Get your share of the $700B Bailout?

[RonBoyd]

I found the following in the Feb/Mar 2009 edition of Home Power magazine:

FREE PV, FREE INSTALLATION
How would you like to have a free solar-electric installation?
Wishful thinking? Illegal? No. Perfectly legal. And simple.
​

Included in the “$700 billion bailout” is a provision that the 30% energy tax credit for photovoltaic installations will continue. And after January 1, 2009, it will not be limited to a $2,000 cap for residential systems. So, now you get a 30% tax credit. Many states and local electric companies also offer additional rebates or credits.

Now we get to the free part. If you are over the age of 59 1/2, you can draw out your retirement account funds. The problem is that you must pay federal and state income tax on those funds. If you are still in a high income-tax bracket, then there is a substantial tax rate, and many people choose to defer taking any money out of their retirement account until they must.

The new tax credit, and additional rebates and credits, means that often any tax paid on the retirement funds removed will be offset by credits or rebates. The result is that you simply move some of your retirement money from your retirement account to pay for a

solar-electric array, with no cash out of pocket. The investment will reduce your utility bill and increase the value of your home.​

I am curious; is there any value (or truth) in this gambit?​

 

[crazy connie]

Uhhhhhhhhh sounds like a word play to me. I thought anyone over 59 1/2 could withdraw as much or as little (unless they are on a 72t 5 year countdown) of their retirement funds whenever they wanted to. Just depends on how much you need to keep your nest egg working vs how much you want to spend on upgrading to solar and reducing ongoing electricity expense. Judgement call is all it is.

 

[RonBoyd]

I thought anyone over 59 1/2 could withdraw as much or as little (unless they are on a 72t 5 year countdown) of their retirement funds whenever they wanted to.

Yes, that is true. However, you would still be liable for the income tax liability which, as the person said, could be considerable. The person who wrote the, uh, piece was addressing the tax implications of such a move.

(I failed to mention earlier that the "piece" was, actually, in the "Letters to the Editor" section... so don't blame the magazine.)

 

[ziggy29]

"The result is that you simply move some of your retirement money from your retirement account to pay for a solar-electric array, with no cash out of pocket. "

I don't know about you, but my retirement account is my money, and spending some of it is indeed "cash out of pocket."

 

[RonBoyd]

I don't know about you, but my retirement account is my money, and spending some of it is indeed "cash out of pocket."

I agree -- (I hate that "spend money to make money" thing) However, the person is trying to say (as near as I can tell) that if you are going to spend it, it should go to the "solar electric" company rather than the gummint... a wash as far as the individual is concerned. (This come from pondering my first post so I may -- most likely -- just be more confused than ever.)

 

[ERD50]

I doubt that a 30% tax credit would make solar economically feasible for anyone.

Look at Nords numbers - he scrounged around for a lot of his panels used, sometimes did the un-install himself, did the install himself, got the tax credits and even with the way higher than average electric rates in Hawaii, and living near the equator, the payback time is way out there.

I think all they are saying is that the credit would offset the taxes you would pay on the withdrawal. However you want to look at that, the solar still has to be cost effective relative to the out-of-pocket expense, unless you want to call it a 'hobby'. IMO, the government should not b spending my tax money on other people's hobbies.

I've only seen justifications with fuzzy math (such as assuming the solar increases the value of your home - no evidence for that AFAIK),

-ERD50

 

[RonBoyd]

ERD50,

You have confirmed what was rumbling around in the back of my (uh) mind. Again, "if it sounds too good to be.." wins the day.

Thank you.

 

[Nords]

I agree -- (I hate that "spend money to make money" thing) However, the person is trying to say (as near as I can tell) that if you are going to spend it, it should go to the "solar electric" company rather than the gummint... a wash as far as the individual is concerned. (This come from pondering my first post so I may -- most likely -- just be more confused than ever.)

ERD50,
You have confirmed what was rumbling around in the back of my (uh) mind. Again, "if it sounds too good to be.." wins the day.
Thank you.

Gotta do the math for your own situation. For the vast majority of (blissfully ignorant) consumers, a PV array will never pay back. But for a few niche situations, it's a gold mine.

