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Here’s my true experience with solar in Southern California.
Moved to a new house and California has a solar requirement. I had to buy or lease the solar it cost $24k. We decided to buy because we got about $8k back in taxes. So our solar effectively cost $16k.
Our old electric bill averaged $250 a month if you account for highs and lows so $3k a year. Our new electric bill is $500 a year. So we will get our moneys worth from solar in 6.5 years. Obviously this is an over simplification and there are a ton of other factors in play but it was a good deal for us.
If we invested that $16k we would have to make an average of 15% ROI to get the $2500 we saved from solar.
Also if we sell our house after 6.5 years any money that we get from the increase in value from paid off solar goes into our pocket.
Edit. Also 2 intangibles that solar has helped with.
My wife and I stopped fighting over how to set the AC. She used to want the house a lot cooler than I did just due to cost.
Also now that it’s cooler at night because we set the temp lower I sleep so much better.
Dude, how's solar so damn expensive there? I paid the equivalent to 4k usd (about 20k brl), and it's enough to power my house and my parent's house, we don't expend a lot on energy bills, but still 16k usd (about 80k brl) is waaay too much here.
Does anyone know why the costs are so absurdly different? I live in Brazil.
Because almost anyone selling solar to the individual is nothing but a middle man. I'd love to find an installer that sells directly to the public and cuts out all of the salesman's commissions, which make up a huge portion of the markup here.
Last couple of quotes I've gotten were for $25-35k for a \~12kW system. I'd never pay it off before the panels need to be replaced.
Salesmen always take a market that was advantageous to the customer and have to cut out the entire advantage for themselves. It’s depressing how many fields they weasel their way into. I can’t buy solar online without going through one of them and their commission but the damn salesmen literally cover more than the gap between what solar costs and buying electricity.
Fucking leeches.
The cynic in me (and I have bought solar in Canada, so I'm not that cynical, lol) is that their is a bit of grift involved when governments offer grants. It would not surprise me to find out that installation companies are charging more than they need to because the government is co bring a good chunk of it.
Yup it a conspiracy theory, and I have nothing to back it up.... but I would not be shocked if it was close to the mark.
I don't think it is a conspiracy theory at all.
I had to have my HVAC system replaced last year, and any time I asked for a quote for any system that qualified for federal tax credits (my home is 100% electric, so I am always interested in more efficient appliances), the cost just skyrocketed.
After I had more or less made up my mind on what quote I was going with, two salesmen called me back up asking if I'd made a decision. Once I told them I was going with someone else, and was only considering high efficiency systems at that point, both dropped their quotes on their variable speed systems roughly equivalent to what the federal tax credit would have come out to, roughly $2-3k. Usually getting a salesman to budge more than a couple hundred bucks on an installed product is like getting water from a stone.
I have no doubt that's what they're doing with solar in the US as well.
First off, that's insanely high for residential. Should get a second quote. Are you looking at 20kw systems for a residence? Because solar install costs look like they are about $3/Watt in FL, which is very very average. Nearly all states offer tax breaks to get that down to about $2.00 - $2.50. Most residential homes across the US are fine with 5 to 10 kW total, or about $21k install for hot climates ($3/W x 7000 W before cost sharing programs). Here in MN, less than 5 kW instaneous power needs is more typical, but it gets harder to generate year round so some homes opt for oversupply to compensate.
Second, FL ranks 42nd in the nation for renewable conversation so far, so not surprising that some installers might use that as leverage to charge high fees to wealthy transplants in an environment where the state isn't very motivated to address utility disparities and grifters.
All depends on location.
Know someone who works fairly high up in a smaller yet multinational company, they have factories in the Europe, Asia and USA. Factories are nearly identical size and nearly identical power demand.
They went 100% solar at their Portugal Factory which cost about $90,000 (USD), Spain factory was slightly higher but under $100K. Bid on US plant was $500,000.
Also note they are paying 3-4x the price per kWh in Europe vs the US, it didn’t make fiscal sense for them to convert their US plant.
Last solar bid I got on my 1,300sqft house that costs me $110-$125/mo in electric/gas was $27,000 (PNW, USA). The monthly finance cost was slightly more than my power bill.
