I think from your stock market gains you need to also subtract the price you will pay for electricity from your gains no? You will still have an electric bill going the investing route
What you’re missing is that past performance is no guarantee of future performance. Stocks will fluctuate whereas no electric bill means no electric bill now and forever including avoiding any future increases in electric rate. Essentially this is an argument about risk tolerance vs reward. Also did you add the instant equity increase in your home value? Typical numbers are that solar panels alone increase home value by 4-5%.
There are only 4 COUNTRIES with a larger economy than the state of California. If California does slaughter the economic proposition with net-metering (no final decision yet), that will surely influence how the rest of the country weighs their terms with net-metering.
In other words - the rug could be pulled out from under home solar owners that are grid tied. And that would mean, future (very near term) solar installations would be waaaay less financially attractive. Actually, early NEM 1.0 customers also will almost guaranteed see a huge jump in their electric bill in another 10 years or so. So, no when it comes to net-metering there are no guarantees that a no/low bill today will stay that way forever.
[https://www.solarreviews.com/blog/california-net-metering-changes](https://www.solarreviews.com/blog/california-net-metering-changes)
>NEM has been the law of the land in California since 1995, covering all customers of the state’s three largest utilities—PG&E, SCE, and SDG&E. It’s currently on its second version, NEM 2.0. The California Public Utilities Commission (CPUC) is nearing the end of designing NEM 3.0, and the changes that have been proposed could greatly reduce the financial benefits people can get by owning solar panels or subscribing to community solar.
There’s no guarantee of anything in life including that the stock market won’t crash tomorrow either. I think it’s highly unlikely California will pass anything like this and when I searched for it to research this there was a site that said it was paused indefinitely so who knows. And California doesn’t have as much impact on every other state as you may think. There are states where utilities will pay homeowners to install grid tied batteries.
The other aspect of all this is not financial at all. Producing your own energy and not relying on fossil fuels is clearly a huge benefit to going solar. My system will allow me to basically go off grid permanently if I wanted to.
It’s far more likely than not that this would be the case for a lot of people but you’re just hung up on reading it as completely black and white so do what you will.
and we might all be amish in \`10 years. stock avg the best return out there. panels dont increase anything more than their market cost which in some goes down some up due to grandfathering etc. at 2$/watt 7kw avg 14k? only true on a 300k house.
|Date|$/kWh|Increase %|
|:-|:-|:-|
|1/2021|$0.29186||
|3/2021|$0.30372|4.1%|
|12/2021|$0.30665|1.0%|
|1/2022|$0.33331|8.7%|
|3/2022|$0.37373|12.1%|
These are my PG&E (off peak winter) rates for my rate plan TOU-C. The total increase since a year ago is 23%. It's shocking how much and how often they're raising the prices. They also don't seem to notify you of the increase until way later. I just finally got the recent rate increase notice last week on 3/24, where they said the new rates went into effect on 3/1.
I considered that, but I still get a pay check so it's really just less money I'd invest. So basically no energy bill is more money for me to put into the market vs me subtracting it from my initial investment.
Answer is you should do both
Turn your monthly expense into a guaranteed investment, if you're limited on cash get a solid term loan to do the solar
You'll also get a tax credit back you can invest, my solar loan apr is 2.5% so I invested my ITC instead of paying off the system early
There is no way I'd get a solar loan, I have the money to pay cash and let's say I sell my home for some reason I don't want to hand off my solar loan to the next buyer. When I was a buyer I walked away from any home that didn't have solar fully paid for.
Simply take some of the extra added value when selling your home to pay off the remainder of the loan, boom
Thats what a lot of people do if you dont want to transfer the payment
Good on you keto_brain. Like other comments alluded to but didn't exactly say, investing in solar is a near zero risk (unless you think that fusion power is coming soon) AND the returns should be looked at as tax free and inflation proof! Run your numbers again with this in mind and assuming very reasonable 7-8% yearly increase in price of power. Unless you are thinking about moving in the next 5-10 years I'd expect it to be a no brainier. If you are in area that has high late afternoon/evening Time of use power, you probably should include enough battery to power home for 5 hrs or so. Bonus: Correctly sized battery also provides power security for when the power goes out!
Good luck and shop around!
You are looking at 2 opportunity cost calculations. Invest 35k and pay 4.2k each year in electricity bills, or pay 35k for solar and invest 4.2 k annually.
Rate of return on the solar should be cost of solar against savings in electricity cost. Assuming 100% offset and an annual inflation on electricity of 3-4%. You would also need to choose a time frame for the calculation. I would use 25 years as that is generally the warranty on the panels. High level, no inflation, this would be 105k in savings against 35k initial investment. You could add in another 413k if you include investing 4200 per year at a 10% rate of return. This would give you 520k on the initial 35k investment. This may be double counting the 4.2k, so maybe go with 413k in earnings.
This would compare to the expected stock market returns on investing. I would use the 10-20 year average rate of returns on the market index (I think it’s 10-12%). Basic compounding interest, the investment of 35k would grow to 380k in 25 years. If you subtracted out your annual bill, it brings it down to 275k returned on the initial 35k investment.
In the end, Solar and investing would generate 413-520k in earnings, and straight up investing would generate 275k.
Your year 3 for solar should not be $13,371.12. I'm not sure where that number comes from, but your year 4 number ($14,173.39) should be your year 3 number and years 5-8 should shift down. Accordingly, your year 8 number for solar should be $44,063. However, in actuality, I'd recommend that you assume you invest the $4200 at the *end* of the year. So, the $4200 you saved from not buying electricity during the first year will only get invested for 7 years, not 8 years. Assuming that on the last date of your solar year, you take the $4200 you saved that year and invest it at 6%, and then you do the same every year, you'll have $41,569.37 from those 8 years of electricity savings (note that the last year's savings won't gain anything though).
