In 10 years, will I think "I should have bought that solar panel system?"

[voidstar]

I am considering taking a loan from my 401K to pay for a solar based electrical system.

Before you say HELL NO, hear me out...

- The house is paid off, ~$230K value, 2 floors (about 1500sqft each). It is all electric, no gas option. Currently $204/month for electricty (~2kwah/month -- yes, we use a lot of electricity, currently at about 11 cents/wah).

- $210K combined income. Combined retirements accounts are at about $800K.



The system being offered is $40K. Again, hear me out:

- new downstairs HVAC (22 SEER variable speed, the current 12SEER system is 10 years old and leaks) $15K
- radiant barrier $4K
- solar circulating fan $3K
- new water heater (ancient 5Kwah/year system replaced to like 1.2K) $4K
- foam spray the ducts $3K
- 10 solar panels (total 3Kw system) $11K
- installed, 25 year warranty on all of the above (including annual service checkup and web-based health monitoring)

[ so it's not just panels, but improved overall efficiency ]


Crazy prices for the DIY types, but again, hear me out: Trying to think of the positives...

- Texas energy prices will continue to rise (but same can be said about anywhere); the sooner system installed, sooner electricty savings take place [ hey, gotta have a way to charge my Tesla when I get one! ]

- The 30% tax credit expires Dec 2019 (then tapers down to 0 over the next 3 years). Because solar panels are involved, it applies to the entire $40K purchase (so, $12,000 credit).

- Increases home value? That might be subjective, as it could also increase property tax and insurance costs?

An obvious question is how long we plan to live at the house. Short answer is: 10-15 years (i.e. until daughter finishes college), longer answer is: maybe forever, since even if we move out, we still might keep it for rental (the property taxes are $5K/yr currently). In any case, the answer is not just a couple years.


My wife and I will be working for at least another 5 years; stable and good company. So say I pay myself back $700/month for 5 years -- I lose a hunk of equity up front ($40K out of $500K), but I'm buying back into the market again for a few years.


Alternatively, we could pull from taxable account. Just pay for the thing. then lose our future gains on that (which we would be taxed on anyway).


Thoughts? Any justification to this being an actual worthwhile "investment"?

 

[gcgang]

Go Green!

Which would be better for you - the 401k loan, or a HELOC?

I'm probably selling my house in the next year, yet just signed the papers to put in a $42k PV system. If I do sell, hoping the buyer sees a well kept up place that has continued to invest in a 1939 home.

Get back about $23k in tax credits. Tabuchi batteries & Inverter, and 27 300w Hyundai panels. Tax credits scheduled to decrease, so after tax cost going up all other things equal.

Electricity very expensive in Hi .34/kWh.

Have applied for a program that would "attach to the meter (called GEMS here in Hi)" and repays the $42k over 20 years.

But I'd feel a bit like a scammer if I get $20k in tax savings and leave someone else with the payments. Not sure if I'll qualify or what I'll do if I did.

 

[skipro33]

The cheapest solar is the solar you don't have to buy. You are right to make the house as energy efficient as possible before sizing your solar design. Don't stop with the big items either. We went all LED on lights, converted to propane on heat, cooking and hot water.

We built our house with the efficiencies you mentioned and didn't need to renovate to achieve them. Today it reached 88 degrees outside and inside it stayed below 74 degrees without AC on.

I have a 5.5kw solar system and I'm loving no longer having an electric bill. And now that the electric company is raising prices exponentially, it's paying itself off sooner than I thought it would. Bring on high electric rates! The higher they go, the sooner my investment pays off.

I funded my solar with cash advance check through a credit card offer. 18 months, zero interest. At the end of 18 months I repeated. In the meantime, I got the fed tax credit, state credit and used that money to pay the credit card monthly minimum. Then I retired and could access my retirement and paid it off.

 

[voidstar]

It just seems all this stuff is marked way up over 30%, canceling out the benefit of the federal credit of 30%.

It's like the "free sales tax weekend" we have around when school starts -- you save 6-8%, after shops have marked up prices 10%? Maybe shops don't take the time to adjust their prices -- that action alone has a cost (retagging inventory/shelves?), so maybe it isn't done as much as I think.