We started installing our system in early 2005, and we expanded it in increments over three years to take max annual state/federal tax credits. HECO obligingly boosted their rates by about 50% along the way (more like 100% today) to accelerate the payback.

We spent $16,579.42 over the three-plus years of building the array, although I may [-]find an excuse[/-] need to expand it someday. (That sum includes $1311 that we paid our electrician for his advice, labor, & permit fees. We did almost no electrical work but lots of mechanical & sweat labor.) Our array will pay back the money we put into it by Sep 2010, almost six years since we first flipped the switch. That's about a third of what a retail buyer would see.

However we took another $9,376.58 in tax credits, so the net cost of our array was actually only $7,202.84. We've already generated over $2600 of electricity in that time (10,700 KWHr to date) and it's rising by an average of over $80/month at 30 cents/KWhr. That's a 13% dividend on our net investment, and it'll continue for at least another 20 years even if we do nothing more.

The most conservative accountant's payback estimate would be the "opportunity cost" of investing all our capital expenditures in a good cheap index fund returning a steady 6%/year. (A lump-sum investment compounds pretty fast while a steady deposit of smaller amounts takes a while to gain momentum.) By that measure our array won't catch up until May 2020.

If you hand your credit card (OK, two or three credit cards) to a PV installer and ask him to zero out your electric bill, then it'd cost $30K-$50K. Before tax credits that's a minimum 15-year payback, and more realistically 20-25 years. Very few people would stay put in a home long enough to earn that payback. No home buyer would pay for a PV system, even though you can show lots of spreadsheets to prove that it has value. Heck, Hawaii can't even get homebuyers to pay builders for $1000 solar water-heating systems.

But if you're a business that owns your own real estate, or if you're going to stay in your home for a while, and if you live in an area of high electricity costs, and if you can get cheap materials or even do a lot of your own labor, and if you do the installation in phases to max out the tax credits... I can do math.

Here's another "too good to be true" incentive. A local startup is building a 500 KW solar plant (hot oil instead of photovoltaics) that dumps its output into the Big Island's grid. Due to a quirk in Hawaii's high-tech tax-credit incentives, investors can buy a share of the plant's tax credits and be eligible to take over $2 of state/federal tax credits and depreciation (over a five-year period) for every $1 they've invested. Perfectly above-board and legal, although you can only take the credits on your tax returns and only to the extent of the actual taxes you'd pay. So the math may not work for every investor.

However I'd much rather hand my taxes over to a green entrepreneur than to the state/federal government.

 

[RonBoyd]

Gotta do the math for your own situation. For the vast majority of (blissfully ignorant) consumers, a PV array will never pay back.

However I'd much rather hand my taxes over to a green entrepreneur than to the state/federal government.

In other words, its a good idea (taking money out of tax advantaged accounts and applying the tax toward consumer goods) but the application sucks (high cost/ low return alternative energy production).

Guess the best course of action is to put this thought back in the "idea drawer" and wait for a more profitable opportunity.

 

[Maurice]

I got my share when I bought Citi at $3.50 and it doubled in two days.

And with the BAC I bought at ~11, I figure I've gotten more than my fair share of the $700B.

 

[Maurice]

I should add - those were my first single stock purchases since the dot-com era. I couldn't resist.

 

[Dennis]

Well, I don't know either.. but I bought some solar Panels for my Home , cost about $6,000 and got some upfront tax credits from my state and then The Fed. and ended up costing me about $4,000 when all said and done.

It saves me about 75% of my Elec. bills ( $1200/yr ) or about $900 yr and thus in about 5 yrs will be even and start getting ahead of the game..

Our cost per KW here is about .12 cents per KW.. and we use Elect. heating as well as AC , Hot Tub, etc..

 

[ERD50]

Well, I don't know either.. but I bought some solar Panels for my Home , cost about $6,000 and got some upfront tax credits from my state and then The Fed. and ended up costing me about $4,000 when all said and done.

It saves me about 75% of my Elec. bills ( $1200/yr ) or about $900 yr and thus in about 5 yrs will be even and start getting ahead of the game..

