Solar Payback & Opportunity/Other Cost

[ERD50]

I didn't want to derail this other thread, but it's hard to not comment on some of these over-optimistic payback calculations for solar (or other $ saving) systems. The most common error is to not include opportunity costs, ongoing costs, and end of life value. From that thread:

Originally Posted by ivinsfan View Post
I don't know where you live, but can you come back some time and tell us if this worked out the way you expected it to? Also do you think you will recoup the cost of it when you sell your home? I think one of the worlds big questions is how well does this kind of system really work money wise.

My average electric bill used to be about $150 per month, it's now $0 (thanks to net metering). The solar cost me about $29,000 (after tax and utility rebates). So it's got a 16 year pay-back period (and a 30 year warranty). I was 48 when we installed it in the spring, so it should pay off when I'm 64 years old. Just from that basic math (and not accounting for utility rate increases), assuming I live to 75 I'll "profit" $20,000 in my lifetime. ...

1) I'd conservatively estimate the opportunity cost of that $29,000 investment as providing a 3%, inflation adjusted cash flow (that's > 100% historically safe over 30 years). $29K * 3.0% = $870. So your $150/month is $1,800/year, minus the cash flow is a $930 annual savings (and that allows for inflation adjusted bills). So $29,000/ $930 is a > 31 year payback.

2) What is your solar system worth after 30 years? Historically, that $29K invested is at a minimum balance of ~$15K (inflation adjusted), and an median of $74K.

3) And how many inverters have been replaced? Bad connections repaired? How much has the system degraded? Have they had to have been taken down to repair/replace the roof?

4) The rest of the taxpayers paid for the rebates/credits. While that doesn't factor into your costs, it actually does factor into the payback overall for solar. It's still a cost, it didn't go away.

I hope it all works out for you, but a 16 year payback just doesn't cover it.

link to FICALC, showing opportunity costs: http://tinyurl.com/ykmafkbf

-ERD50

 

[HI Bill]

If it was actually a 16-year payback, I'd consider it a wash, since panels typically fail around that age. My system is only producing ~$40 a month in electricity, as water has intruded into a lot of the panels.

I had a solar water heater, but at a replacement cost of ~$8K, the payback just isn't there for a family of two. By adding a timer to my electric water heater, the electric water heater is only costing me about $30/mo more than solar was. So the payback would be: $8000/$360 = 22 years. My former solar water heating system failed at about 15 years. So no-go, I just put in a cheap electric unit.

 

[njhowie]

We've/I've investigated about once every 5 years and always come to the same conclusion that it is simply not worth it. If you are into it for environmental reasons and feel the need to do your part, I have the utmost respect for you. However, the Capitalist in me, like many here, are not going to do it unless it has some reasonable and realistic payback period.

When interest rates are high, as gets mentioned, you have opportunity cost. If I take the $25,000 (low end) estimate for a modest system I can have risk free $1000/year and that is more than half of our annual electric bill. A Tesla system, with Powerwall would come in at $40,000+ for our home.

Now, solar payback has a lot of assumptions built in like having net metering, SRECs, and so forth. Over time, the utility companies will phase those out, and not pay for electric you send back to the grid. Use it or lose it. It's already begun. Additionally, as many have already started, if you have electric service to your home, you're going to pay a minimum monthly bill - call it a solar tax. Some places it's $5, some $10...look for it to gravitate to $25 over time.

Another point - a solar system can actually detract from the value of your home. A purchaser may not want a solar system, or want their roof compromised with a system on top. Good luck selling your home if you are the homeowner that has entered in to a lease agreement for your system.

I do not see solar as a financially astute investment. Again, if you aren't looking at it as an investment and are looking to do good by the planet, more power to you. You get my thanks for being a good steward to the planet. It's not for me. No different than my views on EVs at this time.

 

[athena53]

Another point - a solar system can actually detract from the value of your home. A purchaser may not want a solar system, or want their roof compromised with a system on top. Good luck selling your home if you are the homeowner that has entered in to a lease agreement for your system.