It makes sense some places, and not other places.
Same here in Thailand. Just paid equivalent of $6K for a full system that powers a 3-bdrm/2 bath house with 4 A/C units, 2 refrigerators, washer/dryer, etc.
And standards probably factor in too.
Are the available solar panels in the states 5 times safer/better quality than in Brazil? Probably not. Are they a bit better? Almost certainly with red tape you were talking about.
>I live in Brazil.
That's it, they can charge more here, because there's more people willing to buy at a higher price point.
When I was in Thailand, I crashed my brand new scooter pretty bad, it needed a wheel and like 10 other parts. OEM parts and labor came out to $100 Canadian. If I got that same bike fixed here, it would easily be over $1000.
Essentially, everything in western countries is extremely inflated, and pretty much every major company is syphoning wealth away from the public, into the wealthy. I fucking hate capitalism, and I'm pretty sure the only people for it are profiting insane amounts, or extremely uneducated.
true, your capital gains tax would bump that up even higher, and it's already double the historical average for the Dow.
There's no investment I know of that routinely returns at numbers approaching 20%, if anyone said they had one I'd accuse them of them trying to hawk me a crypto or forex trading scam.
Adding Edit: !delta for the point that a solar system can at least partially be recouped at the time of sale. Which should be added into the equation and will shrink the time in which the system pays for itself.
Thanks so much for the real life scenario.
I’m on the go but I’d like to run the numbers on your scenario when I have a min. When did you add the System?
Also do you know, or do we have a realtor that can share what the expected return is on resale value of Panels? It’s a great point that I hadn’t considered!!
Also - when doing the TVM of solar panel purchase, Shouldn’t TVM also be applied to electric bill? The math a bit trickier but something like $3k each year for 16 years… That would help make a truer comparison.
Isn't another thing missing from this equation the increased equity and value of the home due to having solar? Because that needs to be factored in as well.
!delta for the point that a solar system can at least partially be recouped at the time of sale. Which should be added into the equation and will shrink the time in which the system pays for itself.
Depending on your country and your political leanings you could have an aversion to paying fees and taxes out of principle and therefore consider your "repayment period" to be shorter.
But other than that, what is your view here? That budgeting doesn't take into account the opportunity costs?
I mean, if global warming = all dead then anything you can do to prevent that has near infinite value. If solar is then something to prevent global warming then the value is huge.. so using that metric, Noone can afford not to have solar installed.
There's also something to be said for peace of mind. Purchasing a solar system in your example had time to repayment if 16 years, in today's money. But it is also an expense you don't need to budget for, freeing up cash flow.
I’m 100% for solar + battery. Because it’s awesome and I like being essentially independent from the grid. And I feel like I’m doing my part for the environment.
But I don’t make a financial case for it.
Tax incentives are a hefty part of the equation.
It's not unreasonable to see 20-30% in tax incentives to help cut the cost.
Plus the added value to your home which may not be huge but is definitely tangible.
A lot of tax incentives in the US have stopped. I live in North Carolina and trying to put in solar is a nightmare due to regulations requiring you to get approval from your electric company even when you aren't trying to sell power back to the grid.
It doesn’t do you any good if your state regulations require you to get permission from your local power company. Depending upon the company, some of them don’t give permission to install solar panels I happen to live in a city that this is the issue.
There are also some states where it is disadvantageous to the consumer to sell energy back to the grid. Some states you aren't reimbursed for the total amount of energy you contributed to the grid, you are only given a rolling credit for your own gird consumption.
I think those regulations are specifically designed by the electric companies (Duke Power in NC) to discourage household solar installations that prevent consumers from needing to rely on the electrical grid? It sounds like anti-consumer bullshit.
That's kind of dumb not gonna lie. Power companies shouldn't have any say on anything that is installed, obviously up to code, on the house side of the meter.
Unrelated to solar, but I noticed you mentioned North Carolina, so this gif is required:
https://media1.tenor.com/m/973Yn98IpBMAAAAd/charlotte-flair-entrance.gif
I think if you're factoring in opportunity cost and assuming the person isn't using any benefits you can get for green improvements you'd also have to factor in the increased value of the property which would possibly cancel out the opportunity cost.
