A brief diversion from my normal topics on the benefit of solar energy.
I am getting solar panels installed on the house. I am not the type to always get the latest gadgets. In spite of being firmly ensconced in the high tech industry, I usually am somewhat conservative in my own use. Good friends installed solar panels two years ago, and I waited to see how that went. I did the research, and was surprised to find:
Solar panels are the single best low-risk investment option available today.
Yeah, I am getting solar because I want to feel good about doing something for the environment, save some money, and lower carbon emissions. But when I found out about the financial side, it blew me away:
Solar panels return a 12% risk-free and tax-free return on your investment.
If that has not sunk in, read that again. The oil-industry supported politicians really don’t want you know this. It is tax free because it does not pay you any money, it saves you from having to pay your electric bill. The money you save stays in your pocket. Your investments would have to pay more than 16% to yield the same amount of actual spending money in your picket. If you don’t believe me, run your own numbers. Here are my specs:
- $2000 = my annual electric bill for the past couple of years (not gas charges, just the electric part).
- 4KW = the size of the system I am putting in, 20 panels.
- $2000 = annual value of the generated electricity considering that it is on a west-facing roof in San Jose, California.
- $16,400 = cost of the system after state rebate and tax credits.
- 8.2 years = the ROI time span for the system
- 25 years = the expected lifetime of the system
- 186 sq. ft = the area of the roof shaded by the panels, reducing the amount of solar heat entering the house in the summer.
Net: a $16K investment returns $2K/year of expense reduction which will continue for up to 25 years. You should be thinking: where do I sign up?!
How much do you pay for electricity? – I am shocked to find that most people really don’t know the answer to this. OK, I didn’t either until I did the research. Californians pay on the average about 13 cents/kWH, but that rate spikes to almost 50 cents/kWH if you go over the baseline values.
California needs most of its electricity in the afternoon. That when all the businesses & air conditioning is running. There are time/rate plans that charge 10 cents/kwH in the night, 11 cents in the morning and evening, and 26 cents during the afternoon — these charges reflect the relative scarcity of power during those times. Put that together with the fact that the sun shines most of the year here, and it is not hard to conclude that solar energy is perfect for California.
If you live elsewhere, you may not have the same deal. Electricity rates in most other states are lower (excepting notably Hawaii which is almost double California rates). California has an innovative program that allows people with solar cells to effectively sell electricity back to the utility at retail rates, up to the amount of your electric bill. That means you can save money, but you can’t actually make money. Some people use a lot less electricity than my large family house does, and so you would get a smaller system, but still a 12% return is possible on any smaller system as well.
So you can make a guaranteed 12% return, but only up to the value of your electric bill — so don’t expect to get rich this way. But, if you live in California, and you hold some stocks, go sell them right now and buy solar panels, because it is unlikely that your stocks will return as much.
That it, plain and simple. You don’t have to be green to see this benefit. Browsing Google Earth, I can see that only a tiny fraction of houses have solar panels, but logic dictates that every house should have have solar. First movers have a clear advantage: this deal will surely go away once a significant number of you neighbors have solar.
While you are at it, consider putting a few extra solar cells up, and buy an electric car. It is not that hard to generate all the electricity you need to run the car for the regular commute, and you are literally driving on sunshine. I did not do this (I am conservative, remember) but it has a certain appeal.
Keith, who or how do you recommend finding a reputable installer, and are there good financing options in California? It seems like the possibility of putting this up and then moving before you get your ROI is holding a lot of people back from really adopting it.
Reputable installer is very important. I went with someone who was related to a friend, and had done work that I was familiar with. I talked to see if other customers were happy. I had a different friend who lost $1000 down payment by going with an unknown installer who suddenly disappeared. So be very careful.
There is also a lease option: you don’t buy the equipment, you simply make your roof available for installation of equipment owned by someone else, and you get a savings on your electric bill. Not as much as owning because more people are involved, but this is an option for those who can not make the investment.
Finally, you don’t have to get the ROI. Having a solar system on the roof that pays all electric bills is still worth $2K/year, with a NPV somewhere around $20K. The NPV is more than the cost of the system, so if you sell the house, you can sell it for more because of the system. The solar system has no moving parts, almost nothing to wear out. They will fail eventually, but nobody knows if that is 20 years or 100 years, but some where in that range.
Keith, further to your comments about other ways to fund this, I wrote about a solution here in Ontario (where I live), where the provincial government is buying the generated electricity at a much higher rate than what we would pay to buy directly from our local power distributor in order to incent the installation of solar PV and thereby reduce the need for building new generating stations.