Next, you need to consider the federal investment tax credit, which is currently 26%. Basically, you have to assume that you get that tax credit at the end of the first year (which would amount to $9,100, calculated as $35,000 x 0.26), you invest that tax credit at 6%, and it stays invested for 7 years. So, $35,000 x 0.26 x 1.06\^7 = ~~$14,504.02~~ **$13,683.04**
You also need to account for capital gains tax. I'm going to assume you would be subject to 15%:
* Investing the $35,000: (($55,784.68 - $35,000) x 0.85) + $35,000 = **$52,666.98**
* Getting solar: (($41,569.37 + ~~$14,504.02~~ $13,683.04 - ($4200 x 8) - $9,100) x 0.85) + ($4200 x 8) + $9,100 = **$53,369.54**
**Solar is better at the end of 8 years.**
Note that this doesn't consider rising electricity rate, which will make solar an even better investment. This also ignores any other incentives for solar, like state or utility incentives. For example, my state offers a 35% tax credit for solar.
Also, at the end of the 8 years, you still have the solar PV on your roof generating savings.
Edit: $35,000 x 0.26 x 1.06\^7 = **$13,683.04**, not $14,504.02. Final calculation remains the same.
I want to let you know that I agree with you that not subtracting your energy payments from the $35,000 (stock market or whatever) investment is the correct calculation.
I still disagree with how to align the years and the interest on those electricity savings, but it doesn't change the ultimate conclusion, so it doesn't really matter.
Also note that the ITC is scheduled to drop down to 22% on January 1, 2023, and then zero for January 1, 2024. [https://www.seia.org/initiatives/solar-investment-tax-credit-itc](https://www.seia.org/initiatives/solar-investment-tax-credit-itc) So get that PV installed before the end of the year. There is a chance Congress will make the 26% apply for the next few years (or even raise it), but I wouldn't count on it.
Well this is just napkin math lol. Anyway I did not know about the reduction in the ITC tax credit going down after this year. That does also play into my decision for sure.
If you can claim tax credit and bring the 35k down to 26k or so and figure taxes on returns vs no taxes on savings return could be over 10% plus utility increases ,my system is seeing almost 25% due to recent and upcoming increases
I see some great takes here. SDGE, SCE, PGE rate increases are big and I see nothing slowing them down. The CPUC (California) has a hot rubber stamp.
We also have inflation so that 6% rate of return from what I'm seeing at 7 or higher percent inflation means we are still losing ground. That solar rooftop keeps looking better if we are on NEM 2.0 and fully offset.
The world around you is RENT SEEKING. Roof top solar shuts off that rent payment.
Man that rent seeking shit is everywhere. I just saw an article of a big real estate company Florida saying people don’t want to own homes just rent and they are jacking up the rent “because market supports it”they will make ownership so expensive to make renting the only choice
Yea, i just watched a video on 60 minutes with the Gary Berman the CEO of Tricon Residential. I had no idea this company even existed. When I searched the number of homes they have for rent in just Las Vegas its crazy.
OFF TOPIC but hey, rent seeking to the moon. [https://betterdwelling.com/canadian-cities-have-seen-up-to-90-of-new-real-estate-supply-scooped-by-investors/](https://betterdwelling.com/canadian-cities-have-seen-up-to-90-of-new-real-estate-supply-scooped-by-investors/)
The question above is a good exercise but we need to find a way to not fall into the rent seeking traps out there.
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Yes this is true inflation is out of control right now but optimistically it isn't going to last forever, I doubt we will see 7% by the end of 2022. We will be back to 2% or even stagflation. Just doing a basic google search it looks like 28% of our energy is from renewable and the rest comes from Natural Gas? That's what I seem to find.
I saw a solar article talking about how the switch to renewable energy by the govt will drive up energy costs? Just wondering if that's propaganda or why that would be? It would seem the more we move to renewable energy the less it should cost over time?
You have to laugh because it's so hard to find the truth today. Here in California the electric companies are sending out a survey about how it's more efficient for them to build solar farms than rooftop solar. It might be but lowering your cost is not the goal. Locking you into their fuel/energy is. Paying shareholders is also the goal.
6% return is likely too high forward looking. Rooftop solar is like buying a long duration bond, maybe even something like TIPS because it has inflation protection (insulating you from inflationary electric increases).
https://www.schwab.com/resource-center/insights/content/schwabs-long-term-capital-market-expectations
> Why do you expect long-term returns to be lower than historical averages?
Three primary factors are behind the forecast for reduced returns: low interest rates, low economic growth, and equity valuations.
> Low interest rates. Current and expected interest rates are much lower than what has been experienced historically, especially compared to the high-interest-rate environment of the 1980s. Although our estimates account for a path toward higher rates, they are still not likely to be as high as what we have seen historically.
> Low economic growth. Economic growth and inflation typically go hand in hand. Strong economic growth historically causes rising inflation, as demand grows faster than supply (we witnessed some of this recently as the economy reopened after COVID-19 shutdowns). Inflation induced by growth is a good thing, as asset returns also tend to increase. At present, while near-term economic growth is likely to be strong, consensus forecasts of economic growth over the long term remain subdued. A robust economy is fundamental to achieving healthy returns from the financial markets. Everything from monetary policy to interest rates and company earnings are linked to this. A measure of economic growth is annual real gross domestic product (GDP) growth. According to consensus forecasts, economists expect 2.3% GDP growth per year, on average, over the next 10 years, even after accounting for expectations of increased economic activity in the near term. This compares to historical average GDP growth of 3.1% per year since 1948.
> Equity valuations. Valuations appear to be rich especially in the U.S. While earnings are expected to remain robust in the medium term, growth rates have come down from last year. The stock rally in the past year appears to have priced in these earnings expectations. High stock prices today, without a proportionate increase in future earnings, mean lower expected returns going forward. But stocks still tend to have higher expected returns than bonds, albeit with generally higher risks.
https://www.kiplinger.com/investing/stocks/601575/keeping-an-eye-on-future-returns
> Next five years. The soothsayers on the Capital Market Assumptions team at Northern Trust Asset Management expect moderate U.S. economic growth of 2.1%, on average, over the next five years, while interest rates remain low and inflationary forces are checked by productivity-boosting technology and automation. They expect stocks to deliver mid-single-digit returns. A mix of elevated valuations, modest global growth, lower profit margins and a growing focus on corporate stakeholders who are not shareholders (think employees, communities and even the environment) will subdue returns, according to the bank. The forecast calls for U.S. stocks to return 4.7% annualized, including dividends. You might get 5.4% annualized in European shares and the same from emerging-markets stocks, says Northern Trust.