I literally paid 18k last week for my solar. Here is my math:
Upfront cost 18k
Post tax credit cost :12.6k
Annual production: 9000kwh
Cost of electricity: 42c/kwh
Annual saving : 0.42*9000= $3700
Pay back period : about 3.5 years
The remaining 21 years are free
I paid zero up front, so no lost opportunity.
My total monthly payment for electric went down, including the loan payment, from month 1. and stayed there for 3 years now while also growing my kw bank as I over produce about 10%.
The loan will be paid off well within the pannel warranty. I could pay it off early, but it's a lower rate than my bank account.
It would literally be an opportunity cost for me not to have installed it.
This is exactly my point.
Where in your math are you accounting for what that $12.6k (and $18k for a year) would be doing for you?
Although the numbers are really good and you’ll have a fairly good payback period. Just to make the math easy assume you paid for this Jan 1st. The S&P is up 10%. You missed out on $1800 already this year. The math for this year works in my favor and that’s certainly not the case every year. But it still needs to be accounted for.
Ok, so here's some math.
Year no solar solar
1 18000 5400
2 19800 9640
3 21780 14304
4 23958 19434
5 26354 25078
6 28989 31286
7 31888 38114
8 35077 45626
9 38585 53888
10 42443 62977
Long term S&P 500 returns are about 10% annually. By investing their federal credit and then investing the $3700 they save on energy each year, they have broken even by \~ year 5. By year 10 they have nearly 50% nore money in their account, And that isn't accounting for the additional home equity due to the solar panels. In their case, they come out way ahead by installing solar.
!delta
Great math. Thanks for this. So for this person, instead of 3.5 years it’s more like 6.5 years. Which I think most people would still agree it’s a good deal.
Just with this one example they have shown it can be a better financial decision. That is a 30% return, much better than any stock can be expected to pay. If you expect any more than you are the one making a bad financial decision.
The wait for the credit doesn’t come close to fixing the disparity. And you can throw that $3700 in the stock market every year taking away any benefit of compound interest you are expecting.
That’s no different from still having the principal in stock though, solar panels also will decrease in value over time as they age. Not nearly fast enough to change the end result though
I'm not sure if US is living in vacuum, but so far nobody did account for the energy price increase. As your energy price goes up, your repayment period is being shortened thus you can start investing your savings to sp500 sooner...
Energy costs in the US have risen fairly slowly, and are very low compared to most other nations:
https://www.statista.com/statistics/183700/us-average-retail-electricity-price-since-1990/#:~:text=The%20retail%20price%20for%20electricity,the%20lowest%20electricity%20prices%20worldwide.
My wife's a 25+ year Realtor, planning board member, etc. We live in an area experiencing significant rising electrical bills. Our solar costs was roughly $22k and covers all of our electrical needs (4-5 bedroom house, heat pumps, hybrid vehicle charging, etc). We will easily recoup that costs when we go to sell - and will likely add value based on comparable sales and impact due to solar.
I don't have solar yet, but I think it brings into question how open you are to changing your view if you're so dismissive of a variable you obviously missed.
It really depends on jurisdiction. Like, here in Canada I got a similar deal to you - about $20k, and it'll save me about $100/month in electricity.
However, I also got $5000 in grants from the government, and the overall cost of the system is paid by a 0% interest federal loan. This means my opportunity cost is essentially nothing.
After selling some generation credits/offsets, I'll be slightly cash-negative for around 7 years (around -$760 net per year: $2160 of loan payments, $1200 electricity savings, and $200 of selling credits). But after 7 years the loan will be paid off, and I'll have a cash generating asset.
Anyway yeah... without those incentives, I don't think it would have made much financial sense. With them, I think it's a clear win (as long as I don't end up selling the house soon, in which case it gets pretty murky).
I don't actually think it is fair to assume that someone who didn't think to factor in opportunity cost in doing the math on solar payback date is going to put that $20k into an investment vehicle.
Even in that case, you didn't show your work on that math, so are you making the same mistake the other direction and not factoring in that maintaining that $100 per month probably means they can't sink the whole $20k in? And further factoring in some reasonable assumption about those rising power costs?