I'm all for paying people for their time and talent to install stuff correctly, and I appreciate the peace of mind of a warranty. I definitely don't want to be walking on a 30' roof line.

That said, if I accumulate/grow what we have already well enough -- retire early, read a book, and do these installations myself. [except the walking on the roof part, but I could tolerate a 140deg attic for awhile]

They say when the credit expires, prices of this stuff will rise. I'm not so sure about that -- would it be from the vendors themselves (like LG), or the shops that have stockpiled things?

It's an agonizing decision: will solar panels drastically improve efficiency, and drop in cost? (turning my 20% efficient, 300W panels into junk) Will electricity cost skyrocket? If they do skyrocket, a couple things could happen: (1) it might become worth stealing solar panels! uh oh, now instead of electricity, I have to pay for drones with lasers to patrol my roof. (2) the feds finally get in a gear and invest further in the public solar farms and wind farms [ which isn't so bad, except that now I'm paying taxes on that when im already self sufficient! ]

What to do, what to do.... As an investor who started a little late, I'm not doing so horrible -- I have a chance to retire at all, at least! But I'm loath to buy anything now! Even a $1000 laptop, and it's like "you know, compound that 6% for 30 ye..... <shut up dad!>"

 

[voidstar]

BTW, not a HELOC -- that's interest paid going back to the bank, and it looks like over 4% at least.

The 401K loan is "6%" but it goes back to yourself -- you pay yourself back more than you put in. An artificial "interest rate" is used to force the account to be repaid in a reasonable time, and set a bounds that if you default in payments: you get the 10% withdrawal penalty. So you're very motivated to pay this back on schedule (or sooner). Hence the general advise: only do this if you're sure that you're going to have reliable income for a few more years. (which in my case, I'm fairly sure for 5-10 more years at least).

That makes me realize an interesting point: if the market continues to rise as it has recently, I can pay it slowly (say a $700/mo minimum). But if the market tanks this second half of the year, then I can buy it more aggressively (say $3000/mo) since I'd be buying back in on a dip! Hmm.



I guess my issue isn't so much in coming up with ways to pay for it -- lots of options there. It's just in 10 years, will it have been worth it? The 25 year warranty gives confidence that the stuff is going to at least be operational that long. Energy costs are bound to keep rising, and I'm fairly addicted to using electricity!

 

[Telly]

A few disparate comments as I thought of them:

I am considering taking a loan from my 401K to pay for a...

That sounds bad to me already!

- new downstairs HVAC (22 SEER variable speed, the current 12SEER system is 10 years old and leaks) $15K

Here in TX, the A/C unit for the second floor is usually a bigger unit than downstairs, and it is the one that runs by far the most. The downstairs unit is usually smaller and runs much less often. So going out or beyond the bleeding edge for the downstairs unit sounds very questionable to me.

- radiant barrier $4K

I once thought that a radiant barrier in the attic stapled to the bottom of the rafters sounded like a good idea. But the efficiency of the radiant face (upwards) depends on its cleanliness. And there must be good airflow from soffit vents, up along the underside of the roof sheathing, up to the ridge, where there needs to be a good air outlet vent. But at least around here, that airflow coming in brings dust and dirt, which would sit and coat the upwards-facing shiny surface of the radiant barrier. Every year that goes by the efficiency drops. Check attic now for a coating of dust! There will be no way to "clean" that barrier.

- solar circulating fan $3K

Attic fan? A/C circulation fan?

- foam spray the ducts $3K

YOW! Since the only ducts that can be "sprayed" are the visible ones, I assume this means attic ducts. Seems they could be further insulated with duct wrap insulation or the like in the winter when its cool as a DIY project, if one does not have a tendency to fall through ceilings.

What's the hail situation where you are? Replacing a roof means the whole solar array system has to come off, then be put back up, IF its not smashed. And I think that's all on your nickle.

House resale - I think to many, a solar system is an impediment to purchase. And how often have I heard somebody say, "I'm gonna live here in this house forever" or words to that effect, then move out within say 10 years. As the rear-ended beat-up car had scratched in the dust on the trunk lid "SH_T HAPPENS!" Such is life!

 

[SecondCor521]

I had one of the solar companies come out and do their presentation about a year ago. They did a pretty decent job, but what I came to realize is that all they're doing is the marketing, advertising, panel selection and maybe some customer service after the sale. They then just hire a local electrician, buy the panels, and have the electrician install them. For this they appear to charge about twice the price.