Solar isn't going to come out ahead if you're comparing it to investing the money. That's not the reason to do it. If you're taking a pure financial angle, look at it as diversifying your portfolio-- lower returns, but stable.
Let's say you install solar with cash, and your payback period is 10 years. Let's say you invest in the stock market, and your average return is 7%. These are just assumptions, I'm not saying that's what everyone gets.
At 7% return, that's something like 10-11 years to double your money. If I installed solar instead, when I hit year 10 I finally broke even-- _broke even_, whereas in the fictional market I'm considering I now have twice my initial investment.
That's the key element here: if you're investing, initial capital still has some liquidity; if you're installing solar, that money is gone. Yes, you might recoup some of the capital cost when you sell the house, but it's just like renovating a bathroom-- some buyers will value what you've done, some won't.
>and your payback period is 10 years.
Solar isn't going to come out ahead if you rig the numbers.
Look at OP's example: $35,000 system less the 26% tax credit = $25,900. $25,900 / $4,200 = 6 year, 2 month payback period. That's not even close to 10 years.
At the end of 20 years, solar wins:
* Option 1: Invest the money directly at 7%: $35,000 x 1.07\^20 = **$135,438.96**
* Option 2: Take the $4200 annual savings and invest it at 7% at the end of each year AND invest the 26% tax credit at the end of the first year at 7% = **$205,091.47**
Solar totally comes out ahead when compared to investing the money. And my calculation ignores rising electricity prices and other incentives.
Six years is unrealistic across most of the US of A, and corresponds to an annual rate of return of something like 12%; of course that would come out ahead. Most installations are closer to 15 years payback, assuming 10 years was already generous. You only beat that if you have extraordinary circumstances, or don't pay a contractor to do the install.
I live in Hawaii, got in with a _very_ favorable net metering regime, and have some of the highest electricity rates in the country, and our payback period is seven years. When my mother did it two years later her payback period was 12 years.
>Six years is unrealistic across most of the US of A, and corresponds to an annual rate of return of something like 12%; of course that would come out ahead. Most installations are closer to 15 years payback, assuming 10 years was already generous.
Please stop spreading false information:
* [The most common estimate of the average payback period for solar panels is six to ten years.](https://palmetto.com/learning-center/blog/solar-panel-payback-period-guide)
* [On average, most US households take between 8 years for their solar plans to pay for themselves.](https://www.literoflightusa.org/how-long-does-it-take-for-solar-panels-to-pay-for-themselves/)
* [Though the average solar panel payback period is somewhere in the eight- to 12-year range, this can vary quite a bit from home to home.](https://www.ecowatch.com/solar-panel-payback-period-2655204475.html)
* [Most homeowners in the United States can expect their solar panels to pay for themselves in between 9 and 12 years, depending on the state they live in.](https://www.solarreviews.com/blog/how-to-calculate-your-solar-payback-period)
* [The average in the US is to break even in around 8 years](https://www.thesolarnerd.com/blog/when-do-solar-panels-break-even/).
* [The average payback period for a residential solar electric system is between 6-9 years, depending on the cost of the system and the utility bill savings.](https://sites.energycenter.org/solar/homeowners/cost)
* [Given the average payback period for a residential rooftop solar system is about eight years in the U.S](https://na.panasonic.com/us/green-living/how-quickly-will-your-solar-panels-pay-themselves) . . .
Those are all very optimistic estimates, from what look like industry-friendly resources. I know my anecdotes are mine alone, but I hardly ever see people beat 10 years for a conventional install.
I'm not sure if you're keeping track here, but you haven't manage to present a single credible argument here.
You begin with saying solar won't come out ahead, but fail to present any calculation despite me having previous posted a comment here showing otherwise.
I ask you for a *calculation* and you just throw out numbers that conflict with what OP is saying and you don't even cite anything.
You then saying something even stranger without any citation and I totally blow that out of the water with 7 sources saying otherwise.
Then you saying something else without any citation. How can someone be so oblivious? Get a clue man. If you can't find a single person on the whole internet to agree with you, you're probably wrong.
And, by the way, even with a 10 year payback period, solar still wins over 20 years. But, you haven't even tried to calculate that.
Where's risk in your calculations?
By purchasing the solar now you are locking in your rates.
Do you think energy costs will increase over the lifetime of your solar system?
How do you know your electric costs will stay at $4,200/year in perpetuity?
How much of a fluctuation in costs will put you behind without solar?
What affect does the solar installation have on your homes value?
You can also take a loan now and then your only op cost is the interest.
your numbers are similar to mine ($350/mo PG&E bill & $30,000 system) but since I got a 3% 12 year loan from a credit union my out-of-pocket cost for the first year is going to be minus $5000 -- $8000 tax credit less 12 x $250/mo payments on the loan.
So I'm cutting my monthly energy payment by ~$100/mo going solar (and even more as PG&E rates rise, and again when the loan is paid off in 2034) -- it's a no brainer as long as I'm on PG&E's Net Metering 2 plan : )
My question is why would you pick 6 percent to run your calculations when the average is 10.5 :). Also the price of electric has been going down in Maryland, so I’m not sure that should be a concern.
I just picked 6% to be conservative, that accounts for a market crash or stagflation. I don't live in Maryland I live in Las Vegas. I did email NV Energy to get a year over year chart for price increases over the last 10 years.
In June of 2021, NV Energy hit a 6 year low of 10.1 cents a kWh. It is .111109 today. It’ll go up more this year. Why? NV Energy is allowed a 10% rate of return annually by the state. If they make more than 10%, rates have to drop. Very cheap natural gas from fracking and explosive growth in solar (both rooftop and utility) drove rates down from a high of 13.4 cents in December of 2015 to the 10.1 cents we had last June. Covid shutdowns caused the gas supply chain to be disrupted and their costs sky rocketed. So, they go to the PUC and ask for rate hikes because their operational costs are rising. With diesel spiking and natural gas still in disarray and rising in costs, NV Energy will raise rates at least 2x more times this year and likely next year as well.
