33,785.42 in today's dollars.

If I had instead taken my original $30,625.00 and invested it in stocks, real estate, etc. earning 10% APY, in 10 years it would be worth $79,433.36 in 2023-dollars.

So the question then becomes: WHY would I put solar panels on my roof? I can't say it's because I don't want to use fossil fuels and such -- I already don't. I subscribe to "Green Power" from Puget Sound Energy, and of course I have an electric car. The only other primary reason would be to save money. But as my calculations demonstrated, if I wanted to do that, I'd be better off investing it in something else.

Don't get me wrong -- I WANT to have solar panels at my house. I just need to be able to justify it to myself (and my wife) somehow. How can I do it?

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I guess the assumption you have to be comfortable with is, can you really earn 10% in stocks, real estate, etc.? If that is a guaranteed number then you probably should start borrowing as much money as you can and invest it... If it's not guaranteed then I guess you have to compare the risks of each. IMO the biggest risk of solar as an investment is that you'll not own the properly long enough to get the most benefit from it. At a quick glance your math seems sound, except for the 10%....

I also wouldn't ignore the value of the happiness one gets from having solar PV and creating their own power. If you decide to move forward I'd also consider contacting Chris Herman with Winter Sun Design/Sunergy http://www.wintersundesign.com/" onclick="window.open(this.href);return false;

QueenBee said:

At a quick glance your math seems sound, except for the 10%....

I also wouldn't ignore the value of the happiness one gets from having solar PV and creating their own power. If you decide to move forward I'd also consider contacting Chris Herman with Winter Sun Design/Sunergy http://www.wintersundesign.com/" onclick="window.open(this.href);return false;

Click to expand...

First, thanks for the referral.

Regarding the 10% returns on investments, I understand your skepticism. I have to bring my expected return down to 4% before solar looks like a better investment. I think it's extremely likely that I can get more than 4% return in something else over the long term.

Thanks again for your response!

Computerizer said:

QueenBee said:

At a quick glance your math seems sound, except for the 10%....

I also wouldn't ignore the value of the happiness one gets from having solar PV and creating their own power. If you decide to move forward I'd also consider contacting Chris Herman with Winter Sun Design/Sunergy http://www.wintersundesign.com/" onclick="window.open(this.href);return false;

Click to expand...

First, thanks for the referral.

Regarding the 10% returns on investments, I understand your skepticism. I have to bring my expected return down to 4% before solar looks like a better investment. I think it's extremely likely that I can get more than 4% return in something else over the long term.

Thanks again for your response!

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Yeah, I look at it from the other direction. 4% is amazing compared to the less than 1% in my savings account

I assume in your model after you've broken even you invest the extra cash at 10%?

Here's another angle. What is the impact of borrowing the $30k from http://www.psccu.org/" onclick="window.open(this.href);return false; at 4.49%?

No reflection on you or your investment style, but many people have lost a lot of money in the stock market and real estate.

jmillington said:

No reflection on you or your investment style, but many people have lost a lot of money in the stock market and real estate.

Click to expand...

I just said those as examples of investments other than solar panels -- I personally don't have very many investments in those particular markets. I should have said something like "stock market, real estate, bonds, mutual funds, small businesses, microlending, treasuries, futures, ...." but I didn't feel like listing out lots of things. But now I've had to anyway...

I set up my photo voltaic system in 2003, and just recently offset the full cost of installation from cost avoidance of powering my all electric home and my Leaf. I have no plans to move. So each month I power my home and drive my car at no cost. Of course being in Tucson it is kind of a no brainer.

4%/year is not too bad for an essentially guaranteed return. Also your utility rate is likely to go up over that 10 years, increasing your return and increasing the attractiveness and property value enhancement. If you install now, you'd be ahead a few more thousand dollars instead of waiting for the rest of the year to take advantage of the limited production credit window.

On the flip side, panels do have a finite lifespan.

Based on a few suggestions noted here, I've added some more complexity to my spreadsheet.

