One of the biggest obstacles to the deployment
of solar energy, especially in small-scale residential systems is the lack if
accurate and up to date information.
The powerful fossil fuel industry has done a marvelous job with the
media over the years, denouncing climate change and the potentials that
renewables offer in creating the transition that ultimately will occur.
Recently Donald Trump pooh-poohed solar with a
shrug saying "an 18 year payback...come on!" A retired friend in the Sacramento area said
he would love to go solar, but it would never pay for itself in his
lifetime. Another person asked what the
payback period was on my personal system, and adamantly said that number was
the most important number in the solar discussion. What they are missing is an understanding of what that number
really means, and how its value measures up with today's financial investments.
Let's analyze what an 18-year payback period for
a certain dollar investment in a solar system means in a grid-intertied
system. During the day, electricity is
produced, and is used to run our appliances and other electric loads as
needed. We are producing our own
electricity, and saving the cost of buying what we need at that time from our utility. If we produce more than what use, the excess
is fed into the grid, essentially running the electric meter backwards and
giving us a credit. We are getting
money one way or another for what the electricity produce. We could store our excess in batteries, but
in reality, a grid-intertied system is very simple “storage system,” and
ultimately has major benefits for all.
At night, or when conditions demand more electricity than what we can
produce at that time, we buy KWHs from the utility, just as always. Your meter is a two-way portal. How much we
produce relies on how large a system we install, what the weather conditions
are during that day, what the "solar window" looks like on our roof
with regards to southern orientation, shading from tree or buildings, and the
season...more and better sun in the summer months than in the winter…and a
variety of factors.
The dollar value of the solar electricity
produced depends on many variables, mainly in which state you live in. Like property taxes, sales taxes, and income
taxes, each state and its utilities varies greatly in what it "pays"
for solar generated electricity. This
is a very large problem...often a huge un-incentive...in many places, and
political battles are being fought in Nevada, Florida, and Arizona, where there
is a huge abundance of solar potential that is being squashed by the energy
industry's effective lobbying.
Let's focus on California, and my
utility...PG&E. The setting of
utility rates for various users by the state PUC is virtually incomprehensible;
but for my energy account, the cost of a KWH is atg the moment 18 cents. This price includes the cost of electricity
generation (bought on the wholesale market), transmission and distribution,
taxes, insurance, special programs, nuclear decommissioning, wages and CEO
salaries, shareholder dividends, and all the other costs associated with doing
business. When I use one KWH from
PG&E, my meter records it, and 18
cents is added to my monthly bill. When
I put a KWHfrom my solar system back into the grid, running the meter backwards,
I am paid 18 cents. This is called
net-metering, and is a huge issue in the solar debate, since the average
wholesale price nationwide is somewhere between 4 and 10 cents/KWH depending on
where you are, and when you are using that electricity. Utilities complain that they are paying way
more for that residential solar than what they could buy on he open market, and
that the solar generators are not paying their fair share for the other costs
of the grid. Fair enough...non-solar producing customers are subsidizing solar
generators. Arizona and Nevada, the
loudest complainers, moan the fact that less than 4% of their customers are on
solar…a huge burden on them and their ratepayers. What about all the subsidies to nuclear, natural gas, and
coal? The utilities should be the ones
"owning" the solar systems so they could control the flow of
electrons and reap the benefits. But
that's another story. So in California,
at least for now, you size your system to produce as much electricity as you
want, but try NOT to exceed 110% of what you use in a year. If you produce more than that, PG&E will
pay you about 6 cents/KWH for that excess electricity (the wholesale price),
and not 18 cents. Again, fair enough
for now. A friend has a great solar
site, has a huge system producing way more than he uses, and got $212 from
PG&E. They certainly wouldn't want
everyone to become individual power plants; that would add competition and
muddle up their traditional business model.
Things, of course, are in flux, especially with businesses, such as
Apple and Google, who can now sell their excess electricity on the open
market. This all is very complicated
stuff, and will eventually get worked out as more and more people and businesses
go solar, and as storage comes on line down the road, and the cost of baseload
nuclear and coal continues to climb.
But for now, my 3.7KW system is estimated to crank out about 90% of my
annual electricity demand.
My system cost around $13,000 after tax credits,
etc. I preface this by saying I could
have gotten it cheaper, but as with almost anything we buy such as cars,
cameras, cell phones, etc., there are many personal choices and decisions to be
made as to how much money we spend. My
system should produce about 4000KWH per year.
At 18 cents/KWH, that’s $720 per year that stays in my pocket, not
having to buy that equivalent amount of electricity from PG&E. So what is the payback period? 18 years.
In 18 years, the system will have paid for itself. Wow...I hope I live that long!
Now let's look at this with a broader for
view. The $13,000 I INVESTED is giving
me a fixed annual income return of 5.5%!!!!!!!!! Is this significant? I
think so. (See below for a discussion
of investment percentages.) I recently asked a financial advisor if he could
put some of my money in an income yielding investment that would give me 5% TAX
FREE, and he laughed and said those days are long gone, and he could probably
do around 3% taxable. It's all Obama's
fault; maybe after the election things might get better; blah, blah,
blah!!!! When I told him of my solar
investment, he quickly changed the subject and blurted out "how 'bout them
Giants...!" He wouldn't even
rationally discuss it because he probably didn’t understand the significance of
it, or because it would strike at his heart having to realize his thinking has
been wrong for so long. He also can’t
make any money advising it to his customers. So, according to him, if you have
$10-15 thousand, put it in treasury bonds at 2%, or a money market for
0.8%? You could put it into stocks that
pay a dividend...PG&E is paying 3.5% (taxable), Exxon-Mobil 3.1%
(taxable). Payback period of about 30
years! Even compounded interest,
payback is about 20 years, and taxable.