That's been my concern. If you pay cash for it up front it may increase the value of the house but not likely by as much as you paid. As the system ages, it would add even less. If you borrowed or leased, the new owner has to sign on to everything since you no longer own the house. I'm not sure how a lease works but if you borrowed and have, say, $20,000 left on the loan, it's paid out of your proceeds or the new owner has to come up with $20K or take on another $20K of debt.

My neighbors happily reported on FB that they'd just paid off their mortgage. Interest rate was 2.5%. Then they installed solar panels.

 

[Zathras]

Partially it depends upon the timeframe.
My panels had a 10 year payback estimate. The panels have a 20 year warranty, and are expected to last 30.
Over 10 years, it makes no financial sense. Over 30 years it is a no brainer.

Many companies ‘lock-in’ prices of fuel for a period of time.
I basically locked in the price of electricity at a rate of $0.015/kWh for 30 years. Even without any incentives, my cost is $0.115/kWh (utility prices in our area are higher).
The above includes 2 inverter replacements. It does not include opportunity costs nor passive cost savings (roof/attic doesn’t heat up as much), nor any residual value.

This is not to say is the numbers work out that way for everyone. Just noting it does work out well for some.

 

[ERD50]

... My panels had a 10 year payback estimate. ... It does not include opportunity costs nor passive cost savings (roof/attic doesn’t heat up as much), nor any residual value. ... Just noting it does work out well for some.

So it isn't a 10 year payback then?

.... The panels have a 20 year warranty, and are expected to last 30.
.... Over 30 years it is a no brainer. ....

I'm not sure it qualifies as a no-brainer if re-roofing and residual value compared to opportunity costs is taken into account.

... This is not to say is the numbers work out that way for everyone. Just noting it does work out well for some.

It may work for some with high kWh costs, but to say it does takes a full evaluation.

-ERD50

 

[ERD50]

... If you are into it for environmental reasons and feel the need to do your part, I have the utmost respect for you. ...

I respect those intentions, but if one believes in the positive aspects of solar for the environment, they should be made aware that putting solar panels on a residential rooftop is a relatively poor way to do this. If you really care for the environment, you want to get the most energy from the solar panels over their life, at the lowest cost, so that more can be installed (and more good done) for the available funds.

As some of us have pointed out before, residential roofs are seldom at the proper angle and exposure to maximize output. Compared to a large commercial installation, a residential system requires a lot of planning, permitting per kW installed. And residential roofs have steep slope, dangerous for workers (solar is more dangerous per energy produced than nuclear!), and start-up and close out for the work crew, instead of staying on a large job for a long time. All this adds up.

If you want to improve the environment, we should identify areas with the best ratio of available sun, and dirty electrical production. Then invest in commercial solar farms in that area. The $ payback will be better, the environmental payback will be better, and fewer injuries for the install and maintenance. Some have reported here that their panels degraded if not washed occasionally - again, easier/safer on a commercial flat roof install, than on a (usually steep) residential roof.

Those panels require a lot of energy to make in the first place, and then there are disposal costs and environmental costs to disposal. So it's important to get the most of them during their life. Using them on a residential roof instead of an optimal setting on a commercial installation is another "opportunity cost", but this time also an environmental "opportunity cost".

-ERD50

 

[Music Lover]

I do not see solar as a financially astute investment. Again, if you aren't looking at it as an investment and are looking to do good by the planet, more power to you. You get my thanks for being a good steward to the planet. It's not for me. No different than my views on EVs at this time.

IMO, the environmental claims suffer from the same (or worse) suspect math and assumptions as payback claims. Is there a valid study that delves into the environmental impact of their production and disposal?

 

[Zathras]

So it isn't a10 year payback then?

No, I expect it to be 8 (later this year) as the savings to our bill weren’t counted and we used less energy than expected.
Opportunity costs really aren’t a factor I calculate. Nor do I calculate opportunity costs when buying a house, car, or making donations.

I'm not sure it qualifies as a no-brainer if re-roofing and residual value compared to opportunity costs is taken into account.

The example I gave was my situation. No re-roofing was needed. Residual value was calculated as $0. Realistically the residual cost will be higher, which lowers the cost.

It may work for some with high kWh costs, but to say it does takes a full evaluation.