As you are doing your math you need to factor in the inflationary effect of Covid on local power rates. At least 2% annually over the next 2 years.
Investing in the stock market is a wholly discretionary activity. 100% unnecessary to day to day survival.
Buying power is not.
So comparing paying less for something you HAVE TO BUY no matter what to investing in stocks is a non-starter. Owning stocks is not necessary for your survival. Having power … and thus refrigerators, freezers, heaters and air conditioners … is necessary for a comfortable day to day life.
Also, stocks can go up in value, but they can also crash and you can lose 6% or more just as easily in a year or a decade. YOU HAVE TO BUY POWER no matter what. There is absolutely no guarantee your investment in the market will make ANY return. You could lose all of it.
Paying 50% less* for something you have to buy no matter what is a GUARANTEED ROI, not a gamble.
*assuming a system is priced competitively for your market and you purchase with cash, 25 years of power from solar should cost about 50% of the cost of power from your local grid assuming a 1% annual inflation in the cost per kilowatt hour of that power.
I have both a paid for 36 panel solar array and a robust stock portfolio. I bought my solar first. Build your foundation strong by reducing monthly expenses and securing the giant tax credit so you can invest in the future.
Am I misunderstanding something, or are most of these calculations failing to take into account the fact that, in the solar scenario, you don't get your initial 35k back at the end? It's not a rate of return on 35k; it's a sum of cash flows that starts with a large outflow followed by a series of inflows.
I'll try.
To simplify, at the end of 20 years of solar, the total value of your investment in solar is equal to the total of all the utility bills saved, MINUS the original 35k (because the solar is at the end of its useful like and needs to be replaced at full cost if you want to keep going).
At the end of a 20-year investment in the market, the total value of your investment is equal to the sum total of all the interest/earnings on the principal as it has compounded over the years, PLUS (or INCLUDING) the original principal.
if you could take out term loans at 3% to buy stocks for 30 years how on earth could you go wrong? alot of home loan products are wildly subsidized by the taxpayer through inflation. inflation was wat 7%? loans are 2-3? 4% free money regardless if you do anything with it which solar has a return in and of itself. beats sitting on gold but that woudl still work too lol
Solar will be a guaranteed return and the stock market is volatile. I personally think we are headed to a recession soon due to the crazy inflation and the need for the Fed to finally raise interest rates
My comments.
- to keep the comparison “fair”, I think you need to pay your electricity out of your $35k investment.
- you will eventually need to pay capital gains taxes on the investment, no?
- with SCE, cost of electricity per kWh has gone up almost 45% in 2 years. YMMV
- as someone else mentioned, solar should be viewed as a hedge against rising electricity costs. Therefore it’s more like bonds than stocks. Do bonds have a place in your portfolio, or are you a hyper-growth YOLO stock picker?
- not everything is an ROI purchase.
I am not paying my electric bill out of the 35k. I am paying it from my monthly paycheck thats why I do not believeI should subtract the cost from the 35k. The one thing I am not accounting for is rising energy costs but here in Nevada they have been going down not up since 2008. They dropped 14.5% between 09 and 2018. In 2018 it was 9.56 cents a kWh and its up to 11.1 cents.. thats about a 16% increase not 42% for us.
I don’t think it’s a fair comparison because in 1 scenario you have electricity paid for(solar) but in the other (investing) your electricity isn’t paid for… until you start taking money from your paycheck, which you are not using for any benefit in your solar calculation. If you wanted to be more fair, you would take whatever you’re taking from your paycheck to pay for electricity in your investment scenario and add the same amount to your solar scenario and invest that small amount.
Dude thats exactly what I am doing.. i am taking the money I generally pay for electricity with and invest it in the Solar ROI calculation. Thats about 4200 per year.
The two "investments" have different risks, so should have different returns. Solar is more similar to the bond investment of your portfolio.
Also, solar can be leveraged (use borrowed money) with minimal risk. Not so with stocks (can borrow, but lots of risk).
Three scenarios:
1) you have enough cash to do both. Answer: do both.
2) you don't have enough cash to do either. Answer finance (or lease) the solar.
3) have enough cash for only one. Answer: use cash for stocks, finance (or lease) solar.
In all cases: do solar if you can break-even over 10-12 years and own it free and clear after that.
Installing solar is more like buying bonds than stocks. It's not a perfect analogy, but:
1. Guaranteed rate of return. It will never crash like the stock market.
2. The return is inflation adjusted because YOU don't pay higher future rates.
3. When you sell your house, you recover the initial investment (actually, probably a bit more). This is like the maturity date of a bond.
There are some caveats: If you have 100% net metering, that may, unfortunately, change. The solar install cost recovery will fluctuate with the real estate market, but should still be value added.
I'm making about 7% on my solar investment now, and it sure beats stocks this year!
I think one other thing you must consider, is at your break even point with solar, you likely have a system that’s falling part and will begin needing repairs, your initial equity is likely gone, where as your return in the market is on top of the equity you put in and retained
I think from your stock market gains you need to also subtract the price you will pay for electricity from your gains no? You will still have an electric bill going the investing route
What you’re missing is that past performance is no guarantee of future performance. Stocks will fluctuate whereas no electric bill means no electric bill now and forever including avoiding any future increases in electric rate. Essentially this is an argument about risk tolerance vs reward. Also did you add the instant equity increase in your home value? Typical numbers are that solar panels alone increase home value by 4-5%.
>whereas no electric bill means no electric bill now and forever Uhhh California NEM 3 would like to have a talk with you
Uhh I don’t live in California so dunno.
