Solar photovoltaic on the house as an investment

[skipro33]

My electric utility costs over the next 25 years;
If I continue to use the same amount of electricity and the rates continue to climb an average of 7% annually, then at the end of 25 years, I will have paid out $101,491 to the utility company if I do nothing.

If I take a net $12,890 and install a solar plant that will cover 95% of my electric use, and I account for the lost growth of that investment in the stock market at 4% annual growth, the solar installation will be paid for in 7.8 years. At the end of 25 years I will have saved a net difference of $51,270 between a 4% growth in the market compared to the reduction in electric costs.

I would have to invest my $12,890 in the market at a growth rate of 7.85% for 25 years to break even with a solar installation.

My numbers are based on 8 years of collecting my monthly electric bills living in the same house and calculating the average rate increase to be 7% and that it will continue to do so.

It's taken some effort to get a solar installing company to build the solar installation I want based on my calcs and using USA made parts. I've discovered I can spec out USA parts and offset their higher cost by using commercial sized panels that are more cost effective.

Most all solar companies do everything that they can to exploit the lack of electrical knowledge of customers as well as costs such as permit fees, fire codes, etc. It all sounds complicated, but if you can figure out how to invest, it's actually quite easy.

 

[Sarah in SC]

If he sees this post, perhaps our longtime solar user Nords can help out with his voice of experience on this subject.

 

[skipro33]

I hope so!

Solar costs have come way down and utility costs way up in the past several years. With the federal tax credit winding down by the end of 2016 and the net metering program coming close to it's saturation point, I feel it's a now-or-never time to consider solar. My solar plant will cost me a net $2.57 a watt installed. 2 years ago, it was over $4 a watt.

The new solar technology is amazing! My system will have micro-inverters on each solar panel and each panel is rated at 315 watts each. Since each panel outputs AC power, not DC, the efficiency goes way up. The single point of failure with a centralized inverter is gone with a micro inverter on each panel that includes the MPPT, the DC-to-DC converter and the DC-to-AC converter. To connect to the house, I just take the two wires from the last panel in the daisy chain and lay it down to an appropriate sized breaker in my panel. All connections are MC4 and require no tools. The rack system is all LEGO-style assembly as well.

 

[daylatedollarshort]

My electric utility costs over the next 25 years;
If I continue to use the same amount of electricity and the rates continue to climb an average of 7% annually, then at the end of 25 years, I will have paid out $101,491 to the utility company if I do nothing.

I think the year before our semi-ER our energy bill was $3.6K ($4K the years before that) and now we are at ~$1.2K a year and dropping. The grid solar panels through our utility are not cost effective for us and we do not know how to add them ourselves any cheaper or we would pursue that option. I think it would be pretty cool to be off grid for energy. So far we've just dropped the bill through odds and ends actions like LED lights, buying drying racks and thermal cookers. The 30 - 40 year savings for us could end up being in the 6 figure range, too. I wish we'd paid more attention to the energy bills years ago. We haven't missed any of the kilowatts we aren't using any more.

 

[ProspectiveBum]

I looked into solar recently, but the payback for the upfront costs was 13+ years. Still too steep for me to bite, yet. Someone with higher costs and/or usage would likely do better.

 

[folivier]

Can you direct us to this system?
I would love to do solar but would really like a hybrid system that can be used in power failures also.

 

[samclem]

My numbers are based on 8 years of collecting my monthly electric bills living in the same house and calculating the average rate increase to be 7% and that it will continue to do so.

What is going on in your location that is causing electric utility rates to go up 7% per year? Nationally, residential electricity sells for an average of 12.35 cents per kWH, and 8 years ago it sold for 10.5 cents per kwh. That's an annual inflation rate of about 2%. I think your projections are likely highly sensitive to these assumptions about the future cost of electricity--Do you believe it is reasonable to project this same electricity cost inflation rate to continue for 25 years?

Your assumptions also include the continuation of existing net metering policies? I'd wonder about the mutual likelihood of those two assumptions: If electric rates do go through the roof, more solar installations will be done (even residential ones that wouldn't offer attractive payback rates without the federal giveaways). Net metering will not be viable at some point.

 

[skipro33]

Can you direct us to this system?
I would love to do solar but would really like a hybrid system that can be used in power failures also.