-ERD50

Our kWh costs upon installation were $0.11/kWh. For us, it was an obvious net gain over the life of the panels.
I am glad we agree on the need for a full evaluation. That is critical for panels.
I always advise people they should first look at ways to lower their energy use before considering panels. Much cheaper to not use the energy in the first place.
Most people that are unhappy with their solar didn’t do their research.

 

[Retired Expat]

We've/I've investigated about once every 5 years and always come to the same conclusion that it is simply not worth it. If you are into it for environmental reasons and feel the need to do your part, I have the utmost respect for you. However, the Capitalist in me, like many here, are not going to do it unless it has some reasonable and realistic payback period.

When interest rates are high, as gets mentioned, you have opportunity cost. If I take the $25,000 (low end) estimate for a modest system I can have risk free $1000/year and that is more than half of our annual electric bill. A Tesla system, with Powerwall would come in at $40,000+ for our home.

Now, solar payback has a lot of assumptions built in like having net metering, SRECs, and so forth. Over time, the utility companies will phase those out, and not pay for electric you send back to the grid. Use it or lose it. It's already begun. Additionally, as many have already started, if you have electric service to your home, you're going to pay a minimum monthly bill - call it a solar tax. Some places it's $5, some $10...look for it to gravitate to $25 over time.

Another point - a solar system can actually detract from the value of your home. A purchaser may not want a solar system, or want their roof compromised with a system on top. Good luck selling your home if you are the homeowner that has entered in to a lease agreement for your system.

I do not see solar as a financially astute investment. Again, if you aren't looking at it as an investment and are looking to do good by the planet, more power to you. You get my thanks for being a good steward to the planet. It's not for me. No different than my views on EVs at this time.

Can’t speak to return on investment because we did a zero cost lease. Solar company did all the calculations and paid for everything. I pay them a fixed amount every month which comes out to be about 60% of what I would have paid annually had I simply purchased the electricity from the utility, including the $9 a month I pay the utility for our connection.

Some months we run a deficit but mostly we run a surplus and bank that savings with the Utility. Periodically the utility send us a check for the electricity we send to them.


No battery or power wall so only missing the emergency coverage component but has not been much of a issue. But do I feel better knowing we are doing our part? Hell yeah! Was it worth it? Totally!

As to the roof, the solar panels protect the roof and according to my roofer can double its life. I doubt that but still. Have yet to meet one person who would not buy our house because of the solar panels but every broker who approaches us to sell says it adds value!

 

[ERD50]

Originally Posted by ERD50 View Post
So it isn't a10 year payback then?

No, I expect it to be 8 (later this year) as the savings to our bill weren’t counted and we used less energy than expected.
Opportunity costs really aren’t a factor I calculate. Nor do I calculate opportunity costs when buying a house, car, or making donations. .....

It's disingenuous (at best) to call that a 'payback' then.

It's a red herring to compare to a car, house, donation - those are generally not purchased/spent with the intent to save, or as an investment. They are consumed.

And if I did buy a car as an investment (some collector cars do increase in value), then I certainly need to take opportunity cost into account if I want to make an honest analysis of the investment. If I could make the same or more with a T-Bill, then it's a questionable investment.

Maybe I use the car from time to time, and consider that enjoyment to have value. OK, but that is different from the straight economic analysis (which is what a straight 'payback' claim is). Keep the two separate - you could say "sure, I could have made more in T-Bills, but I enjoyed owning that car for 10 years". That's legitimate.


-ERD50

 

[njhowie]

As to the roof, the solar panels protect the roof and according to my roofer can double its life. I doubt that but still. Have yet to meet one person who would not buy our house because of the solar panels but every broker who approaches us to sell says it adds value!

There are many, many horror stories when it comes to solar lease agreements and home sales. Google for it, you'll have no difficulty finding page after page.

If you drill into your roof, the likelihood is that you are compromising its integrity to some extent. I understand that some solar systems have come up with ways to not drill into the roof, but I gather these are the exception rather than the norm. If you have a roof with a warranty, maybe 25 or more years, it's almost certain that drilling in to it will void that warranty. Installing a roof top solar system in any form can likewise void it.

 

[ShokWaveRider]

Here in N.E. Fla. People are removing them. Insurance costs are too high, or they refuse to insure all together. 3 of my neighbors have done it. So, it is simply not worth it.