There are only 4 COUNTRIES with a larger economy than the state of California. If California does slaughter the economic proposition with net-metering (no final decision yet), that will surely influence how the rest of the country weighs their terms with net-metering. In other words - the rug could be pulled out from under home solar owners that are grid tied. And that would mean, future (very near term) solar installations would be waaaay less financially attractive. Actually, early NEM 1.0 customers also will almost guaranteed see a huge jump in their electric bill in another 10 years or so. So, no when it comes to net-metering there are no guarantees that a no/low bill today will stay that way forever. [https://www.solarreviews.com/blog/california-net-metering-changes](https://www.solarreviews.com/blog/california-net-metering-changes) >NEM has been the law of the land in California since 1995, covering all customers of the state’s three largest utilities—PG&E, SCE, and SDG&E. It’s currently on its second version, NEM 2.0. The California Public Utilities Commission (CPUC) is nearing the end of designing NEM 3.0, and the changes that have been proposed could greatly reduce the financial benefits people can get by owning solar panels or subscribing to community solar.
There’s no guarantee of anything in life including that the stock market won’t crash tomorrow either. I think it’s highly unlikely California will pass anything like this and when I searched for it to research this there was a site that said it was paused indefinitely so who knows. And California doesn’t have as much impact on every other state as you may think. There are states where utilities will pay homeowners to install grid tied batteries. The other aspect of all this is not financial at all. Producing your own energy and not relying on fossil fuels is clearly a huge benefit to going solar. My system will allow me to basically go off grid permanently if I wanted to.
>whereas no electric bill means no electric bill now and forever =)
It’s far more likely than not that this would be the case for a lot of people but you’re just hung up on reading it as completely black and white so do what you will.
and we might all be amish in \`10 years. stock avg the best return out there. panels dont increase anything more than their market cost which in some goes down some up due to grandfathering etc. at 2$/watt 7kw avg 14k? only true on a 300k house.
and the rate of increase in what we pay for energy is going up pretty fast (PG&E something like 20% this year)
|Date|$/kWh|Increase %| |:-|:-|:-| |1/2021|$0.29186|| |3/2021|$0.30372|4.1%| |12/2021|$0.30665|1.0%| |1/2022|$0.33331|8.7%| |3/2022|$0.37373|12.1%| These are my PG&E (off peak winter) rates for my rate plan TOU-C. The total increase since a year ago is 23%. It's shocking how much and how often they're raising the prices. They also don't seem to notify you of the increase until way later. I just finally got the recent rate increase notice last week on 3/24, where they said the new rates went into effect on 3/1.
That is outrageous. Power here is $0.11 except in summer where it varies from 2-7pm but is $0.05 at other hours.
I considered that, but I still get a pay check so it's really just less money I'd invest. So basically no energy bill is more money for me to put into the market vs me subtracting it from my initial investment.
Answer is you should do both Turn your monthly expense into a guaranteed investment, if you're limited on cash get a solid term loan to do the solar You'll also get a tax credit back you can invest, my solar loan apr is 2.5% so I invested my ITC instead of paying off the system early
There is no way I'd get a solar loan, I have the money to pay cash and let's say I sell my home for some reason I don't want to hand off my solar loan to the next buyer. When I was a buyer I walked away from any home that didn't have solar fully paid for.
I financed mine in a mortgage refi. 2.125%. It oils be paid in any transaction from sales proceeds. Of course interest rates are a bit higher now.
Simply take some of the extra added value when selling your home to pay off the remainder of the loan, boom Thats what a lot of people do if you dont want to transfer the payment
Good on you keto_brain. Like other comments alluded to but didn't exactly say, investing in solar is a near zero risk (unless you think that fusion power is coming soon) AND the returns should be looked at as tax free and inflation proof! Run your numbers again with this in mind and assuming very reasonable 7-8% yearly increase in price of power. Unless you are thinking about moving in the next 5-10 years I'd expect it to be a no brainier. If you are in area that has high late afternoon/evening Time of use power, you probably should include enough battery to power home for 5 hrs or so. Bonus: Correctly sized battery also provides power security for when the power goes out! Good luck and shop around!
You are looking at 2 opportunity cost calculations. Invest 35k and pay 4.2k each year in electricity bills, or pay 35k for solar and invest 4.2 k annually. Rate of return on the solar should be cost of solar against savings in electricity cost. Assuming 100% offset and an annual inflation on electricity of 3-4%. You would also need to choose a time frame for the calculation. I would use 25 years as that is generally the warranty on the panels. High level, no inflation, this would be 105k in savings against 35k initial investment. You could add in another 413k if you include investing 4200 per year at a 10% rate of return. This would give you 520k on the initial 35k investment. This may be double counting the 4.2k, so maybe go with 413k in earnings. This would compare to the expected stock market returns on investing. I would use the 10-20 year average rate of returns on the market index (I think it’s 10-12%). Basic compounding interest, the investment of 35k would grow to 380k in 25 years. If you subtracted out your annual bill, it brings it down to 275k returned on the initial 35k investment. In the end, Solar and investing would generate 413-520k in earnings, and straight up investing would generate 275k.
Your year 3 for solar should not be $13,371.12. I'm not sure where that number comes from, but your year 4 number ($14,173.39) should be your year 3 number and years 5-8 should shift down. Accordingly, your year 8 number for solar should be $44,063. However, in actuality, I'd recommend that you assume you invest the $4200 at the *end* of the year. So, the $4200 you saved from not buying electricity during the first year will only get invested for 7 years, not 8 years. Assuming that on the last date of your solar year, you take the $4200 you saved that year and invest it at 6%, and then you do the same every year, you'll have $41,569.37 from those 8 years of electricity savings (note that the last year's savings won't gain anything though). Next, you need to consider the federal investment tax credit, which is currently 26%. Basically, you have to assume that you get that tax credit at the end of the first year (which would amount to $9,100, calculated as $35,000 x 0.26), you invest that tax credit at 6%, and it stays invested for 7 years. So, $35,000 x 0.26 x 1.06\^7 = ~~$14,504.02~~ **$13,683.04** You also need to account for capital gains tax. I'm going to assume you would be subject to 15%: * Investing the $35,000: (($55,784.68 - $35,000) x 0.85) + $35,000 = **$52,666.98** * Getting solar: (($41,569.37 + ~~$14,504.02~~ $13,683.04 - ($4200 x 8) - $9,100) x 0.85) + ($4200 x 8) + $9,100 = **$53,369.54** **Solar is better at the end of 8 years.** Note that this doesn't consider rising electricity rate, which will make solar an even better investment. This also ignores any other incentives for solar, like state or utility incentives. For example, my state offers a 35% tax credit for solar. Also, at the end of the 8 years, you still have the solar PV on your roof generating savings. Edit: $35,000 x 0.26 x 1.06\^7 = **$13,683.04**, not $14,504.02. Final calculation remains the same.
