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!