SOLAR
INVESTMENT- ANSWERING THE WRONG QUESTION
When
I tell people that I’ve installed a solar (PV) system on my roof, almost all of
them seem to be ignorant about the big changes in the solar industry in the
last few years, and they usually ask two questions.
1.
Are you hooking up to batteries, and being completely self-sufficient? The answer is NO. I am still hooked up to PG&E. During the day, the panels produce electricity which supplies my
electricity demand at the time; and if/when I produce more than what I
need/use, it spins the meter backwards, putting electricity into the grid. At night, the meter spins forward, as I buy
electricity from PG&E.
2.
How long will it take to pay back the cost?
Although this is a valid question, it provides only part of an answer to
a much more important question: “Is it a good investment?” That is a more difficult question to answer
because there are so many variables, personal situations, fiscal mindsets, and
choices that we all confront in our financial planning and portfolios. But for me, today, it is a solid
investment. Here is my situation…Spu’s
Econ 101!
The
simplest answer to the question is that I estimate the payback period to be
around 20 years. A lot of people shake
their head! That means I will be in my early 90’s before I get my money
back! Bad investment??? Not necessarily so. The reason is that the money I invested into
the solar system is really about a 5%, tax-free, fixed income investment. This fits right in there with my “balanced”
financial portfolio. At my age, I am
not looking for investments that will “grow” in the future; I want an
investment from which I can draw off income (dividends, interest, or some
payment) that I can spend now, or reinvest, if I want to. Investing in stocks has always been the
standard for long term wealth generation…the value of the market has usually
gone up over time; you can always sell your stock when the price is high and
you need the money; some stocks pay dividends (Apple currently at 1.8%; PG&E
is 3.2%, ATT 5.3%.) Some stocks pay
higher dividends, and there are funds that can get you 10-12%+ right now, but
since the amount of a dividend is based on the value of the stock, you run the
risk over time of the market falling, profits dropping, stock prices
plummeting, dividends being reduced, bankruptcy, etc., as we evidenced in
2008.
Another
investment option, especially for income generation, is bonds. Right now, the bond market is
terrible…around 2-4% for either tax-free munis, or even corporate holdings. If you buy bonds at a good price, the return
you get is a fixed amount, regardless of what the market does and/or what the
price of the bond is at any particular time.
So a 15 year 7% bond I bought at a par value of $10,000 ten years ago is
still paying me 7% ($700) per year, even though the value of that bond has
dropped to $7500 today if I were to sell it.
No big deal…I’ll hold it until it matures, or until it is called in
because the company can refinance at a lower interest, at which time I get my
original $10,000 back. Pretty safe,
although I had some General Motors bonds a number of years ago that tanked in
the 2008 depression when General Motors went bankrupt!
So
what can I do with $10 –20,000 today to invest in a relatively safe, secure source
of fixed income? SOLAR!
My
total solar installation bill came in at around $17,000 for a 2.5kw (10 panel)
system. I could have done this cheaper,
but my solar guy was an ex-student of mine, who has run a fine business for the
past 10 years; and we agreed to go with the best equipment….Canadian panels
with 25 year warranty rather than cheaper Chinese panels, an Enphase inverter
for each panels, a state of the art mounting system on our new roof, full
internet monitoring, all the permitting, licenses, etc.) This is the best
quality system available today, and I realize that I paid top dollar for
it. He is also rewiring the electrical
service box (which I installed myself in 1974!), putting in a transfer switch
for my generator, and some other upgrades.
I get a 30% federal tax credit ($5100), the 20% state credit is
gone. So, my cost is around
$12,000. This is $4.80/watt installed,
higher than the national average of $4.53; but I do have all those extras added
in.
California
has ‘net-metering’ for solar, which means when the panels generate more
electricity than the house is using, the excess goes into the grid…spins the
meter backwards. The price I get “paid”
by PG&E is the same price that I pay for each KWH I use and buy from
them. This is a big bone of contention
with utilities across the nation, since I’m getting paid a retail price, and
not a wholesale electricity price for what I contribute. On a utility bill, the actual cost of the
generated electricity is typically around 50% of the price of a KWH…the other
50% is for transmission, distribution, maintenance of facilities, taxes,
insurance, nuclear decommissioning fees, profits, etc. Today, PG&E charges me $0.14/kwh…the
price just went up a bit, and is supposed to go up another 15-20% by next
August! An important factor is that at
the end of the year, if I produced and put more electricity into the grid than
I used, PG&E will not pay me for the excess…that’s the political compromise
as of today in California. So my system
is aimed at producing around 75% of the electricity we use. For a variety of reasons…our low electricity
use, the physical space on our roof, etc…this 2.5kw system is what we chose for
now, although it will be very easy to install more panels when/if we choose to
do so. McKinleyville isn’t exactly the
solar capital of the world! Our goal is
to generate around 4200kwh per year, valued at $600/yr that I save (as income),
and the system pays for itself in about 20 years. Time will tell whether these expectations come true. Each solar window site is different due to
micro-climates; the larger climate and weather patterns are changing; the price
of electricity is going up, etc, etc. I
have a tree I might prune or take down because it shades part of the system in
the late afternoon in the dead of winter.
The only maintenance necessary is to wash the panels when I clean my
gutters, etc. The system is monitored
on-line by me, my installer, and PG&E, so any problems become obvious. And another key advantage is that the income
(savings on my electric bill) is tax–free.
This brings the investment return closer to a 6.5% taxable yield,
without the volatility and worry of the market! Better yet, this will change as the price of electricity goes up;
and I can easily add more panels if I choose, as the price of solar equipment
continues to come down, and the money keeps on coming in.
One
last major point needs to be made. The
popular belief is that solar is expensive, and you need batteries, the right
solar rooftop site, and up front money to invest. Old school!!! The changing financial markets are now allowing
average citizens to borrow cheap money to install a system. Some new companies will actually pay for
everything and take a percentage of the solar electricity savings. You can even invest in systems on someone
else’s “roof” if you don’t want it on your property. We are beginning to see solar as a long term, safe capital
investment that generates money…so there is profit to be made by all. In a recent solar meeting, someone from
Goldman Sachs said they are not interested in financing a system on your roof;
but 1000 roofs gets their attention; one million mortgage loans for solar
systems is definitely causing some lips to smack! Think of the potential in places like Southern California,
Arizona, Texas, Florida (the Sunshine State) with payback returns of
6-7-10+%. And the price is coming
down! A true capitalist, fiscal
conservative’s dream! Yet today, this
solar revolution is a nightmare for the established monopolistic utilities and
big energy industries, because it allows anyone to partake in making money
directly from energy production, something they had exclusive monopolistic
control over. Big Energy is doing everything in its power to squash the solar
revolution; but in spite of all this, the industry is growing…mainly because
there is money to be made!
Investing
in solar is the right thing to do for our planet, our economy, and for
people…good local jobs, clean affordable electricity, and power to/by the
people!
So,
let’s ask the right questions, and then let the sun shine!!!!!!!!
PS. As I write, here is a news bulletin saying
Exelon, one of the big nuclear power plant owners in the US, is cutting its
dividend by 40%! Insiders say they will
probably shut down some of their nukes because they cannot compete with solar
and wind generated electricity! Their
CEO says they will “seek customers interested in contracting with Exelon for
wind and solar power. Such power purchase agreements would guarantee steady and
predictable returns.” Their stock has
ranged from $51 to $27 over the past 5 years, and is currently at $37. The dividend yield was 3.31%.
The
time’s they are a-changing!
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