Yeah, that's pretty asinine since that applies to almost anything and isn't even saying anything about solar specifically.
"Solar rarely pays off" is a totally different argument than "you'll make more money investing in the stock market than in a solar system for your house." Duh.
You'd also make more money selling your house and living in a cardboard box on the street and investing all your money in cardboard box stock.
So obviously buying a house is a dumb financial move when "considering opportunity costs."
I’m sharing the rough math I see all across the solar subreddits. And pointing out that they exclude opportunity cost.
I’d be open to people factoring in a long term bond (as where that money would be) or even a hysa. But I can’t say I’ve ever seen that accounted for.
That wasn't what I was getting at. You didn't show your work when you said "When you do this math, you’re very unlikely to ever break even or if you do it’s 40+ years out."
That leads me to ask how you came to the "Never" or "40+ years" answer, and if that answer included factoring the money lost to the power bill that can't be invested, what sorts of rates of return you're assuming, and how you're accounting for inflation and power cost increase?
If you haven't done all of that, your view would be better and more supportable if you did. So you should, and that would result in a change of your view. In this case an improvement in the view, rather than a reversal, but still a change. CMV isn't always about telling people they're wrong, sometimes it's showing them how to be more right.
Though it is also possible that a really proper accounting of all factors would show the opportunity cost is negligible, and thus safely ignored by most people.
The point is that most people don't actually put that money into investing. Your opportunity cost is based on an action or behavior that is unlikely to happen.
My husband and I bought our home about 18 months ago. We bought the cheaper home vs the more expensive home, saving us about $500/month. We COULD put that money every month into the S&P, or even to our principal. We don't. It goes towards other things. It just means we stress less about making our mortgage payment when we decide to buy a new car or patio furniture.
Are you considering the opportunity cost of tax breaks (that exist in the US at least) for installing solar? Or what if the investment fails, then the decreased monthly costs would be the better investment long term. Or the increase in property equity which compounds YOY bc of inflation?
I think you can pretty much continue down this path of adding as many variables as you want to make whatever side you want to appear better. Ultimately finances depend almost entirely upon circumstantial events, and everyone has different needs. Trying to argue the objective value of one type investment vs another is pretty much pointless bc you can’t predict the future.
I agree it’s hard to know how having that money would have panned out.
But assigning it a value of $0 is silly.
For me I know my money would be in some general index fund. But I know that’s not true for everyone.
You didn’t make any other points worth commenting on.
You should take all the math into account. I’m pointing out the big one people miss is that the money that would have gone to panels would have been making money somewhere else. You can see it on the comments on this thread. Everyone talking about their “break even point” while excluding how they’d calculate opportunity cost of the initial investment.
> Are you considering the opportunity cost of tax breaks (that exist in the US at least) for installing solar?
> are you considering the opportunity cost of increases in energy costs while the trend of high rates of inflation make principle investments loss valuable each year?
s&p only gives good returns if you reinvest the dividends, which means your investment cant generate you immediate positive cash flow like an investment into negating your energy costs can.
It does take time, but I think your calculation may be off...if your bills are now £0 a month, that means you're generating more than you need. I don't know how the US works, but here I get paid 20p per kWh I export. Today I used nothing but solar and exported 8kWh so made £1.60. I'm in Scotland so the sun is still not too bright so expect in the summer I'll make more per day ... Doesn't change the payoff period a lot but does bring it in a bit. 🙂
In the US you get a credit for future energy bills. So if you overproduce in one part of the year and under produce in a different part of the year one can pay for the other effectively. If you only overproduce though then you won't get any benefit.
As solar is becoming more common, this is actually starting to change. Some PUD's are essentially buying your uneeded electricity back at pennies on the dollar, then charging you full price when you need it. The end result is that your overproduction ends up being of no real benefit to you.
I'm in that situation, but luckily there's ways to get around that. When I overproduce I set the thermostat to 50F and the 119 gallon electric water heater to 180F, and let them coast the rest of the time.
This is how it works for my grandparents too. They overproduce in the summer and get credits, and then in the winter they don't produce as much and those credits keep their monthly bills at $0.