Unfortunately for that solar company, the told me the panels and inverters they used (I think they were the individual micro-inverters), and they also essentially informed me how to find a list of approved solar installers.

I think if I were ever to take the plunge, I'd just call up one of the installers directly, buy the panels and hardware directly, and have him install them. No fancy brochure, but a 50% savings.

They are good at creating a sense of "we're taking care of you" and "act now because the tax credits are ending", and "look, the numbers math out and it's a good investment". All maybe true, but all are also good sales pitches.

...

The other thing I wonder about is resale value. On my "solar project list" I'm sure I have an item to check with my realtor friends on this. Personally, I think old solar panels were pretty ugly looking, but the new ones look pretty sleek and cool, and I think for many people low electricity bills could be a selling point. As a matter of fact, I might see a realtor friend of mine tomorrow night; if I remember I'll ask her and follow up here.

 

[voidstar]

Dang Telly, just when I was steering towards giving these Solar Kids all my money! Then you come and make me think it all over again. [ btw, I don't know how to do multi-quotes, so bear with me here... ]

- good point on the bottom stairs AC generally being the lesser one; also, I'm REALLY struggling to find any 3 ton variable speed 20 SEER HVAC for OVER $10k. I might have stomached $11k, but at $15k, these guys are on my nerves. [ notice: if you reduce $15K by 30%, you're near $11K -- that's where I mean they have such a mark-up, it makes the tax credit moot ]

- yes, an attic solar fan. I'm seeing them like $400 on Amazon. So $2500 for some kid to risk their neck installing it way up there (while putting solar up anyway!). Why our roofs don't have an access hatch from the attic itself is just mind blowing -- yeah, yeah, want it sealed, sound proof, mildew proof, etc, etc... w/e

- yes, foam spray and sealing up leaks along the ducts (can feel/hear them) on the visible attic ducts. Good point on waiting till winter - and yes, yes I have fallen through the ceiling... I'm fully ok with admitting that I'm NOT handy-man inclined. Surely I'd be more careful the next time!

- interesting point on the dust accumulated on a radiant barrier. I'm not seeing anything real conclusive about it -- but my experience tells me that even a dusty telescope mirror can get good views of the moon, so there's that. Also, the vibe I'm getting is that this fancy tin foil is dirt cheap on Amazon, and I have a staple gun; so more fun for Winter! (i.e. seriously, it's like $250 for a couple rolls on Amazon -- just replace it every 5 years or even 2 years)

- We talked about hail, and basically they just stand behind the 25-year warranty. Basically they think the equipment can hold up to golf-ball sized hail. If it came down to it, it would still be covered under the home insurance I suppose, like our fence was when winds took all that down (wooden poles then, not metal).

- They're pretty secretive about the cost per panel. Best price range I could find, from places I believe I could have ordered from myself, ranged from $78 to $495 for 300W panels. So let's take the average of $286 -- even round it to $300. If I took 10 panels (3kw is enough for me), that's $3000. But yes, then there are frames, micro-inverters (and a few other things along the wall in the garage). I'm kind of ok with this part, particularly given the 30% credit...

 

[robnplunder]

First of all, taking money out of 401k is bad unless it is a critical finance situation. Solar panel isn't.

Given the fed credit phasing out starting this year, I've seriously considered installing solar panel. I am now leaning against it. Here are my reasons.

1) I have a feeling that the cost of solar panel will continue to go down, making the fed credit phase out not that important.
2) Cost of maintaining solar panel & the battery required is not well thought out for most. To me, it added to the already expensive (20 years to make the money back) solar panel installation cost.
3) YMMV - I am not likely to live more than 5 years in my current house.

 

[voidstar]

I had one of the solar companies come out and do their presentation about a year ago. They did a pretty decent job, but what I came to realize is that all they're doing is the marketing, advertising, panel selection and maybe some customer service after the sale. They then just hire a local electrician, buy the panels, and have the electrician install them. For this they appear to charge about twice the price...

