Solar Payback & Opportunity/Other Cost

[ERD50]

Me too. It feels good to reduce my footprint.

But financially, I don't think of payback. I think of return on investment.

My system cost me about $22k, after IRA credits. My electric bill last year was just about $1800. If I assume my solar system pretty much wipes out my bill (and it should), that's an $1800 return on my $22k investment. That is a GUARANTEED, tax-free, 8% return. And if utility rates go up (nahhh that'd never happen) then my return gets better over time. It's like an ever-increasing COLA'd annuity.

I'm happy with that.

The annuity is a good analogy, because like an annuity, you have surrendered your principal (the solar panels depreciate to zero at some point). So like an annuity, we should really consider it an 8% pay-out, rather than a return on investment. Some of it is return of the principal, about 3.3% annually if we depreciate over 30 years.

Tax free is a good point. But you'll also have some expenses over 30 years.

You may still be happy with that, I'm just trying to put some perspective on those numbers.

-ERD50

 

[Sunset]

Another cost you may be saving with your solar system is the miles driven to get ice. I think driving costs are something like $0.60 per mile now. That might bring you a bit closer to break-even. Cheers and YMMV.

Similar to the payback calculations, at first I thought it's not meaningful.
But this thread has taught me some aspects of payback I never use to consider.

You are correct the mileage saving does help

Saves cost of Ice every 3 days at $3.00 block : $3 x (60days/ every 3 days) = $60
Traveling Cost: (4 x $0.60) x (60days/ every 3 days) = $48

Ice + travel - solar = 60 +48 - $252 = -$144 is my savings compared to compared to Ice.

Still a bad money investment, but a great lifestyle improvement.

 

[PlayinwithFIRE]

" Though kWh rates may exceed inflation, but also panels degrade over time - so 'close enough'?"


Probably not. End of life a panel does not mean they are dead, typically it means they've lost between 10-20% of their efficiency. They still work and continue to work beyond EOL.

Consumer electricity rates on average from 2013 to 2022 increased by 20+%
Electricity cost is rising at twice that rate/unit time that your panel output is decreasing by. The panel is winning over time.

 

[ERD50]

" Though kWh rates may exceed inflation, but also panels degrade over time - so 'close enough'?"


Probably not. End of life a panel does not mean they are dead, typically it means they've lost between 10-20% of their efficiency. They still work and continue to work beyond EOL.

Consumer electricity rates on average from 2013 to 2022 increased by 20+%
Electricity cost is rising at twice that rate/unit time that your panel output is decreasing by. The panel is winning over time.

But inflation over that time was 25.6%, and my conservative 3% annual withdraw from the 'opportunity cost fund' allows for inflation adjusted withdraws. So that's a wash (roughly). Future rates may increase faster than inflation, but ball-park-wise, I'll still say "close enough".

-ERD50

 

[anothercog]

For me the move was more financial than anything else. Agree that solar does not make sense in most parts of the country that have cheap electric rates but here in California where we have abundant sunshine and absurd electric rates, it's a no brainer which is why at least of a third of households in our town have rooftop solar.

Also, insurance for rooftop solar is not an issue here. I had the roof replaced with composite shingles a few years before installation and I don't expect to need a new roof for at least 25 years. Without extreme temps, snow storms or crazy weather, roofs around here last a long time.

I financed my whole system with a 20 year loan at a 1% interest rate so opportunity costs didn't factor in. Even without considering the tax break, between the loan and minimum charge connections and overages, I was saving an average of $25/month right off the bat when I got my system a couple years ago.

Rates have been going up at least 15% year so now my average saving is around $65/month. Next year rates will be hiked again so I expect my savings to go up to $80/month.

The whole system is guaranteed for 20 years, including the inverter. I did go with a company that cost more than others but I felt they had the best chance of not going bankrupt in the next ten years. They also didn't charge an additional upcharge for financing.

After 20 years when the system is paid off, the net metering deal that I'm on now will expire. It will be a much worse deal. If the panels aren't performing well at that point, it may not make sense to keep them.

 

[Koolau]

We're not currently candidates for solar (condo living) but I would look at the intangibles of solar along with the hard numbers. Having power when the grid is down or there are rolling black outs (as we had recently) would be a major intangible to me. And I'd go for the batteries as well for the same reasons. Back ups are often expensive - just like financial hedges and insurance. But they may well be worth it, depending on how you look at it. YMMV

 

[GaryInCO]

You may already know this, but batteries are required if you want protection from blackouts. Without batteries, your solar array has to shut down when the grid goes down.