Our cost per KW here is about .12 cents per KW..

Dennis, could you share some more details about your system? Your numbers (if I am parsing everything correctly), seem to be quite different from Nords:

Nords: ~ $7200 out of pocket. Generates ~ 3200KWHrs a year, saving ~ $960/year @ his $0.30 KWHr rate.

Dennis: ~ $4000 out of pocket. Generates ~ 7500KWHrs a year, ( based on saving claim of ~ $900/year @ $0.12 KWHr rate).

I'm trying to understand how you are getting over 4X the KWHs per $ of installed panels as Nords is getting. What is your general geographic location? How much total capacity in watts (or area) did you install?

I can't help but wonder if some of that savings didn't come from other conservation measures?

TIA - If we are talking about getting near a 6 year payback, I'm getting very interested.

-ERD50

 

[RonBoyd]

Well, at least it is heading in the right direction:

Prices for rooftop solar systems fall as supply grows - USATODAY.com

For U.S. homeowners, effective prices are likely to plunge by more than 50% after figuring in a bigger federal tax credit that took effect Jan. 1.

"The era of extremely expensive (solar) modules is over," says analyst Nathaniel Bullard of research firm New Energy Finance.

In California, which accounts for nearly 70% of the U.S. solar market, a typical 4-kilowatt, $32,000 solar energy system cost a homeowner about $23,000 last year after state and federal incentives. This year, if prices sink as expected, that system is likely to cost $10,000 to $12,000.

But still a little iffy.

 

[ERD50]

Well, at least it is heading in the right direction:

Prices for rooftop solar systems fall as supply grows - USATODAY.com



But still a little iffy.

Very interesting to see that the real cost is coming down. As a side note, it bugs me when these articles throw around the "post rebate/credit" numbers too loosely. A higher rebate/credit doesn't *really* make these more cost effective, it is a shell game. The money is still spent. The govt is basically deciding that they should take *my* money to give to some *other guy* to install solar panels on his home. Why?

If there is a good reason that we should have more renewable energy sources, and we think that the govt should be involved in driving that (big IFs by the way), then they should at least do that in the most efficient way possible. I fail to see how individual installations on people's homes can be more efficient than an industrial installation, maybe neighborhood-by-neighborhood so that transmission loss would be minimal. There would be all sorts of economies of scale.

That's a little soap-boxy, but it really is about the money.

-ERD50

 

[tryan]

Same game can be played with geothermal heat. We're looking at a 8.5 year pay back after the 10% tax credit. NOT the 7 year payback the sales guys push.

My guess is there are too many optomistic assumptions made on energy costs staying high. The floor came out of oil ... so I may be looking at more like 9 or 10 years. We'll see.

 

[NW-Bound]

I hopefully will get part of the bailout indirectly through Buffett. The following article shows how the tax payers, thanks to Paulson and the gummint, are in line after Buffett.

Bloomberg.com: News

 

[samclem]

Dennis, could you share some more details about your system? Your numbers (if I am parsing everything correctly), seem to be quite different from Nords:

Nords: ~ $7200 out of pocket. Generates ~ 3200KWHrs a year, saving ~ $960/year @ his $0.30 KWHr rate.

Dennis: ~ $4000 out of pocket. Generates ~ 7500KWHrs a year, ( based on saving claim of ~ $900/year @ $0.12 KWHr rate).

I'm trying to understand how you are getting over 4X the KWHs per $ of installed panels as Nords is getting. What is your general geographic location? How much total capacity in watts (or area) did you install?

Yep, something seems out of whack. I would think it would be hard to beat Nords's up front costs (DIY installation, scrounged panels, generous govt/utility subsidies), and few locations in the US have higher electricty costs. His calc (which fairly includes a modest time-value for the money he spent and therefore didn't invest) indicates he'll be ahead of the game in 11 years.

Dennis, did you calculate your 5-year payback differently?

OTOH, if one extrapolates the real "growth" experienced in stocks over the last year as continuing for 10 years, investing a lot of money in a PV system in 2007 starts to look brilliant in comparison. (But, even burying the money in the backyad would look pretty smart under those circumstances).