Yep. There is a certain truth to it, and I think they might probably believe what they are saying. Case in point:

Assume 2.5% inflation. Determine current electrical bill average. In my case, $200/mo or $2400/year. Apply inflation over 20 years, sum all that, and yes: I'm "wasting" $60K on electricity ($57.4K) [ except I'm not exactly just burning it -- I'm taking hot showers, watching movies, cook meals; all sorts of utility that I appreciate every day ] [ also, this probably is a conservative model: Texas in particular could potentially see some dramatic electrical rate hikes-- "could", that makes it an interesting assessment as a investment ]

Under that premise, their only goal is to show that they sell something that leads to no-electrical bill for under that price. Then it's up to you to figure out how quickly to pay it off, such that the 3.9% interest doesn't put you past that price (something they don't remind you about!).


But right, I'm looking even past that: the total material and labor costs. Yes, it seems to be like ~200%, negating the tax credit (30%) altogether. But true, you may have to coordinate multiple contractors yourself; and if you can trust their warranty, on the off-chance of something going wrong. [ which does remind of an important point they made: if you let any other installer touch the system, it avoids that warranty... hmm ]

 

[target2019]

May be better to go slow with the updates. Most online advice says a 401k loan is a bad idea. The idea that you pay yourself interest is usually a selling point. It would likely be more beneficial if you take a loan just before a crash or recession. But who can time that?

The two things which stick out in your OP are the HVAC, water heater and attic. Fixing/updating these parts of your existing system will pay off immediately. These are improvements we've paid for, and the 2-story home is twice the comfort level, at reduced monthly cost. Most recent improvement first:
- 2K for a water heater and installation (replaced 15 year old)
- 15K for 2 complete HVAC systems (replace 35 year old)
- 1K for 12" additional insulation attic floor
- $200 to replace ancient gable end fan

Attic exhaust fan can maintain upper floor at 77 during 90+ outside temp. I proved this by forgetting to turn the fan power back on in April!

There are more efficient homes for sure, but I just wonder about solar, and adding a new system to the several I need to maintain already. Since we will probably move out within 5 years, it is not a priority.

We did borrow the money from our family bank, and paid it back early. Now we are ready to fund the next major improvement with cash.

It is hard to resist an "upsell", and we've been foolish once or twice. When I've been the GC, things turned out better. It takes a lot of planning, but that solar installation can probably be done for much less.

 

[RunningBum]

The downside to a 401K loan is that if you quit or lose your job, you have to repay the balance or else it's a distribution, with the early withdrawal penalty if you are <59.5.

Other than that, it's no big deal. From the vantage of the 401K side, you've taken part of your account and allocated it to a loan. The principal is returned, with interest. So it still has an investment return, just like your other investment options. Maybe it's not the best return you could've gotten, but it's not bad and it is safe unless you yourself are a bad credit risk.

From your pocketbook, you are paying loan interest just like you would any other loan. It's not the magic of "you're paying yourself" because while that 401K money is tied up in the loan, it's not invested elsewhere. But any notion of "paying taxes twice" makes no sense because it's the same as paying off any other loan where you have to pay back the full principal plus interest.

Maybe the first paragraph is the reason people warn against 401K loans. That's a valid concern. Hard to say since most people don't elaborate, and probably don't understand why. And some that do give reasons, give invalid ones <cough, Suze Orman>.

I don't know solar well, so I'll not try to give any advice there.

 

[braumeister]

Without making a recommendation on the solar system, I'm surprised at the electricity usage, and think you might take a closer look at it.

We have a very similar size all-electric home, and pay the same rate. Our bill averages less than half of yours.

 

[marko]

Your title starts with: "In 10 years...."

I'd say that in 10 years, solar panels will be considerably more efficient and a lot cheaper to buy and own. I was involved with solar panel manufacturers before RE and IMO, the technology is good but still evolving at a rapid pace. In 10 years it will be entirely different and a lot better.

We have a neighbor who bought roof-top solar water heaters 40 years ago thinking they were ahead of the curve; the technology just wasn't there at the time and the panels sit there now collecting bird poop. They also were the first to buy a Betamax so.....