 

[Fermion]

I got our electric bill for our new house and they had a big advertisement on it about getting a reduced rate for low income (I think under 200% of poverty level). I didn't know this was a thing, but it would affect how I looked at solar installations if I qualified for something like that.

 

[easysurfer]

Installing solar panels not an option for me as I don't own the building I live in. But I'm on the wait list for a community solar thing for possible future subscribing to.

 

[ERD50]

Installing solar panels not an option for me as I don't own the building I live in. But I'm on the wait list for a community solar thing for possible future subscribing to.

I tried looking into community solar, but it's a weird, complicated plan. I just want to buy a share of a solar farm, like buying a share of stock in a company. I can't find that opportunity.

-ERD50

 

[Zathras]

It's disingenuous (at best) to call that a 'payback' then.

It's a red herring to compare to a car, house, donation - those are generally not purchased/spent with the intent to save, or as an investment. They are consumed.
…

Hmmm, I think I see part of the disconnect here.
In reverse order:

A) I did not purchase solar as an investment. I did consider financial aspects, but in now way was it an investment (unless you count the more figurative ‘investment in the next generation’).
B) I have often heard people talk about the length of payback for buying a hybrid car, or fitness center membership, or many other things that cost more upfront. As long as I am clear that I don’t consider opportunity costs, which I was, I don’t see anything disingenuous about it. No deception was intended.

You seem to want a very deep analysis. Nothing wrong with that, but one that wasn’t necessary for my purposes. I was happy with the back-of-the-napkin calculations.

I would ask you though, would you consider the money gained via incentives annually a return on investment? Likewise, the reduction of electric bills via net metering? Additional checks for net metering beyond the bill amount?
In Minnesota, houses with solar tend to sell quicker and/or at a slightly higher price.

Now, as you said before, each person has to do their own analysis, and others may not have some of the incentives I have, or may have better ones.
But for my specific case, I’d be happy to dig in and see how much of a difference there really is. If you are willing to consider all aspects.

 

[ERD50]

Hmmm, I think I see part of the disconnect here.
In reverse order:

A) I did not purchase solar as an investment. ...

OK, but as soon as you claim an X year payback, it is a financial discussion and should make financial sense. On a long term investment like solar, opportunity cost is a major factor. It doesn't make sense to ignore it.

...
B) I have often heard people talk about the length of payback for buying a hybrid car, ... As long as I am clear that I don’t consider opportunity costs, which I was, I don’t see anything disingenuous about it. No deception was intended. ...

Payback for a hybrid (say vs the ICE equivalent) makes sense, and should include the opportunity cost of the extra cost for the hybrid. Payback does not make sense if opportunity cost is ignored. Opportunity cost is real, if you can make more money invested, the financials don't make sense.

It just doesn't make sense to ignore the opportunity cost, whether it is pointed out or not.

...
You seem to want a very deep analysis. Nothing wrong with that, but one that wasn’t necessary for my purposes. I was happy with the back-of-the-napkin calculations. ...

Because your calculations give you the answer you like? Ignore that man behind the curtain?

... I would ask you though, would you consider the money gained via incentives annually a return on investment? Likewise, the reduction of electric bills via net metering? Additional checks for net metering beyond the bill amount?
In Minnesota, houses with solar tend to sell quicker and/or at a slightly higher price.

Now, as you said before, each person has to do their own analysis, and others may not have some of the incentives I have, or may have better ones.
But for my specific case, I’d be happy to dig in and see how much of a difference there really is. If you are willing to consider all aspects.

Sure, all factors should be considered, why wouldn't you? But don't double count. I think the earlier post said it was $29,000 after incentives/credits, so his cost is $29,000, it's already accounted for. All others need to be credit/debit as needed.

-ERD50

 

[skyking1]

I was originally all in with solar and Ground Source Heat Pump (GSHP) and hydronic heat on the new house build. Since I am self performing almost every aspect of it, the costs and paybacks are skewed quite a bit.
I have backed off the solar panels before occupancy. It was just too much to do to get the certificate of occupancy, and we were able to meet all the required state energy credits for a new home by other means.
This will give us a chance to look at our actual electricity bills before doing the solar.
Our PUD does not have a good billing scheme for net metering. They have a high meter base bill of $40 per month, and low KWH rates. It is the highest base bill in the state that I have found.
As much as I want to do the whole meal deal, it may not pencil out.
My costs will be < $1 per watt all in.