 

[Dash man]

Or a whole house natural gas powered generator such as we have. Cheaper than batteries too.

 

[Hamster]

Many of you are willing to put way more thought into this than I was, but for us this wasn't hard. Electric bills were high, rates rising (PG&E), house has a broad south facing roof, and total cost for large system was low 20s. Solar provides all power for house plus one EV with a small surplus. Just using the simplistic calculation of electric bill to system cost, payback is about 10 years. Was good enough for us.

 

[ERD50]

Many of you are willing to put way more thought into this than I was, but for us this wasn't hard. Electric bills were high, rates rising (PG&E), house has a broad south facing roof, and total cost for large system was low 20s. Solar provides all power for house plus one EV with a small surplus. Just using the simplistic calculation of electric bill to system cost, payback is about 10 years. Was good enough for us.

Well, that's too simple!

Or paraphrasing Einstein:

https://www.nature.com/articles/d41586-018-05004-4

“Everything should be made as simple as possible, but no simpler”

I'd say this is an example of "I got the answer I want, so I'm gonna stop looking!".

Suit yourself, but you're fooling yourself if you aren't taking into account the other costs.

-ERD50

 

[Dash man]

The “return” can also be reinvested. The electric bills that were previously being paid can now be reinvested over 30 years.

 

[Hamster]

Well, that's too simple!

Or paraphrasing Einstein:

https://www.nature.com/articles/d41586-018-05004-4





I'd say this is an example of "I got the answer I want, so I'm gonna stop looking!".

Suit yourself, but you're fooling yourself if you aren't taking into account the other costs.

-ERD50

Seems a bit ruder than necessary.

I am aware of other costs but didn't feel they would be large enough to change the decision. My prerogative. I also didn't itemize some of the added benefits of solar like protection from electric rate increases which is overlooked in many posts here. And solar absolutely adds resale value if owned.

I mainly just wanted to give an example of how different the numbers could be in different places.

 

[skyking1]

I was really gung ho!
Then I started to look at the math for our particular situation, and it is far less likely to pencil out.
Our electric rate is $0.077 per KWH

 

[ERD50]

The “return” can also be reinvested. The electric bills that were previously being paid can now be reinvested over 30 years.

You are correct, my spreadsheet didn't account for that.

I think the correct way to do it, is to put the savings towards the 'opportunity cost', and reduce that 'cost' each year, until it is paid off and showing as a gain.

Seems a bit ruder than necessary.

I am aware of other costs but didn't feel they would be large enough to change the decision. My prerogative. I also didn't itemize some of the added benefits of solar like protection from electric rate increases which is overlooked in many posts here. And solar absolutely adds resale value if owned.

I mainly just wanted to give an example of how different the numbers could be in different places.

Not intended to be rude in any way, was Einstein rude when he said it? It's a true element of design and logic.

It would be easy to let these posts that say "I did it for reasons other than financial" go w/o comment, if they didn't then include their questionable 'payback'. If you are happy w/o the financials, then why mention them?

-ERD50

 

[Koolau]

Or a whole house natural gas powered generator such as we have. Cheaper than batteries too.

I have no data but a friend had one of the nat gas generators (no solar.) It cost a good chunk (not sure how it would compare to a battery.) The two big things about nat gas generators: They require expensive regular service/maintenance and they burn a LOT of nat gas when they operate - way more than my friend ever guessed. Yes, they did keep his electricity going when the power failed for a few days, but the nat gas was way more than his home heating.

I'm not sure how that all shakes out, but I'm thinking solar/battery or just grid with whole-house nat gas back up - but not solar/nat gas back up. Again, that's my SWAG only.

 

[Sunset]

I was really gung ho!
Then I started to look at the math for our particular situation, and it is far less likely to pencil out.
Our electric rate is $0.077 per KWH

You get really cheap electricity, which is great !

 

[skyking1]

You get really cheap electricity, which is great !

It is great for a higher KWH user, but an odd and regressive billing scheme IMO.
They keep raising the fixed monthly base. It is now up to $40.50

So if you are low income but not low enough for help, It's a hunk of a bill and you don't have much of a reward for saving electricity.
My base where we are now is around $12, in comparison.
If my GSHP and hydronic heating and great insulation keeps my usage down low enough, the solar panels do not have much room to improve the bottom line.
I might be better off putting in solar HW collectors and cutting the corner, putting collected heat into the hydronic floors. I'll get to look at it all in about a year.
it is a whole different set of figuring, how to store some for the night, etc.
My brother started pushing his solar into the ground loops and heating up the ground in the fall, after the bulk of the AC season was over.