For a hybrid system that can be used in power failures, the configuration is a bit different. Most house back up is via battery. The plant I'm looking at has AC right from each panel, so batteries is going to require that AC be converter to DC, then back to AC again. Lots of hardware and overhead expense. Also, batteries are not cheap and must be replaced within every 10 years. Tesla is building a house battery system, but 10kw is over $3,000 and not anywhere near cost effective.

With that said, there is a split system that saves the final DC to AC conversion to a central inverter, still using the MPPT and the DC to DC converter at the panel and saving the line losses.
Here is a 5kWh system that does that;
16 Panel SolarEdge / SolarWorld Grid-tie System - Wholesale Solar

The panels are built in Oregon, starting at the silicon level on up.

The kit price is $9,111. You would have to add sales tax and shipping depending on your location to the FOB which is Lake Shasta, CA.

With a sales tax of 7% and an average shipping cost of $500, you could expect to pay $10,250. Subtract the Federal tax credit of 30% and it's a net cost of $7,175. Figure in incidentals; permits, conduit, etc. of maybe another $500, and hire an electrician to lend you a hand for the two days to install, $1,000 and you are still under $10,000 for a 5kWh plant that will reduce your utility dependance by 8450kWh per year. (Based on a latitude of 38 degrees, panels facing 180 from North and a tilt of 22 degrees.)
Compare that generation to your own use and see where that puts you. That link has tabs for other options and sizes for solar kits.

The kit I am interested in with USA built micro inverters and panels is found here, but I'm needing it customized for an 18 panel solution and that falls between their 15 and 20 panel kits;
Enphase Energy Expandable Gridtie Solar Power Systems

The neat thing about this option is that you can start with a starter kit and just buy panels and microcontrollers to build it out. Plug-n-play. Everything is contained in each panel.

 

[skipro33]

What is going on in your location that is causing electric utility rates to go up 7% per year?

Most is tier rating and the base use being reduced to near-nothing. I think my base rate tier is down to only for the first 200 or 300 kwh I use. That's about half of what I would really need to use per month.
Lowest tier is 13 cents a kWh, the highest is over 40 cents. I'm in California. Legislation has passed that requires 50% renewable sources by 2030. That's a lot of infrastructure to be built and a lot that is going to have to be abandoned before reaching it's budgeted life expectancy. Bonds sold to fund those earlier antiquanted plants are due to now be balloned and new bonds to fund the new renewable plants won't be cheap.

Your assumptions also include the continuation of existing net metering policies?

Current existing met metering is mandated by law. The 'saturation/build-out' point is 5% of total gross generation. That level will probably be met in my area before the end of 2016 when the federal tax credit expires, so I expect a big rush and that the current build-out will be saturated by mid 2016. At that time the utility company can set what ever they want for net metering. Probably a flat rate to just be connected to the grid for around $20 to $50 a month. (Water companies already do a flat rate for a meter set, electric will do the same to recover distribution costs as generation offshifts to independent generation sources.)

I'd wonder about the mutual likelihood of those two assumptions: If electric rates do go through the roof, more solar installations will be done (even residential ones that wouldn't offer attractive payback rates without the federal giveaways). Net metering will not be viable at some point.

One thing you can guarantee; energy will ALWAYS go up. Not many absolutes in this world, but that is one of them. As the rest of the world moves forward with energy demands of their own, it's gonna get rough. WWII started out with Japan struggling for natural resources, like steel. Can you imagine the Mid-East nations just sitting by as their goose laying oil golden eggs dries up as the US and other nations migrate towards renewables?

Net metering wil not be viable beyond maybe 10% because of the computer systems that monitor and control the national electric grid. The ONLY way it will work is if someone discovers a way to store electricity. I'm not talking batteries either, but viable and cost effective ways to store electricity so it isn't so volatile and subjective to time-of-use and centralized generation failures.

Add to that the Chinese hacking our grid and the national security issues that implies and the costs are going to rise.

Oh, and recently courts have ordered utilities to only charge what it costs to generate and distribute power. Utilities can not charge based on use alone. Only if higher use results in higher costs to generate and distribute. With most utilities offsetting lower tier rates with higher tier rates, Time-Of-Use for example, this is going to be a BIG hit with base rates. I imagine a base rate will jump 25% or so and the upper tiers either holding or decreasing slightly.