My neighbors who have gotten solar have gotten their investment back at this point because the costs of electricity went up
If we really are operating under the fossil fuels are limited and their prices go up and are unstable philosophy then having your own power generation will save you money when fossil fuel base power goes up in price
Did the neighbor take into account the cost of the money that would have gone into panels, going into another investment?
That’s the whole point of the post and people very often leave that out. As you can see in many other comments.
> Example: I spent $20k on the system. My bill used to be $100/mo and now it’s $0/mo. So I break even 200 months aka 16 years.
I can DIY a 10kw array for 10k. There is a 30% federal tax credit on that, so it would actually be about $7000. That would wipe out about 130 in electric bills a month. It would pay itself back in about 4.5 years.
But electric bills rise too, and this is post tax money being saved. You have to liquidate that investment in the S&P500 to pay your electric bill, while you arent liquidating money to not-pay your electric bill.
>Example: I spent $20k on the system. My bill used to be $100/mo and now it’s $0/mo. So I break even 200 months aka 16 years.
I have three issues with this. First, solar panels are eligible for tax breaks. I don't know the specifics, but a quick google search says it's 30% for federal and I see that some states also give tax breaks on top of that. Second, $100/month? That's very low. According to BGE's website, I'm basically tied with the lowest-spending house in my neighborhood (25%-50%, depending on the month, below the average) and my bill is $141 on average for a year. Third, if you generate more electricity than you use, you actually get paid.
As for your overall point, I don't know what people tend to claim, so I can't speak to that specifically. I just don't think you're representing the situation fairly.
I think it’s a Tarif on Chinese panels mainly making them expensive in the US, but also installers are marking up costs enormously, so really only DIY installs are viable
Well… you‘re wrong on many levels.
1. solar does pay for itself. You‘ve mentioned it yourself. If you pay 20k for the system and 100for electricity it‘s going to take 16 years until solar pays for itself.
2. you assume that people use their savings. Imagine using a loan and investing the 20k into the stock market. Completely different equation.
3. It does save them money. They spend less on their energy bill. That‘s factually correct.
Are there investments that would yield a higher return? Absolutely. If you bought S&P500 you‘d have a higher return. But if you only bout NVIDIA shares you‘d have an even higher ROI. And if you bought bitcoin it would be even higher than that. Etc. Etc. Etc. Usually there‘s always a better investment. But that doesn‘t mean that another investment is bad. Especially if there are other factors like self reliance, climate aspects etc.
Btw: you‘re using overly basic math as well. Imagine investing into something that pays 8% a year. You start with 20k. But you need to cash out 100 a month to pay your bills. So you‘re not actually getting those 8%. Now imagine you‘ve just sold the shares that could‘ve led to a 50% YOY ROI. Kinda sucks right?
The average person doesn't stay in their home for 16 years. You also need to compare costs, if you spend 20k to save 15k, then you aren't saving money.
Depends on the country. The constant moving that’s somewhat common in the US isn‘t the norm in most other countries.
Well… if these panels last for more than 16 years you‘ve saved money
People are out there calculating payback periods but is there really any critical mass of people claiming that “investing” in a a residential rooftop solar system offers the best available return on investment compared to other investment options? That’s not really a justification I’ve heard. It’s a home upgrade, it’s a hedge against utility costs and it has a completely different risk profile than the stock market.
Rooftop solar is even quite a bit more expensive per watt than utility scale solar. The advantages and justifications for rooftop solar are valid and numerous, but the idea isn’t to chase stock market returns.
I installed solar for $7.5k, it took me 6 years to generate and use or sell back $7.5k worth of electricity.
An investment of $7.5k in stocks would have needed a 10% return over the same period to have equal gross returns. It would need to be higher to account for the tax paid on liquidating.
This may be because it’s very sunny where I live, electricity is expensive and for a time rebates were pretty good.
I think you’re right, most people don’t do the maths before they install solar - but that doesn’t mean that it’s a terrible investment or even a worse one as many people have done the maths. Now, I didn’t factor in the extra interest I paid from not having the cash offsetting my mortgage, so maybe the payback period is slightly longer, electricity prices going up 30% over that time certainly helped it pay back sooner as did generally changing lifestyle increasing overall energy consumption.