With solar, and I'm not advocating investing in stocks of solar
companies, you have a stable, fixed value investment that in my case gets
better. PG&E has raised the
electricity rates three times since I put in my system, and filings with the
PUC show that they will go up again in the future. You don't have the worry of what the market will do, whether that
stock price will go up or down, since the value and income is relatively
fixed...as long as the sun shines. And
after it has paid for itself, it will still be there generating dollars for
years to come.
Of course, there is a lot of old information
still floating around. “The system won't last 18 years, it’s too expensive, and
something cheaper, like new nuclear or fusion, will come along, etc.” Today's PV panels are very dependable (mine
have a 25 year warranty), and experience is showing they will perform for 40
years, if not forever. There are no
moving parts, and the current degradation in the glass coatings is less than
0.4% year. The system is virtually maintenance free, other than a hosing down a
couple of times a year. My panels are
18% efficient under ideal conditions (18% of something free ain't bad,
considering steam-generated electricity is about 33% efficient, and automobiles
are around 18%.) As the technology improves,
increasing efficiency means less surface area is needed. The 4 new panels I recently put up are the
same size and cost the same as those I bought a year and a half ago…yet they
put out 25% more electricity. The
technology and manufacturing processes are bringing down the cost. Also, as with most economies of scale, the
balance of system...inverters, racks, and even installation time and labor
costs are coming down. Lot's of
jobs...it beats working in a hole in the ground mining coal...now there's for a
new bluegrass song!
I live in the heart of the Redwoods, three miles
from one of the foggiest airports in the US.
My neighbor recently put a system on his house, and will soon install a
15KW system on his fish smoking business a few miles inland. He said it was a no-brainier...after all the
tax credits, business deductions, etc, it has an 8 year payback...12% return
(tax free), and he has the satisfaction of doing the "right
thing." He is also getting an
electric vehicle!
It's interesting how we don't really ask or talk
about the “payback period” when we make other purchases. You buy a new car, and of course you pay for
what you want and can afford; and you hope that it will last X number of miles
or for so many years. You may even now
be concerned with MPG or how much it might cost to operate. And it depreciates in value the minute it
leaves the dealer's floor. Think about
replacing your roof...you spend tens of thousands of dollars on a 20-30 year
roof, which is basically worthless when the time comes to re-roof. What’s the payback? Elan Musk recently said
a lot of people spend money a on a new roof, then spend more money on a solar
system to put over it...the solar system should be the roof, and the roof
should not only pay for itself, but should make you money! I saw several of these roofing systems in
Northern Italy, but they haven’t caught on here in the US yet. Just wait!
When the financial world finally realizes that
solar, small and large, is an investment that makes money for the investor,
things will really take off. We already
have opportunities to not only install on our own roof, but there are growing
businesses that allow people who do no have an appropriate site, or are
renters, to invest in systems on some roof somewhere when they want a safe,
secure investment. Companies now are
"renting" your roof...paying for and installing systems, and reducing
the homeowner's electricity bill. If
they can get 10-15% return, then they can afford to give you 3-4%. Of course there will be scams, failures, and
obstacles, but the bottom line is that the costs are coming down, clean
electricity is being produced with free fuel, and individuals are allotted more
personal freedoms. A fiscal
conservative’s dream! A Koch brothers
nightmare! Power to the people!
Growth rates and Percentage
Things grow at various rates and percentages. There are two main kinds of investments most
of us make. Here are some examples.
Simple percent rate, also called fixed income. Let’s say you invest $1000 and get a rate of
return of 5%. That means at the end of
the first year, you will receive $50, and you can go out and spend it however
you want. The same is true for the next
year, and for each of the 20 years it will take to payback your original $1000
investment, $50 at a time. That $1000
is working for you, and you can continue getting $50 a year as long as the %
rate stays the same.
Compounded interest, or what most long-term investment
vehicles offer. Take the $50 you got
from that $1000 investment, and instead of spending it, you leave it in the
account. Your investment is now worth
$1050. The next year the 5% pays you
$52.50. If you leave that in, your
investment value is now $1102.50. The
next year, the value increases to $1157.63, and your money continues to grow at
an exponential rate. You’re getting 5%
on your original investment plus all the interest it is accruing. The time to double is a simple formula:
T2=70/%, (in this case 70 divided by 5) so the value of the account will have
doubled (will have paid for itself) in 14 years. It will be worth $2000.
That is 6 years earlier than in the fixed income scenario;
but you do not have access to the “interest” that it is making. If you want your money to grow over a long
period of time, ie, you’re saving for retirement, then this makes sense. At a constant 5%, that $1000 will be worth
$8000 in 42 years! Put money in a money
market account, and you might get 0.8%…better to put it in an account in the
Caimans!
A solar system is a fixed income vehicle, giving you
whatever percent the sun generates
from your investment, and once it has paid for itself, you still have
the system making you money. Hopefully
you have spent the money you made each year wisely and have had a good time!