For background information, I retired from a local electric company almost 3 years ago now. I worked on the systems that monitored and controlled the grid. It's a nightmare as every airport, parking lot, grocery store and now several mom and pop homes are making power. All those systems to manage.
For example; say the electric company wants to work on the power lines that feed my house. They have to know there is solar generation and call for a clearance on the line. They have to send out a man to open the disconnect on my solar and lock it out with their lock. Once there is a lockout, they have to ground their meter side of the circuit to prevent inductive voltages to impress on their line. A lock-out/tag-out isn't fast and add to that a dozen houses on the street all with solar that has to repeat that process. Think of all the maps, the data base that is accurate to keep someone from getting killed with a backfeed off a solar panel.

There are many other issues with home solar that will have to be addressed as it continues to build out. Not one of them is going to be cheaper than it is today.

But there is one carrot. Grandfathering. Get in now and the law protects your investment. Wait and you could end up not being cost effective.

None of this even addresses the issue of global warming, pollution in CO2 reductions, carbon foot prints, etc... Solar answers all those things but there will be a cost.

 

[AllDone]

I understand that solar panels are a popular asset with potential house purchasers so you can consider that they add value to your home for potential re-sale.

We live on a golf course. Our panels are as high and protected as we could get them, but somebody has already managed to take out one panel. Replacement wasn't that expensive as it was a snap-out, snap-in job.

 

[Donzo]

Great thread! I have been thinking about going solar for a while - great info

Thanks

First need to put on a roof - going with metal

 

[Texas Proud]

WOW..... just wow....

I just signed up my mom for 2 years at 8.2 cents per KWH.... no fixed cost or other cost that might creep in... a flat 8.2 on whatever you use....

I signed up for 100% wind with a special rate... I think it is 13 something center per KWH... but get a $35 credit if I go over 500.. which I do every month... so at 500 it is 6.2 cents per KWH and goes up to 9.3 at 2,000...

Rates have been going down here the last few years...

Solar makes zero sense to me...

 

[pb4uski]

I looked into solar a couple years ago. Using a 5.5% discount rate it would take 25 years to get a positive payback. Using 0% the payback was 15 years (which is what the marketer pitched).

The above used 3% annual inflation of electricity costs. If I increase that to 7% then the payback at 0% becomes 12 years and at 5.5% it becomes 17 years.

The numbers I had were heavily dependent on taxpayer subsidies (38% of the total costs). Absent taxpayer subsidies, solar makes no economic sense at all based on the costs I was presented. The unsubsidized cost was $23k and the annual savings were $820 as our annual electricity costs are only about $1,050 a year.

 

[dallas27]

My salesman showed the payback with no inflation and no discount. Still took 7 years. No thanks.


Kicker was if i needed to remove them to replace the roof, that's a 3000 dollar service. Roofs are expensive enough already.

Sent from my iPhone using Early Retirement Forum

 

[nuke_diver]

Interesting discussion about the net metering, something I never much thought about. I have looked at solar and I like the idea but we use so little electricity typically (less than $50/month) that the cost never made a lot of sense

Having battery backup (ie tesla's news) makes more sense to me but I'm not convinced it's practical for home use

Since I am in Calif solar makes tons of sense but I would likely only do it if I was building a new house...though having solar on hot days would mean the AC would be on a lot more

 

[NW-Bound]

Solar panel is down to $1/watt. System with electronics but no installation cost: $2/watt. Wow!

Too bad that I have tile roof. If I had a bigger lot to install panels on the ground, I would have done it. The new panels with individual microinverters are piece of cake to install. My AC uses a lot of power in the summer; it gets to 120F here.

 

[skipro33]

Too bad that I have tile roof.

There are new technologies to attach the racks to tile roofs without drilling any more. Check out youtube videos. I'm not sure a homeowner could accomplish it, but there are options these days.

The new panels with individual microinverters are piece of cake to install.

Everything about them is plug-n-play. The only electrical tool needed is some wire strippers when you cut the cable pair to length and screw it down to your breaker in the electrical panel. Nothing on the roof for wiring that isn't plug in and pre-made. So simple to start with a small system and build on it as you go. The Enphase micro-inverters are 4th generation, meaning the bugs have been worked out. Only time will tell if they will last 25 years or more.