 

[Al18]

Njhowie,
You are the first person, besides me who have mentioned roof integrity as a key factor in not installing solar panels. Our house is 65 years old, and those original pine boards that makeup the roof surely can’t handle the additional load.

 

[Aerides]

If you drill into your roof, the likelihood is that you are compromising its integrity to some extent. I understand that some solar systems have come up with ways to not drill into the roof, but I gather these are the exception rather than the norm. If you have a roof with a warranty, maybe 25 or more years, it's almost certain that drilling in to it will void that warranty. Installing a roof top solar system in any form can likewise void it.

In S. Fla, the only cost effective way to do solar is to do roof+solar together. Since most roofs are replaced in 15-30 years (depending on materials and storms) the cost to lift and re-install the panels makes it silly to do on a non-new roof. Adding to a new-ish roof would be fine, if it's tile/metal and only a few years old, if your roofer does both.

Many contractors here do both together. The roofer does the roof and the solar. I'd definitely go that way in the future, no issue with warranty or any nonsense like that. We're probably looking at 5-10 years on our existing roof so we've delayed that decision for now to avoid doubling our install costs.

With the expansion of metal roofs here too, many solar installs are done with tracks and grips that are added to the roof panels vs. drilling. It's pretty common looking around my neighborhood, to see the metal roof go on one week, and the solar panels the next.

 

[Dash man]

We had solar installed in September and went live in October. Ours cost $27,000 (cash purchase) before tax credits and incentives. We expect a 7 year payback period. The past couple of years electricity costs have doubled due to price increases, so that was our motivation to look into solar. We expect a $9,000 tax credit this year and have started to receive SREC payments. We already received an $500 rebate from Panasonic. Our system is warranted by Panasonic for 25 year for everything, not just the panels. Granted, the inverters are warranted by Enphase for 25 years, so Panasonic won’t have to cover those unless Enphase goes under.
I’m beyond caring about opportunity costs. Not everything needs to be looked at as an investment. We give away far more than the cost of this system to family and charities. If I get my money back in longer than the 7 years expected, who cares?

 

[Closet_Gamer]

We looked at solar about 10 years ago. We would have needed to take down a bunch of trees. Storms and time have helped the tree situation. I intend to check into it again one of these days.

 

[skyking1]

In S. Fla, the only cost effective way to do solar is to do roof+solar together. Since most roofs are replaced in 15-30 years (depending on materials and storms) the cost to lift and re-install the panels makes it silly to do on a non-new roof. Adding to a new-ish roof would be fine, if it's tile/metal and only a few years old, if your roofer does both.

Many contractors here do both together. The roofer does the roof and the solar. I'd definitely go that way in the future, no issue with warranty or any nonsense like that. We're probably looking at 5-10 years on our existing roof so we've delayed that decision for now to avoid doubling our install costs.

With the expansion of metal roofs here too, many solar installs are done with tracks and grips that are added to the roof panels vs. drilling. It's pretty common looking around my neighborhood, to see the metal roof go on one week, and the solar panels the next.

Standing seam metal roofs are the only way I'd do rooftop solar. I have installed 6 of these roofs over the last 15 years, and they are 50 year roofs. That is the paint warranty, and the coatings below the paint are still going to protect the metal.

They make this nifty clip that grabs the rib without penetration. S5! has been making this clip to put on snow guards for many years as well as solar.

No rails no extra weight in many installs.
I will pre-install home runs of conduit to the gable end soffits and get it inspected for the solar. That is not much of a cost to have that in place.

 

[skyking1]

the other really nice thing about metal is the strength and weight.
A composition roof weighs 2.5 pounds per square foot (PSF).
Metal is ~1 PSF, and it is remarkable how much stiffness it adds to the roof when you are installing it. You can really feel it underfoot when you walk off the prepared roof, or the other side that still has shingles, and onto the metal.
Stronger and lighter, switching to metal from shingles accounts for more than half the weight difference of the solar installation.