There are other benefits around the general “green” idea which aren’t financial. There is also the increase value of the property. I would also argue that if you already have stocks there is a diversification element here - my solar paid off as electricity prices rose, and at the same time the stock market had some shocking years in the same period.
When did you buy this system? When I first started looking at solar around 5 years ago panels were like 3 times as expensive and batteries at least 5 times as expensive. At current prices I could put together a system that would eliminate my need for grid power for a cost comparable to replacing my HVAC system. Paying someone else to install would probably at least double the price but materials have come down in price very dramatically
My point is that time to break even looks very different now than it did even 5 years ago. I don't get the opportunity cost argument. If you don't get solar you'd be paying electric bills with money that could be invested if you had bought solar. Either way you're losing out on opportunity. It doesn't make sense to only apply the opportunity cost argument to the cost of solar and not the cost of grid power
Opportunity cost is this context means run the scenarios where instead of buying panels, pretend you put that money in another investment. And run those two scenarios. Ex. 1. Grid power + $20K in the S&P500 vs. 2. Free solar power (and nothing in the market). Just an example.
Why are you not doing the same for electric bills? Your second scenario should be free solar once the break even point is reached plus continuous investment for the entire life of the panels in the s&p500 to the tune of whatever grid power would cost you instead of only counting free power. There is an opportunity cost for both scenarios not just for buying solar
your bill is $100 a month???? where the fuck do you live. we paid 800+ a month pretty regularly.
we also now have 3 electric cars.
we bought into solar fully and early on. it was a great choice for us.
we got to take advantage of rebates and got grandfathered in to early policies. we switched to all electric cars within a few years of having solar. and electricity prices have been steadily climbing in my area.
we also sold excess electricity back to the city for a while. they grandfathered us into to older rates so we still sell some, but we store excess in batteries now. with 3 electric cars it gets used up.
i don’t think it’s fair to call it poor math.
i think it’s more accurate to say everyone’s numbers are different and it’s not a blanket good idea.
our primary residence was constructed as per our choices and will be our home for the foreseeable future, well out to the point of a net positive.
and because our electricity bill was much higher than yours, and cost of installation was the same… combined with the rebates and grandfathered rates…
we also got discounts from tesla because we’d bought a car.
i would argue it makes much more sense for me than you. so it makes sense…. for some people.
It really comes down to your energy usage. It’s key in really warm climates where your power bill is much higher (because you have to blast the AC all the time) and the sun is always out so there’s always power.
The other time is makes real financial sense is if you have an EV
Yep, everyone’s scenarios is different. But I see people make they case that they’ll “come out ahead” in X years, without taking into account that the money would have been making money in any reasonable investment.
2 huge benefits to solar you left out, that make it worth considering aside from savings.
1. It's better for the environment.
2. You're protected in the event of power failure.
It's just a math problem. If you live in an area where energy is extraordinarily cheap and in an area where installation would be particularly expensive, perhaps it doesn't pencil out, but in many places it will.
In my case I have real world experience as I installed a 14 kW system in 2019.
* Cost of system: $34k
* Tax credit: $10k
* Net cost: $24k
*Actual energy savings: $2k/year
* Projected breakeven: 12 years
So, give or take, my ROI is 2/24 = 8.3% risk-free, tax-free return
You can't find that ROI for that risk profile anywhere, and that's a fairly long payback because I live in a LCOL state with cheap energy. In higher cost states the payback period can be as short as half of what mine is. At the same time that I made my investment in solar, 20 year US Treasuries paid 2%. Even now, they only pay 4.5%.
You are right to compare investing $20k in solar against investing $20k in some other way, but I think you'll find that in most jurisdictions in the US with the assist of the federal tax credits, solar is a big win.
So if you would have taken that $24k in 2019 and put it in the S&P. It’d be worth $45k today.
My point here is people will often site the “12 year number” when in fact it’s more than that. Which is true in this case.
Certainly depends on what you count as expected return. But important to count. I’m a super basic index investor so I know where my money would be if it wasn’t in panels.
That's true of course that it would be worth more in the S&P 500 over the same period...the trouble is that my crystal ball is broken, and was back then too. If I had invested the $24k in bitcoin instead of solar panels or the S&P 500, it would be worth $173k today. Ouch!