 

[samclem]

The info about the panels with the mini-inverters is pretty cool, and the relatively low cost per watt these days.

Most is tier rating and the base use being reduced to near-nothing. I think my base rate tier is down to only for the first 200 or 300 kwh I use. That's about half of what I would really need to use per month.
Lowest tier is 13 cents a kWh, the highest is over 40 cents.

I wonder if it might make sense to build your system to something well below 95% of your present usage. Given the current rate structure, you save the most money by reducing your use over that present low base rate of 200-300 kwh. The payback period for the "extra" panels that replace energy now sold for 13 cents per KWH must be fairly long. Now, that's all present rules and politics, but given present California proclivities and demographics, it might be a safe bet to assume there will continue to be a lower rate for the first few hundred kwh while the "fat cats" pay higher rates. Also, it might be fair to guess that there will be continued improvements in A/C efficiency, appliance efficiency, etc, so having fewer panels might make sense even down the road. If there's a cutback in the net metering generosity, one obvious option would be "no sales back to the grid that exceed the customer's use." If that happens, any money spent to buy capacity beyond your (possibly lower future) needs is wasted.

Environmental laws, special rate programs, court rulings: So many of these factors are artifacts of your political system, not market forces. That makes the future very hard to predict.

One thing you can guarantee; energy will ALWAYS go up. Not many absolutes in this world, but that is one of them.

Lots of folks said that about oil prices, too.
Again, thanks for the info, and good luck.

 

[skipro33]

we use so little electricity typically (less than $50/month) that the cost never made a lot of sense

Since I am in Calif solar makes tons of sense

Remember, net metering means the power company buys back what you don't use. I'm in California with PG&E. If I go to Time-Of-Use, the rates are 5 cents per kWh off peak and 35 cents per kWh peak. If my meter runs backwards during the peak, they pay me 35 cents per kWh. That could add up and might be worth it. Getting PG&E to pay the invoice might be another matter though...

But I agree; it doesn't make sense in your situation. This would have to be a hobby or you are interested in the whole CO2 pollution/carbon footprint renewable resource thing as something you feel morally or ethically compelled to do. Many people in California with solar get it just for that reason.

 

[skipro33]

My salesman showed the payback with no inflation and no discount. Still took 7 years. No thanks.


Kicker was if i needed to remove them to replace the roof, that's a 3000 dollar service. Roofs are expensive enough already.

Sent from my iPhone using Early Retirement Forum

Compounding interest or, in this case inflation of electricity as a commodity takes years to make it interesting. Just like when you started a IRA; what was it's value from age 25 when you perhaps started the IRA and 7 years down the road. Not much. But 25 years down the road, whoa! Some impressive #'s.

And you are right too, with the roof condition thing. In my situation, house is 8 years old with a 40 year warranty roof.

 

[skipro33]

I've taken a particular viewpoint of how to see this whole solar thing as an investment. When I got ready to retire, I had a PERS pension. I had the option to buy up to 5 years worth of work years for $135,000 and it would pay me $880 a month for the rest of my and my wife's lives w/ a 5% max COLA.
This solar project can be viewed the same way. Interestingly enough, an installed system can be had for 1/10 the cost of the 5 year buy in on my PERS pension; $13,500. For $13,500, I would be getting $110 worth of electricity in at today's market price. I would continue to get that same quantity of electricity no matter what the inflation is, not capped at 5% like my PERS buy-in.

Move the decimal place;
$135,000 = $880 a month +5% max COLA
$13,500 = $110 a month + uncapped COLA based on electric rate increases.

Looks to me that the solar project would be a decent investment. I'd have to get 8.6% a year, for 25 years in order to get the same return solar is giving me with that PERS account buy-in. The PERS pays only a bit over 7%.

Does that make sense? That's my perspective at least. I think of it as buying an annuity.

 

[skipro33]

I wonder if it might make sense to build your system to something well below 95% of your present usage.

Absolutely!

For the most bang-for-the-buck, building a system that keeps your utility company usage into tier one is a great way to approach this.