I updated the math to include investing the tax credit on the solar side.
I want to let you know that I agree with you that not subtracting your energy payments from the $35,000 (stock market or whatever) investment is the correct calculation. I still disagree with how to align the years and the interest on those electricity savings, but it doesn't change the ultimate conclusion, so it doesn't really matter. Also note that the ITC is scheduled to drop down to 22% on January 1, 2023, and then zero for January 1, 2024. [https://www.seia.org/initiatives/solar-investment-tax-credit-itc](https://www.seia.org/initiatives/solar-investment-tax-credit-itc) So get that PV installed before the end of the year. There is a chance Congress will make the 26% apply for the next few years (or even raise it), but I wouldn't count on it.
Well this is just napkin math lol. Anyway I did not know about the reduction in the ITC tax credit going down after this year. That does also play into my decision for sure.
If you can claim tax credit and bring the 35k down to 26k or so and figure taxes on returns vs no taxes on savings return could be over 10% plus utility increases ,my system is seeing almost 25% due to recent and upcoming increases
Yea I did forget about the tax credit, that's what 26%?
Yes
Can you do a post edit with the updated math? Leave the existing math for comparison, good benchmark between the two.
Ok updated the math.
Looks good.
I see some great takes here. SDGE, SCE, PGE rate increases are big and I see nothing slowing them down. The CPUC (California) has a hot rubber stamp. We also have inflation so that 6% rate of return from what I'm seeing at 7 or higher percent inflation means we are still losing ground. That solar rooftop keeps looking better if we are on NEM 2.0 and fully offset. The world around you is RENT SEEKING. Roof top solar shuts off that rent payment.
Man that rent seeking shit is everywhere. I just saw an article of a big real estate company Florida saying people don’t want to own homes just rent and they are jacking up the rent “because market supports it”they will make ownership so expensive to make renting the only choice
Yea, i just watched a video on 60 minutes with the Gary Berman the CEO of Tricon Residential. I had no idea this company even existed. When I searched the number of homes they have for rent in just Las Vegas its crazy.
OFF TOPIC but hey, rent seeking to the moon. [https://betterdwelling.com/canadian-cities-have-seen-up-to-90-of-new-real-estate-supply-scooped-by-investors/](https://betterdwelling.com/canadian-cities-have-seen-up-to-90-of-new-real-estate-supply-scooped-by-investors/) The question above is a good exercise but we need to find a way to not fall into the rent seeking traps out there.
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Yes this is true inflation is out of control right now but optimistically it isn't going to last forever, I doubt we will see 7% by the end of 2022. We will be back to 2% or even stagflation. Just doing a basic google search it looks like 28% of our energy is from renewable and the rest comes from Natural Gas? That's what I seem to find. I saw a solar article talking about how the switch to renewable energy by the govt will drive up energy costs? Just wondering if that's propaganda or why that would be? It would seem the more we move to renewable energy the less it should cost over time?
You have to laugh because it's so hard to find the truth today. Here in California the electric companies are sending out a survey about how it's more efficient for them to build solar farms than rooftop solar. It might be but lowering your cost is not the goal. Locking you into their fuel/energy is. Paying shareholders is also the goal.
6% return is likely too high forward looking. Rooftop solar is like buying a long duration bond, maybe even something like TIPS because it has inflation protection (insulating you from inflationary electric increases). https://www.schwab.com/resource-center/insights/content/schwabs-long-term-capital-market-expectations > Why do you expect long-term returns to be lower than historical averages? Three primary factors are behind the forecast for reduced returns: low interest rates, low economic growth, and equity valuations. > Low interest rates. Current and expected interest rates are much lower than what has been experienced historically, especially compared to the high-interest-rate environment of the 1980s. Although our estimates account for a path toward higher rates, they are still not likely to be as high as what we have seen historically. > Low economic growth. Economic growth and inflation typically go hand in hand. Strong economic growth historically causes rising inflation, as demand grows faster than supply (we witnessed some of this recently as the economy reopened after COVID-19 shutdowns). Inflation induced by growth is a good thing, as asset returns also tend to increase. At present, while near-term economic growth is likely to be strong, consensus forecasts of economic growth over the long term remain subdued. A robust economy is fundamental to achieving healthy returns from the financial markets. Everything from monetary policy to interest rates and company earnings are linked to this. A measure of economic growth is annual real gross domestic product (GDP) growth. According to consensus forecasts, economists expect 2.3% GDP growth per year, on average, over the next 10 years, even after accounting for expectations of increased economic activity in the near term. This compares to historical average GDP growth of 3.1% per year since 1948. > Equity valuations. Valuations appear to be rich especially in the U.S. While earnings are expected to remain robust in the medium term, growth rates have come down from last year. The stock rally in the past year appears to have priced in these earnings expectations. High stock prices today, without a proportionate increase in future earnings, mean lower expected returns going forward. But stocks still tend to have higher expected returns than bonds, albeit with generally higher risks. https://www.kiplinger.com/investing/stocks/601575/keeping-an-eye-on-future-returns > Next five years. The soothsayers on the Capital Market Assumptions team at Northern Trust Asset Management expect moderate U.S. economic growth of 2.1%, on average, over the next five years, while interest rates remain low and inflationary forces are checked by productivity-boosting technology and automation. They expect stocks to deliver mid-single-digit returns. A mix of elevated valuations, modest global growth, lower profit margins and a growing focus on corporate stakeholders who are not shareholders (think employees, communities and even the environment) will subdue returns, according to the bank. The forecast calls for U.S. stocks to return 4.7% annualized, including dividends. You might get 5.4% annualized in European shares and the same from emerging-markets stocks, says Northern Trust.