 

[Scrapr]

I think you are finding the flaws in the sales pitch. Lots of mark up. If it were me I'd find someone to do each system that you want to improve. I'd find someone to air seal the home first. We did and it made a great improvement in comfort level & cut our bill by 25%. Find a HVAC company and talk about if 22 SEER is needed. I try to stay off the bleeding edge and buy 1 step down. Which is usually discounted. I'm ambivalent on foil based radiant barrier. Take a look over at Green Building Advisor for pros & cons. After you price out all the individual components then look for a solar installer.

The company you are working with bundles all the facets then subs out the components at large mark ups

 

[Aerides]

The 401K loan is "6%" but it goes back to yourself -- you pay yourself back more than you put in.

Not really. You automatically lose your tax savings, as 401k loan repayments are made with post-tax dollars, not pre-tax. And all that money will be out of the market while awaiting your repayment, possibly costing you more than 6%. For any reason you want to leave your job you have to payback 100% right away as well.

I would only use a 401k loan to buy a home, when that person had no other source for the money. You have taxable dollars available - I'd use that if you're going to go ahead.

 

[street]

First I would not use my 401K. I also would never get involved with buying a solar system I wouldn't want the work/expenses going forward for the system. I also know people that have small systems and the pay back is a long time out.

I would cut back on usage and there are many ways to do that. If all in the household work at being efficient that alone will cut that bill by a large junk not even doing some other efficient things on the home.

 

[atmsmshr]

Utility scale wind and solar power recently became the least expensive power source. Hydro (essentially maxed out) and natural gas are the next low cost options. Coal and nuclear plants are rapidly closing as a result.

Utility scale battery storage is just starting to take off. Coupled with anticipated further improvements in wind and solar, this combo will soon prove to be unbeatable compared to residential solar costs.

In the past there have been essentially three different national grids in the continental USA: east and west coasts, and Texas. In the future, new transmission lines to support the 'wind corridor' will help tie these grids together and hold down costs in an unregulated market.

In short, unless you live outside the continental USA, or are hostage to an inefficient and overtaxed municipal monopolistic power company, it will soon be hard to justify long term sunk costs for residential solar compared to utility scale renewable plus battery storage. A special case, Californians seem to takes pleasure out of periodically screwing up their system with legislation and lawsuits - so their electric rates will not be efficient anytime soon.

IMHO

Atom

 

[tb001]

If your interest is mainly going all in on going green, great. But if you’re not planning on being in the house during the pay off for the solar system I’m not sure why you would install one. Also, do the math on a high seer unit. Often they’re far more expensive than any energy savings will get you, *especially* if you have solar.

FWIW, this is coming from the perspective of someone who has a large solar system and is in the process of replacing an hvac. For us, the 401k dollars are not to be touched for all the reasons listed above.

It doesn’t sound like you have really run the numbers on roi for the improvements you want to make. I think you need to do that before thinking about how you might fund them.

 

[Spock]

401K loan: check your plan. some require a full immediate payback when you leave the company, some don't.

"in 10 years...": No where in your math do I see an ROI on how long it will take the solar system to break even. Last time I did it (with higher subsidies) the payback was about 22 years or just about as long as the panels are expected to last and that did not include the opportunity cost of investing the cash.

current electric usage: 2KWH/month sounds way low for A/C in Texas. My June bill was 923KWH and A/C season is still ramping up. A 3KW system for a 3000sqft house sounds small.
ETA: nevermind... it looks like your units are off by 1000.


The solar install bill looks comparatively cheap, but you're getting ripped off on the home improvement projects.


ETA:
Future rate increases will likely be skewed to the fixed monthly part of the bill and not based on usage.
Utilities are finding that the cost of maintaining the grid is not based on the kw it carries (although its a factor). With people moving to solar, but still relying on the grid for nighttime/cloudy days etc, the costs of the infrastructure are getting stranded... so the rate increase requests are bumping the fixed monthly costs more than the kwh costs. Meaning your bill will likely still go up even if your metered electric usage is near 0.

 

[mountainsoft]

I am considering taking a loan from my 401K to pay for a solar based electrical system.

2 floors (about 1500sqft each)... It is all electric... ~2kwah/month

First, I would NEVER take money from a retirement account for a home improvement, unless it was an emergency situation (tree falling on the house, leaking roof, etc.).

We live in Washington state. Our house is 1456 sq/ft (about half yours) and is also all electric. We average around 1100kwh per month during the summer, and 2200kwh per month during the winter. Most of our energy usage in the summer is for heating water, powering the well pump, and running appliances. We do not have AC.