With the micro inverter option, adding more panels to your system later is easy as pluging in after mounting the racks to the roof, so it's not rocket science to figure out or replace undersized inverters.

Most systems replace around 50% to 70% of the homeowners use.

California proclivities and demographics, it might be a safe bet to assume there will continue to be a lower rate for the first few hundred kwh while the "fat cats" pay higher rates.

The utilities were sued in court over this practice and lost. Since utilities are monopolies, and customer/rate payers can't shop around for electricity, AND that electricity is deemed a 'critical infrastructure resource', the courts ruled in favor of the plaintiffs and told the utilities that they can not charge more than their costs just because a customer uses more power than another. (profit margin regulated) They MUST demonstrate that the upper power use requires a higher cost source of generation. The days of offsetting a low, under funded tier at the expense of higher tiers are pretty much done. I'm sure the ledgers can be shown that the lower cost generation covers the lower tiers and that only the more expensive generation sources are needed to supplement them, but with a court ruling, I imagine the California PUC will be auditing those books pretty close.

Remember; in California, and to a lesser extent, the rest of the nation, is to try and reduce energy use of any sort. Whether it's by guilting people into thinking they are the cause for global warming, weather changes, species extinction, or what ever means, their goal is to control the use of this 'critical resource'. That is the nature of government. In the US society, that is held in check with it's constitution, but even that is subject to revisionist history rewrite and interpretation. (I better shut up or I'll get my post edited.... Ha!)

The point you and I make is that there is political issues at hand. Like any investment, we are standing in the sidelines, taking bets on an outcome that is sure to be rigged but unable to decipher how it's done. So we play the odds and percentages.

As a side note;
Most if not everyone on this forum thinks of themselves as independent. Financially at least. We can own shares of a utility as an investment and we own a small part of that business. This is just a means of cutting out the middleman, by becoming more active in the game.
It doesn't have to be a large investment, in fact, as samclem points out, there are deminishing returns due to the tiered rate structure. At some point though, the investment in owning your own generation is going to be seen as a fairly stable, long term investment that pays from the onset and recaptures the capital in 7 or 8 years. A lot of business plans are not near that level of profitability.

 

[daylatedollarshort]

Does that make sense? That's my perspective at least. I think of it as buying an annuity.

I think cutting expenses in general is a great idea, especially recurring expenses and I'm all for self sufficient living. My only suggestion would be have you maxed out your potentially lower cost / higher pay back conservation options first - like LED bulbs, insulation, sealing door and windows, getting rid of a second fridge, going around with a Kill a Watt?

I have a book on solar projects not involving solar panels, like we are looking at possibly heating our house with an attached green house.

 

[ERD50]

I think cutting expenses in general is a great idea, especially recurring expenses and I'm all for self sufficient living. My only suggestion would be have you maxed out your potentially lower cost / higher pay back conservation options first - like LED bulbs, insulation, sealing door and windows, getting rid of a second fridge, going around with a Kill a Watt?

I have a book on solar projects not involving solar panels, like we are looking at possibly heating our house with an attached green house.

Right, another good reason to start with a smaller system (offsetting the higher tier only). We hear that prices on systems will continue to go down, so waiting isn't so bad. Start smaller, get better payback from the high tier, and get a better handle on the realities while you try out conservation measures. Apply the initial savings to the added panels when they make sense.

Related to all this, I read an article recently that pointed out that if we are going to subsidize solar, it should be based on an estimate of the system's annual production, rather than the system's cost. After all, that's the point right - more clean kWh? It would reward installations that produce more power (sunny areas, no shade, good orientation), and tend to create more motivation to lower prices (the price delta would go 100% to the solar buyer, rather than the percentage not subsidized). Maybe could adjust that based on a factor for how dirty the daytime grid is in an area.

-ERD50

 

[ProspectiveBum]

Looks to me that the solar project would be a decent investment. I'd have to get 8.6% a year, for 25 years in order to get the same return solar is giving me with that PERS account buy-in. The PERS pays only a bit over 7%.

Does that make sense? That's my perspective at least. I think of it as buying an annuity.

Doesn't that assume that you have no maintenance expenses, and that the panels maintain the same level of efficiency over that 25 years? Is that likely? Most of the electronics I purchased 15 years ago have already been retired, and those don't sit out in the elements 24/7.