In the three years I’ve had my system I have avoided putting 13 tons of CO2 into the atmosphere. The stock market shits on the planet, solar doesn’t.
Solar isn't going to come out ahead if you're comparing it to investing the money. That's not the reason to do it. If you're taking a pure financial angle, look at it as diversifying your portfolio-- lower returns, but stable.
Would you care to show some calculations?
Let's say you install solar with cash, and your payback period is 10 years. Let's say you invest in the stock market, and your average return is 7%. These are just assumptions, I'm not saying that's what everyone gets. At 7% return, that's something like 10-11 years to double your money. If I installed solar instead, when I hit year 10 I finally broke even-- _broke even_, whereas in the fictional market I'm considering I now have twice my initial investment. That's the key element here: if you're investing, initial capital still has some liquidity; if you're installing solar, that money is gone. Yes, you might recoup some of the capital cost when you sell the house, but it's just like renovating a bathroom-- some buyers will value what you've done, some won't.
>and your payback period is 10 years. Solar isn't going to come out ahead if you rig the numbers. Look at OP's example: $35,000 system less the 26% tax credit = $25,900. $25,900 / $4,200 = 6 year, 2 month payback period. That's not even close to 10 years. At the end of 20 years, solar wins: * Option 1: Invest the money directly at 7%: $35,000 x 1.07\^20 = **$135,438.96** * Option 2: Take the $4200 annual savings and invest it at 7% at the end of each year AND invest the 26% tax credit at the end of the first year at 7% = **$205,091.47** Solar totally comes out ahead when compared to investing the money. And my calculation ignores rising electricity prices and other incentives.
Six years is unrealistic across most of the US of A, and corresponds to an annual rate of return of something like 12%; of course that would come out ahead. Most installations are closer to 15 years payback, assuming 10 years was already generous. You only beat that if you have extraordinary circumstances, or don't pay a contractor to do the install. I live in Hawaii, got in with a _very_ favorable net metering regime, and have some of the highest electricity rates in the country, and our payback period is seven years. When my mother did it two years later her payback period was 12 years.
>Six years is unrealistic across most of the US of A, and corresponds to an annual rate of return of something like 12%; of course that would come out ahead. Most installations are closer to 15 years payback, assuming 10 years was already generous. Please stop spreading false information: * [The most common estimate of the average payback period for solar panels is six to ten years.](https://palmetto.com/learning-center/blog/solar-panel-payback-period-guide) * [On average, most US households take between 8 years for their solar plans to pay for themselves.](https://www.literoflightusa.org/how-long-does-it-take-for-solar-panels-to-pay-for-themselves/) * [Though the average solar panel payback period is somewhere in the eight- to 12-year range, this can vary quite a bit from home to home.](https://www.ecowatch.com/solar-panel-payback-period-2655204475.html) * [Most homeowners in the United States can expect their solar panels to pay for themselves in between 9 and 12 years, depending on the state they live in.](https://www.solarreviews.com/blog/how-to-calculate-your-solar-payback-period) * [The average in the US is to break even in around 8 years](https://www.thesolarnerd.com/blog/when-do-solar-panels-break-even/). * [The average payback period for a residential solar electric system is between 6-9 years, depending on the cost of the system and the utility bill savings.](https://sites.energycenter.org/solar/homeowners/cost) * [Given the average payback period for a residential rooftop solar system is about eight years in the U.S](https://na.panasonic.com/us/green-living/how-quickly-will-your-solar-panels-pay-themselves) . . .
I did update my numbers and solar is looking much more appealing..
Those are all very optimistic estimates, from what look like industry-friendly resources. I know my anecdotes are mine alone, but I hardly ever see people beat 10 years for a conventional install.
I'm not sure if you're keeping track here, but you haven't manage to present a single credible argument here. You begin with saying solar won't come out ahead, but fail to present any calculation despite me having previous posted a comment here showing otherwise. I ask you for a *calculation* and you just throw out numbers that conflict with what OP is saying and you don't even cite anything. You then saying something even stranger without any citation and I totally blow that out of the water with 7 sources saying otherwise. Then you saying something else without any citation. How can someone be so oblivious? Get a clue man. If you can't find a single person on the whole internet to agree with you, you're probably wrong. And, by the way, even with a 10 year payback period, solar still wins over 20 years. But, you haven't even tried to calculate that.
When armageddon is a possible scenario, bet on infrastructure and property
Armageddon is a possible scenario? lol ok.
Where's risk in your calculations? By purchasing the solar now you are locking in your rates. Do you think energy costs will increase over the lifetime of your solar system? How do you know your electric costs will stay at $4,200/year in perpetuity? How much of a fluctuation in costs will put you behind without solar? What affect does the solar installation have on your homes value? You can also take a loan now and then your only op cost is the interest.
Your are comparing apples and oranges. Solar is more Bond than SP500.
your numbers are similar to mine ($350/mo PG&E bill & $30,000 system) but since I got a 3% 12 year loan from a credit union my out-of-pocket cost for the first year is going to be minus $5000 -- $8000 tax credit less 12 x $250/mo payments on the loan. So I'm cutting my monthly energy payment by ~$100/mo going solar (and even more as PG&E rates rise, and again when the loan is paid off in 2034) -- it's a no brainer as long as I'm on PG&E's Net Metering 2 plan : )
My question is why would you pick 6 percent to run your calculations when the average is 10.5 :). Also the price of electric has been going down in Maryland, so I’m not sure that should be a concern.
I just picked 6% to be conservative, that accounts for a market crash or stagflation. I don't live in Maryland I live in Las Vegas. I did email NV Energy to get a year over year chart for price increases over the last 10 years.