Granted, our house is smaller, but it sounds like you have a lot of room for efficiency improvements. I would focus on those before spending money on a solar system.

Add more insulation where possible, seal around doors and windows, use metal foil tape to seal joints in ductwork, etc.

Replace all incandescent and CFL lights with LED bulbs (or new LED fixtures).

Replace old energy hog appliances with new appliances that are more efficient. I was surprised to see our electric bill go down after we replaced our 30 year old washer and dryer. If your refrigerator is more than 10-15 years old, it's probably time to replace it. I would also replace your water heater with a newer model with better insulation, perhaps a heat pump model if your situation would allow it.

You might pick up a "Kill-a-Watt" meter and see how much electricity various appliances and gadgets around your house are using. It can be surprising sometimes.

I always thought it would be fun to install a solar system, even a small one just to run a single room or something. However, we live in a forested area and only get about two hours of sunlight each day anywhere on our property. So solar isn't really an option for us (and gardens don't do well either).

Also, factor in how long it would take to pay off that system. It would take over 16 years with your current $204/mo electric bill to pay for that $40K solar estimate. If you reduce your electricity usage, through efficiency upgrades or with conscious choices (fans instead of AC, turn off lights when you leave a room, etc.), it would take even longer for that solar system to make sense.

If you're looking at solar for environmental reasons, many electricity providers offer "Green" power rates that are supposed to come from renewable sources. Of course, your power will come from the same sources as everyone else, but those funds are supposed to help the development of new renewable sources. Might be worth checking if that's important to you.

 

[ERD50]

As other's have pointed out, I'm not seeing enough info here for any ROI calculation.You really need to look at each upgrade individually, some may make good sense, other's none at all.

Will 3kW of panels really cover your bill? A rough number for solar is 20% capacity factor (average output compared to peak/nameplate output), maybe 25% in TX? So 3 kW * .25 * 24 hours a day * 30 days/month = 540 kWh/ month. But your monthly consumption looks to be about 3x to 4x that?

You really need to sharpen that pencil. $4,000 for a water heater? I'm assuming this is a heat pump model, that's the only way to really save energy if you are all electric (other than solar water heating, something to consider).

In the payback calculations, don't forget opportunity cost. If you are using a round figure of 4% WR for your portfolio, use that for your investment return in your calculation.

https://www.consumeraffairs.com/homeowners/heat-pump-water-heater-value.html#

At Lowe’s, a 50-gallon heat pump water heater goes for around $1,100, while its older, conventional cousin the electric water heater can be purchased for closer to $300.

Offhand, I'd be surprised if much of this is worth doing. Though if you have to replace the A/C anyhow, a higher SEER unit may be worth it in TX. I got a high % unit, not for efficiency (we don't use it all that much here in IL), but because it had more comfort features (2 stage, variable speed blower provides better control of humidity).

-ERD50

 

[NW-Bound]

The OP lives in Texas, where electricity is not expensive. I suspect that it is not cost-effective to do solar. AC improvement is something else though, particularly if it needs replacement.

In Hawaii or California, the decision would be easier to make.

 

[flintnational]

If the financial benefits from a solar system where clear and substantial, the government would not have to offer tax incentives. We would voluntarily purchase them. The fact that an incentive exits, means the system is likely more costly than a conventional system both short and long term.

I would fix the existing system. And, if you decide to purchase the solar system/or the other upgrades, I would put it in the "discretionary lifestyle" category and only pay cash from future saved salary. This is not something I would borrow from a 401k or take a heloc out to fund. My guess is, if you force yourself to pay cash, you will not be as interested in the system.

 

[CRLLS]

I would never take money out of, or loan against retirement funds while working. There is the previously mentioned payoff if you leave the company risk. And then there is the "retirement fund" mentality. It is money saved for retirement, not home improvement, not general savings. Once a person breaks that rule it is so much easier to do so again.

Ignoring the poor financial aspects and risk of default on a 401K loan, I would start putting some money away in a separate account for future energy efficiency improvements. Make small improvements along the way when you can.

P.S I see there is no mention about energy storage. I presume there is none in the plan. I suspect that you will still have a monthly electric company bill of some sort