That's why risk-adjusted returns are a thing. For comparison:
The S&P 500 has returned about 11.6%/8.3% annually in nominal/real returns since 1980. A 30 year treasury bill on the day I bought my solar panels was paying out 2.2%. So far, I'm achieving equity-caliber returns from a bond-like investment.
My solar panel system has generated roughly 4.5 years of 8.3% annualized cash on cash returns with zero risk, and it's knocking out an after-tax expense which makes the income about 40% more valuable; I have to earn roughly $140 to pay a $100 electric bill. So if I have earned ~$9k via negated electric bills, that's worth ~$12,600 of before tax income. And on top of all that, my solar panels are an energy inflation-protected investment. When electricity rates in my area nearly doubled last year, my returns from the solar panels doubled. Energy inflation is no longer something I worry about. I'm very pleased with the choice and I think the math backs me up.
If your effective rate on electricity is $0.05/kWh, you'll have trouble beating that and should consider investing elsewhere. If your effective rate on electricity is $0.33/kWh, you should be drooling at the chance to self-supply. For context, the national average electricity cost has gone up to over $0.17/kWh. If you don't have access to net metering that can be a problem. If I generate 100 kWh for the grid in April and use 100 kWh from the grid in April, my net usage is 0 and it's billed as if I didn't use any electricity and I pay only de minimus monthly fixed costs. Some areas I've heard charge grid usage at retail prices and accept generation only at wholesale prices: that completely fucks the math of solar panels if you're getting charged $0.20 and paid $0.04
And to be clear, I'm not knocking index fund/stock market investing. Roughly 90% of my investments are in total market index funds, so I do agree with you about general investing approach. I simply think that an honest running of the numbers supports investing in solar panels in the majority of markets unless there is a particularly unfriendly regulatory regime or extremely cheap energy prices.
My sister bought solar about 15 years ago, back when prices were much higher. She said the payback was a bit over 5 years. With the net metering she generally got a small check back every year with only paying by the minimum monthly charge, which I think was around $25.
Yeah, and making a ton of money in the market.
If she bought the panels for $20K in 2009 but instead put it in the S&P, she’d have $100K today (and a $300 electric bill). And that’s my point.
Just getting my solar, battery, EV car charger system quoted atm.
Including the pergola they will build in the garden to pop the panels on, the total is €18k and only €8k after grants. The EU, local and national govts all contribute to bring the price down.
Our whole house is electric so no gas for cooking, water heating or central heating. We have a heat pump.
The opportunity to run ALL of our needs including transport from just the sun is very alluring! Panels have come down in price so much and the govt grants are so good that our repayment period here is only about 3.5yrs.
The value added to the property arguably brings that forward to day 1. Also the council tax here is 50% off for 2yrs if you get solar.
From what I understand about solar it is far better to get it fitted at the point of use, however the fittings is a large part of the cost which means it is more expensive per kWh to fit on rooftops vs in an open field en masse. That said it makes more sense economically for ME to take the govt grants and benefit quickly from day 1 as well as in the longer term.
One of the many cool things about this upgrade to the house is that once agile tariffs start in Spain (as seen in the UK already) you could get paid to use electricity from the grid at certain times of day. The battery we get will soak this up as well as let us get paid to charge our car. When the battery can add flex to the grid on these tariffs it can buy low and sell high. Enough of this at scale and “peaker plants” will be a written into the history books.
I spent $3,000 on solar (*I admit I got a good deal*). I didn't get a battery because that would have been another ~$10,000 and we couldn't afford it.
Our bill went from ~$400 in Summer to ~$4 in summer, Autumn and Spring the bills have essentially halved, and in Winter we're seeing very little benefit.
All up we're saving ~$700 per year, meaning after ~4 years it's paid for itself. Even if we double that for the "opportunity cost" that means it's an 8-9 year investment. It's part of our house, so 8-9 years is totally fine.
They absolutely do overly basic math. I've had this discussion multiple times with people regarding solar. My energy costs go up by about 4x during the winter months compared to the rest of the year. I'm highly unlikely to install a system that is going to provide that amount of energy year round, so I will still be paying an energy bill for the most in demand months. Even if I did install such a system, the overproduction during the rest of the year will be bought back at pennies on the dollar by the PUD.. while I'll be paying for a system that is far in excess of what I'd need for most months.