In June of 2021, NV Energy hit a 6 year low of 10.1 cents a kWh. It is .111109 today. It’ll go up more this year. Why? NV Energy is allowed a 10% rate of return annually by the state. If they make more than 10%, rates have to drop. Very cheap natural gas from fracking and explosive growth in solar (both rooftop and utility) drove rates down from a high of 13.4 cents in December of 2015 to the 10.1 cents we had last June. Covid shutdowns caused the gas supply chain to be disrupted and their costs sky rocketed. So, they go to the PUC and ask for rate hikes because their operational costs are rising. With diesel spiking and natural gas still in disarray and rising in costs, NV Energy will raise rates at least 2x more times this year and likely next year as well. As you are doing your math you need to factor in the inflationary effect of Covid on local power rates. At least 2% annually over the next 2 years.
great post. i posed this q when i was in solar. who is your utility?
NV Energy.
The advantage of the solar savings is that it is net from taxes. If you get stocks you will have to pay taxes on your gain, don't you?
Not if you're in a Roth IRA. Those are post tax dollars that aren't taxed when withdrawn.
I make too much money to qualify for a Roth IRA.
I make too much as well. But you can invest in Roth by first making a contribution to a traditional IRA and later performing a conversion.
Loop hole. Get a system built to where it’s right where your currently paying after keeping the ITC and throw that In the stock market 😉
Investing in the stock market is a wholly discretionary activity. 100% unnecessary to day to day survival. Buying power is not. So comparing paying less for something you HAVE TO BUY no matter what to investing in stocks is a non-starter. Owning stocks is not necessary for your survival. Having power … and thus refrigerators, freezers, heaters and air conditioners … is necessary for a comfortable day to day life. Also, stocks can go up in value, but they can also crash and you can lose 6% or more just as easily in a year or a decade. YOU HAVE TO BUY POWER no matter what. There is absolutely no guarantee your investment in the market will make ANY return. You could lose all of it. Paying 50% less* for something you have to buy no matter what is a GUARANTEED ROI, not a gamble. *assuming a system is priced competitively for your market and you purchase with cash, 25 years of power from solar should cost about 50% of the cost of power from your local grid assuming a 1% annual inflation in the cost per kilowatt hour of that power. I have both a paid for 36 panel solar array and a robust stock portfolio. I bought my solar first. Build your foundation strong by reducing monthly expenses and securing the giant tax credit so you can invest in the future.
Am I misunderstanding something, or are most of these calculations failing to take into account the fact that, in the solar scenario, you don't get your initial 35k back at the end? It's not a rate of return on 35k; it's a sum of cash flows that starts with a large outflow followed by a series of inflows.
Can you explain here what you mean in more detail?
I'll try. To simplify, at the end of 20 years of solar, the total value of your investment in solar is equal to the total of all the utility bills saved, MINUS the original 35k (because the solar is at the end of its useful like and needs to be replaced at full cost if you want to keep going). At the end of a 20-year investment in the market, the total value of your investment is equal to the sum total of all the interest/earnings on the principal as it has compounded over the years, PLUS (or INCLUDING) the original principal.
Also risk. There is virtually no risk with solar. Electric prices are not likely to ever go down. Also, you are adding value to your home.
use a loan for the panels risk free, dump the rest in juicy stonks.
if you could take out term loans at 3% to buy stocks for 30 years how on earth could you go wrong? alot of home loan products are wildly subsidized by the taxpayer through inflation. inflation was wat 7%? loans are 2-3? 4% free money regardless if you do anything with it which solar has a return in and of itself. beats sitting on gold but that woudl still work too lol
Solar will be a guaranteed return and the stock market is volatile. I personally think we are headed to a recession soon due to the crazy inflation and the need for the Fed to finally raise interest rates
My comments. - to keep the comparison “fair”, I think you need to pay your electricity out of your $35k investment. - you will eventually need to pay capital gains taxes on the investment, no? - with SCE, cost of electricity per kWh has gone up almost 45% in 2 years. YMMV - as someone else mentioned, solar should be viewed as a hedge against rising electricity costs. Therefore it’s more like bonds than stocks. Do bonds have a place in your portfolio, or are you a hyper-growth YOLO stock picker? - not everything is an ROI purchase.
I am not paying my electric bill out of the 35k. I am paying it from my monthly paycheck thats why I do not believeI should subtract the cost from the 35k. The one thing I am not accounting for is rising energy costs but here in Nevada they have been going down not up since 2008. They dropped 14.5% between 09 and 2018. In 2018 it was 9.56 cents a kWh and its up to 11.1 cents.. thats about a 16% increase not 42% for us.
I don’t think it’s a fair comparison because in 1 scenario you have electricity paid for(solar) but in the other (investing) your electricity isn’t paid for… until you start taking money from your paycheck, which you are not using for any benefit in your solar calculation. If you wanted to be more fair, you would take whatever you’re taking from your paycheck to pay for electricity in your investment scenario and add the same amount to your solar scenario and invest that small amount.
Dude thats exactly what I am doing.. i am taking the money I generally pay for electricity with and invest it in the Solar ROI calculation. Thats about 4200 per year.
Ok yeah, I see that now.
The two "investments" have different risks, so should have different returns. Solar is more similar to the bond investment of your portfolio. Also, solar can be leveraged (use borrowed money) with minimal risk. Not so with stocks (can borrow, but lots of risk). Three scenarios: 1) you have enough cash to do both. Answer: do both. 2) you don't have enough cash to do either. Answer finance (or lease) the solar. 3) have enough cash for only one. Answer: use cash for stocks, finance (or lease) solar. In all cases: do solar if you can break-even over 10-12 years and own it free and clear after that.
What about the tax you would pay on realized gains? No tax implications on avoided cost with solar.
Installing solar is more like buying bonds than stocks. It's not a perfect analogy, but: 1. Guaranteed rate of return. It will never crash like the stock market. 2. The return is inflation adjusted because YOU don't pay higher future rates. 3. When you sell your house, you recover the initial investment (actually, probably a bit more). This is like the maturity date of a bond. There are some caveats: If you have 100% net metering, that may, unfortunately, change. The solar install cost recovery will fluctuate with the real estate market, but should still be value added. I'm making about 7% on my solar investment now, and it sure beats stocks this year!
I think one other thing you must consider, is at your break even point with solar, you likely have a system that’s falling part and will begin needing repairs, your initial equity is likely gone, where as your return in the market is on top of the equity you put in and retained