• I'd already accounted for increase in electric rates (4%).
• I'm only running my analysis for 30 years. I'm hoping solar panels will last that long (???). I assume the inverter will have to be replaced after 15 years.
• I don't actually have $30,000 right now, so I've changed to model for loaning out this money.
• In years when I have positive cashflow, I invest that cash using the same investment model I'd otherwise use.
• In years when I have negative cashflow, I take it from my investments.
• I now assume only 5% return on my other investments.

So, along with all my previous assumptions and the changes noted, I am assuming I get a 10-year loan at 5% interest for the $43,750.00 needed to purchase the system.

In this case, loaning money at 5% to buy a solar system is a MUCH better idea than loaning money to invest it elsewhere at 5%, for obvious reasons!

Maybe I'll have to do this after all. I'm hesitant to get another loan right now (just got loans for a brand new LEAF and a brand new ICE), but the state production credit plus power bill savings should cover loan payments, assuming all my numbers are correct.

I've got 5 acres of land... too bad I can't cover it all with solar panels!

This doesn't help the OP, but the ROI increases greatly in areas with outrageous electric rates, such as almost anywhere in California. It increases even more so if you can use a TOU pricing plan which lets you generate expensive KWh and use mostly less-expensive KWh.

Computerizer said:

In this case, loaning money at 5% to buy a solar system is a MUCH better idea than loaning money to invest it elsewhere at 5%, for obvious reasons!

Maybe I'll have to do this after all. I'm hesitant to get another loan right now (just got loans for a brand new LEAF and a brand new ICE), but the state production credit plus power bill savings should cover loan payments, assuming all my numbers are correct.

I've got 5 acres of land... too bad I can't cover it all with solar panels!

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I really think the biggest risk to this project is will you own the house long enough to break even/etc. if you are comfortable with that this is one loan i can get behind. You've got the model to support the finances of it now. So one thing to note is at the end of June the sales tax exemption switches to a 75% refund. If you get a quote from Chris he'll give you various options on in state vs out of state. If limiting the financing is an objective going with a normal system will still get you the 15 cent production credit. On the quotes I have seen it ends up extending the break even point though.

Maybe consider a smaller system initially too.

I started out with a 4.8kw system on my south roof. The price declined in the last year means I can install more on my east roof. I'm shaded pretty bad but since I'm doing it my self my phase 2 of around 10kw will break even just as the state incentive runs out.

Let me know if there is anything else I can help with.

I was lucky enough to find a house with solar already on it, so you might look to see if that is an option in your area. Real estate prices here don't factor in the solar panels, so I got mine for "free".

As for the rest of your calculations, I think you may have missed one point.

You pay for "green" energy now, but how far away is it coming from, and at what cost to the environment? High power lines are insulated with some bad stuff, and the big solar plants they are putting in the Mojave here in CA are not as "green" as creating the energy where the energy will be used. Just a thought to consider. You wouldn't want to cover the 5 acres you own in panels, or it wouldn't be as nice a place to live. It would be great if all the roofs that get sun were creating energy, and it would be far more efficient too. No need to cover up more land with our sprawl.

Have you checked out Solar City?

Nubo said:

Have you checked out Solar City?

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AFAIK, solar city is not available in WA.

We also looked into solar panels and ultimately decided not to install them. The reasons were:

- Roof space is limited to a 6kW system, which at best is only 30-40% of our energy usage
- $40K price
- Tall trees on south side of property

It just felt like a really difficult way to save $$$ or potentially make $$$.

I would do it in a heart beat in the future if:

- Solar panel efficiency increases, can install a 10kW+ system in the same space on the roof
- Trim/cut down those trees
- Price drops by 50%

At that point I (and the general public) wouldn't need government incentives to go solar.

I just wonder if a "moon shot" in solar technology will ever happen?

ww73 said:

Nubo said:

Have you checked out Solar City?

Click to expand...

AFAIK, solar city is not available in WA.

We also looked into solar panels and ultimately decided not to install them. The reasons were:

- Roof space is limited to a 6kW system, which at best is only 30-40% of our energy usage
- $40K price
- Tall trees on south side of property

It just felt like a really difficult way to save $$$ or potentially make $$$.