 

[Route246]

All of these numerical calculations are fine but I'm not pinching pennies so I'm viewing this from a holistic standpoint in addition to numerical in terms of payback. There is something to be said about the following:

• Reduction of dependency on the monopolistic grid
• Reduction of long term risk of escalating cost/kwh (in California)
• Ability to attach battery storage and have backup capability
• Bringing the household closer to "off the grid" capability
• Average marginal cost of required khw smoothed out by adding more battery buffer

These types of things factor into my satisfaction index.

If I were to focus on numerical calculations I would never own a car and not have A/C to chill the house (in California) in the summer as neither of those purchases have any numerical payback that makes sense.

On a slightly different topic but also related to cost/benefit analysis I wrestled with installing a home RODI (reverse osmosis deionization) water generator system ($350) instead of going to the pure water store in town and filling 5-gallon bottles at $0.25/gallon. The payback never happens because the filters need to be changed out and the DI pellets deplete and need replacement. I decided to spend the $350 and an afternoon to install the generation system (this just fills the same 5-gallon water bottles and is not inline to the water supply). For me, the payback was immediate when I realized the following: no trips to the water store but more importantly no more hauling those full water bottles to and from the house. This was a no-brainer after the fact. We no longer need to haul those heavy bottles back and forth to and from the water store anymore as long as we live. I didn't realize what a hassle that was until I enjoyed the convenience of generating water 5-gallons at a time instead of hauling 20-40 gallons of water from the store.

 

[Dash man]

We’ve had our natural gas generator for about nine years now. The annual maintenance is not costly in my opinion. A couple of hundred dollars per year. I haven’t noticed any significant costs using natural gas, but we’ve only had a few times where it ran for more than a day or more. It’s worth the price in my book. It can be shut down when not needed if desired.

 

[ERD50]

... If I were to focus on numerical calculations I would never own a car and not have A/C to chill the house (in California) in the summer as neither of those purchases have any numerical payback that makes sense. ...

That's not the way those are looked at - cars have utility/convenience value, A/C has comfort value.

We place value on many things we buy, we don't look for payback. The value of your RO water system is convenience, even if it costs more.

In the case of solar:

... There is something to be said about the following:

• Reduction of dependency on the monopolistic grid
• Reduction of long term risk of escalating cost/kwh (in California)
• Ability to attach battery storage and have backup capability
• Bringing the household closer to "off the grid" capability
• Average marginal cost of required khw smoothed out by adding more battery buffer

These types of things factor into my satisfaction index. ...

Well, for some of those you need to add battery, and the cost goes way up. But if those are of value to you, you may decide to purchase regardless of whether the pay-back is good or not.

My only 'beef' is when people mention their payback, and the numbers are fuzzy. Just be straight, if the payback isn't attractive, but you have other reasons to go solar, just say so. But the numbers are the numbers, regardless if they are the only decision point.

-ERD50

 

[Romer]

Another way to think about it and I understand if you go pfffffftttt

I work to hedge inflation

Home ownership and costs are one of the largest components of inflation
- My house is paid off so I don't have to worry about rent/Mortgage going up
- My Solar means Electricity is free going forward (After big sunk costs), I don't have to worry about Cost increases here
-I replaced my two HVAC systems with dual heat setups with Heat Pumps set to 35 deg (Use electricity and HP to heat over 35 deg outside) so that mitigates gas increases
- Solar will help me when we get an EV fuel the EV. Will still have a gas vehicle though for offroading

It doesn't help me for Taxes or Insurance which is where the increases for Home Ownership will be coming from.

Just a thought

Yeah I know, pffffffffttttt

 

[ERD50]

Another way to think about it and I understand if you go pfffffftttt .... Yeah I know, pffffffffttttt

No, only a couple minor 'pffffft's in there - I'll cover those first:

....
- My house is paid off so I don't have to worry about rent/Mortgage going up[/B ...

Mortgages don't go up And eventually, they go away

...
- My Solar means Electricity is free going forward (After big sunk costs),...

But as I've pointed out, sunk costs have a cost, they are not 'free'.

... ...I don't have to worry about Cost increases here
...

That's true. When I do the opportunity cost, I use a conservative inflation adjusted WD, so at least I'm accounting for increases that match inflation. Utility increases could be greater than inflation though, and I wouldn't be surprised, but I have no crystal ball.

... -I replaced my two HVAC systems with dual heat setups with Heat Pumps set to 35 deg (Use electricity and HP to heat over 35 deg outside) so that mitigates gas increases ...

- Solar will help me when we get an EV fuel the EV. Will still have a gas vehicle though for offroading

Interesting, it appears you have a good net metering/credit plan? It would seem you must be over-producing much of the year, if you can apply your solar generation (credits?) to winter heat. And still have enough capacity/credits to charge an EV? Sounds like a very large ($$$) system.

Everyone needs to do the numbers (or ignore them!) for their own use case. Many considerations, it's certainly not one size fits all.

-ERD50

 

[Romer]

My system was designed to provide 110% of my needs. I do have a great Net metering plan. When I replaced the aging 18 year old AC's with the first Heat Pump it reduced the electrical usage by over 2mWh during the summer. I haven't had a summer with both heat pumps to know the full savings.

When I had the 2nd system installed I found out the first crew had set the heat switchover to 50 deg. I changed it to 35 deg based on recommendations from the company. So still waiting to see how much extra electricity I use in the winter. But now expecting a drop in gas usage where last year was minimal. Now I know why.

I am in no way disagreeing with your position, just saying I have a different one based on my own goals and desires.

BTW- once you pay for the permits, install, electrical connections etc. The cost to add more panels isnt much up to the current string limit of the inverters. Adding later costs a lot more and adding additional inverters and/or strings costs more.

 

[Alan]

This last year I have been taking advantage of a cost saving measure I never anticipated when I had solar with batteries installed in 2019. The timing was bad in that government subsidies had ended that year, but the cost was still not too bad at £8,500, and I reckoned on a 10 year payback based on the current price of electricity. With the invasion of Ukraine electricity prices went through the roof for over a year and are still much higher than they were.

At the end of 2022 we bought an EV, and I bought a smart home charger (£750) to help maximize the excess solar power to charge it. Each year I calculate that we consume around 55% of what we generate, and get paid for the excess we export which is well under half the cost of what we pay to import. We were buying at around 30p/kWh and being paid about 10p/kWh so definitely better value if I can export less and charge the EV. During the summer months we export more than double what we consume, and these days we consume a lot more than we used to because of the EV.

However, I was able to sign up for an overnight tariff of 7p/kWh for a 6 hour period that is only available to EV owners. This low overnight rate is for everything, they don’t distinguish between powering the house or charging the EV or charging the solar batteries. For the winter months it is a no-brainer to set a schedule on the inverter to fully charge the solar batteries so that they power the house during the day and most or all of the evening.

Since I am getting paid about 10p/kWh for export then I leave the overnight charge schedule as is so that the batteries always start the day (from 5:30am) fully charged and so I increase the excess solar being exported. My bills show the amount consumed at each rate, plus the total consumed and the average cost/kWh. My last bill, for December, shows total consumption of 285kWh of which 17.3kWh was at the rate of 28p/kWh and 267.7kWh was at 7p/kWh. The average rate was 8.42/kWh. What little we exported last month was paid at a rate of 10.42p/kWh.

 

[timeismine]

A view from 20 Years later on a 7.5kW System

For me, the payback on the solar system was about infrastructure improvements that are still paying back.

My system is old, installed in 2004, a 7.5kW net-metering system with three 2.5kW inverters. Subsidized electric heat during the winter (north-east USA, too far from road for gas or oil deliveries), and built up negative dollars in the spring/summer/early fall that paid the first 1 or 2 months of electric heat. Two of three inverters failed over the last two years, and looking to upgrade the system.

Payback was unique: at the time, states had up to a 75% rebate on systems, and the solar companies installed the systems free and maintained them, with the caveat that they collected on the SRECs. Pooling all the systems they installed generated considerable cash flow. When SRECs crashed due to oversupply, they pretty much walked away from the systems, and forgave loan balances a couple of years after that.

Plus I had backup panels and wiring infrastructure installed for generators as part of the deal.

20 years later, with a couple of newer inverters, I can use the old panel array to power the barns with whatever they still produce, and looking to install another array with the best deal I can find.

So while the payback in dollars is questionable, the infrastructure installed can be repurposed down the line, installed with 10-20 year-old labor rates.