I would do it in a heart beat in the future if:

- Solar panel efficiency increases, can install a 10kW+ system in the same space on the roof
- Trim/cut down those trees
- Price drops by 50%

At that point I (and the general public) wouldn't need government incentives to go solar.

I just wonder if a "moon shot" in solar technology will ever happen?

Click to expand...

You are in luck! Not sure how long it's been since you looked but your 50% goal is reality. It's not unreasonable to have a system priced at less than $3.75 per watt DC. I think it's generally not a good to top the trees if you care about their long term health/stability. Removing trees is a hard decision. Have you had a formal solar evaluation to determine actually feesability of different roofs/etc?

Does the size actually matter? Sure bigger is better and more efficient panels allow you to get more capacity on your roof but say you are waiting for a 33% increase in efficiency. That means for every year you wait for that to happen your 8kw system will have to work 2 years to catchup on the missed production that your 6kw system could have produced.

In the 1.5 years or so since I installed the mainstream panels have gone from 235 to 250 so a more than 6% increase in efficiency. I don't know what it will take to get us to 20% in a cost efficient package.

As for the overall costs decreasing it will be interesting to see how much cheaper we can go. The SunShot program by the United States Department of Energy has the goal of bringing the installed cost of each kilowatt to be 6 cents which would then be able to compete directly with traditional production means. I tried to figure where we are today but couldn't quickly find it. One of the major things they've pushed and has changed in my community is reducing the and streamlining the permitting costs.

ww73 said:

Roof space is limited to a 6kW system, which at best is only 30-40% of our energy usage

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On what information is this based? I ask because you do not need to generate your peak usage kW in order to negate your electric bill, you need to generate more kWh than you consume. Assuming 6 hours/day production for 30 days, that's over 1000 kWh per month!

That aside, you should never approach this thinking you're going to MAKE money. It's nice if it works out that way but don't pin your hopes on it.

If you're in a storm-prone area (Like the East US coast!) trimming the trees might be a good idea anyway! :lol:
=Smidge=

Smidge204 said:

ww73 said:

Roof space is limited to a 6kW system, which at best is only 30-40% of our energy usage

Click to expand...

On what information is this based? I ask because you do not need to generate your peak usage kW in order to negate your electric bill, you need to generate more kWh than you consume. Assuming 6 hours/day production for 30 days, that's over 1000 kWh per month!

That aside, you should never approach this thinking you're going to MAKE money. It's nice if it works out that way but don't pin your hopes on it.

If you're in a storm-prone area (Like the East US coast!) trimming the trees might be a good idea anyway! :lol:
=Smidge=

Click to expand...

In Western Washington the rule of thumb is 1kwh annual production for each DC watt. So a 6,000 watt system with no shading on a southern exposure will produce 6,000kwh annually. Enough to power 2 LEAFS but probably only enough to power half my annual usage.

QueenBee said:

You are in luck! Not sure how long it's been since you looked but your 50% goal is reality. It's not unreasonable to have a system priced at less than $3.75 per watt DC. I think it's generally not a good to top the trees if you care about their long term health/stability. Removing trees is a hard decision. Have you had a formal solar evaluation to determine actually feesability of different roofs/etc?

Does the size actually matter? Sure bigger is better and more efficient panels allow you to get more capacity on your roof but say you are waiting for a 33% increase in efficiency. That means for every year you wait for that to happen your 8kw system will have to work 2 years to catchup on the missed production that your 6kw system could have produced.

In the 1.5 years or so since I installed the mainstream panels have gone from 235 to 250 so a more than 6% increase in efficiency. I don't know what it will take to get us to 20% in a cost efficient package.

As for the overall costs decreasing it will be interesting to see how much cheaper we can go. The SunShot program by the United States Department of Energy has the goal of bringing the installed cost of each kilowatt to be 6 cents which would then be able to compete directly with traditional production means. I tried to figure where we are today but couldn't quickly find it. One of the major things they've pushed and has changed in my community is reducing the and streamlining the permitting costs.

Click to expand...

I had 3 assessments done in January this year. All were 5-6kW systems ranging from $20K to $38k.

jmillington said:

No reflection on you or your investment style, but many people have lost a lot of money in the stock market and real estate.

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+1

Four or five years ago, I could easily earn 10% or more in some of my investments, with some risk. Nowadays the same amount of risk (fairly high) only earns 4-6%.

OP should take note of the difference between an investment in a physical asset with real value and a nearly* guaranteed return versus an investment in financial assets where neither the principle nor the interest are guaranteed to be returned.

*As has been noted, there are certain risks associated with the PV installation that should be considered:
- The equipment has both a limited lifetime and a non-zero failure rate. If you go with Enphase microinverters (recommended) and high-quality PV panels, you can reasonably expect a 40+ year life for the PV and 30+ years for the microinverters. Mean-time between failures (MTBF) of about 600 years for the panels and 300 years for the microinverters can be expected until the end of the useful life is approached. For example, with our 42-panel system, we expect to lose one PV panel and two microinverters during the first 20 years of ownership. (In fact, we already had one microinverter fail that was replaced under warranty. That may have been an infantile failure, however.) Even if those are not replaced, we will still will have 93% of our original system intact, minus PV panel gradual degradation.
- An act of God could potentially destroy your house and/ your PV system.
- You could move away before you recover your investment.

For us, we decided that investing in PV was a way to lock in a rate for electricity production and reduce our living expenses going forward. You may notice that while many on this forum have complaints/issues/buyer's remorse with our EV purchases, there is very little of that type of sentiment regarding our PV systems. Why is that? I'm not entirely sure, but I think a lot of it stems from the extremely high reliability of the systems that make them a thought-free investment that not only has financial benefits, but also reduces greenhouse gas emissions for the long term. (In your case, you are largely displacing hydroelectric with PV, which is not a big deal. For us, we are largely displacing coal-powered electricity production, so it is a bigger deal.)

RegGuheert said:

*As has been noted, there are certain risks associated with the PV installation that should be considered:
- The equipment has both a limited lifetime and a non-zero failure rate. If you go with Enphase microinverters (recommended) and high-quality PV panels, you can reasonably expect a 40+ year life for the PV and 30+ years for the microinverters. Mean-time between failures (MTBF) of about 600 years for the panels and 300 years for the microinverters can be expected until the end of the useful life is approached. For example, with our 42-panel system, we expect to lose one PV panel and two microinverters during the first 20 years of ownership. (In fact, we already had one microinverter fail that was replaced under warranty. That may have been an infantile failure, however.) Even if those are not replaced, we will still will have 93% of our original system intact, minus PV panel gradual degradation.
- An act of God could potentially destroy your house and/ your PV system.
- You could move away before you recover your investment.

For us, we decided that investing in PV was a way to lock in a rate for electricity production and reduce our living expenses going forward. You may notice that while many on this forum have complaints/issues/buyer's remorse with our EV purchases, there is very little of that type of sentiment regarding our PV systems. Why is that? I'm not entirely sure, but I think a lot of it stems from the extremely high reliability of the systems that make them a thought-free investment that not only has financial benefits, but also reduces greenhouse gas emissions for the long term. (In your case, you are largely displacing hydroelectric with PV, which is not a big deal. For us, we are largely displacing coal-powered electricity production, so it is a bigger deal.)

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For the 25 years I think its fair to say that if you use products warranted for 25 years, such as Enphase Microinverters and panels with a warranty that long you will be comfortably assured that there will be minimal maintenance costs over 25 years. The MTBF is high but the warranty covers that part anyway, the real question I have is what will the useful life end up being?

Acts of god will most likely be covered by home owners insurance.

For me the biggest risk to solar as an investment is will I own the house long enough and/or will it increase the value of the house enough when/if I sell to offset the cost and/or make a decent return.

If the OP has PSE like I do you'd be surprised what our utilities power supply actually is. As of 2011 50% hydro, 32% coal, 16% Natural Gas, 1% Nuclear, 1% Other (Biomass, landfill gas, petro, waste). Other utilities like City of Seattle are drastically greener though. But really in the end our grid is very interconnected so any power usage reduced lowers the demand on the dirty sources first.

I think it can't be overstated just how powerful producing your own electricity using a green source like PV is. Even if the numbers don't pan out as well as I estimated it's a pretty great hobby.