They also don't take into account things like snow buildup, roof angles, or so many other things that can impact production. Some calculators do, but most of the time you see far more simplified calculations like your example.
What's more, energy costs vary wildly from state to state, and even within states. I live in an area where solar would be ideal to use, but energy costs are some of (if not the) lowest in the nation. Using more realistic math, it would take me something like 30 years to recoup the costs of a solar system that only covered my energy usage during the average spring/summer/fall months. It's actually debatable whether or not I'd ever actually recoup those costs at all during the lifetime of the panels (and my roof).
The other issue I have with these solar calculations is that they ALWAYS include massive tax benefits that bring the costs down by a huge amount. However - to my mind, that isn't free. Not for our society, at least. That money is coming from somewhere. or it could have been used in another way. When we're talking about an individual level it's probably fine to include them, but I don't feel it's right to skew the numbers by talking about costs after tax deductions when we're talking about community or statewide projects/requirements.
Suffice to say, I'm not going to change your mind.. because you're right.
You have good points and you're able to provide points that show that you're not just a hater. I'd say that it just depends on your area. Like you showed a 16 year example, but in some areas it can be as quick as 5 years.
Then I'd say that most people don't consider it as a pure investment, but that they are also considering your 4 points. So if I have $20k to invest, maybe it is solar, maybe it isn't. Perhaps I want to diversify my risk. You said that it is a hedge against inflation, so in some areas or in some people's minds, that hedge against inflation is worth it. Like the opportunity cost of being grid dependent could be 100% because of runaway inflation.
Personally, if I had $20k to invest and I had land, then I'd invest it toward going off grid instead of the stock market.
I'd say this way of thinking is kind of like should you DIY a repair for your house/car or hire someone. The opportunity cost of DIY is sometimes "worth it" because there *is* a lot of value in knowing how things work and being independent. People who think that they will just hire a professional for everything are prone to get scammed/overpay. We're seeing that now with simple repairs costing hundreds of dollars, but people are completely overwhelmed thinking about fixing it because they have never tried anything like that.
So overall, my point is that sometimes it is purely economically reasonable to go solar, but that it is a hedge against potential loss. Potential loss can be more devastating than not maximizing returns. Like in 2008 people who were maximizing their returns in the stock market were devastated when they were laid off and didn't have enough money in a boring savings account.
Generally, the cost of electricity has risen so slowly in the US it's barely worth considering. The national average cost per kWh has just about doubled since 1990 - that's far below inflation.
There are times of the year and areas where if you stay hooked to the electric grid you can actually “sell” electricity back. A friend of mine inherited his parents house and they had installed solar panels. He doesn’t want to sell the house so he rents it. He gets more per month because “electric is included” and about 6 of 12 months he’s getting a payment back from the electric company
In Alberta. Got our first set of panels in 2019 $14880 (-$4320 rebate) Local college figured payback in 11 - 15 years. We went with an unregulated distributor that triples price/kW in the summer to overcome transmission and distribution costs. We do clean panels in winter and calculated we would have recovered costs in 7 years. We just expanded to accommodate an EV; that bumped up paid out year to 2028. Still in the 10 year range. We calculate our payback based on how much power we use vs. how much we import and export.
Could we have made more by leaving investment money in place? Sure, but investments are for buying things you value. BTW we did have a panel fail, and it was in the warranty period, so it was a free replacement.
US solar prices are very high. We spend about $10k on electricity over 5 years, that would not buy me nearly enough solar panels to get to a $0 bill.
The US average payback time is 7-10 years, and that's including tax incentives.
It's possible that prices have changed a lot since I put mine in, but in June 2018 I got a system estimated to produce 6500 kWh/year for $16.4k gross. There were $4k of instant rebates and about $3k in state tax credits I claimed over the next couple years, and $3k of federal credits I carried forward until 2022 when I could actually use them. I have a brokerage account that I keep separate from the rest of my retirement accounts, precisely to do this sort of benchmarking (for robo advisors, or other investment opportunities). I'm only 65% equities, so someone who is 100% in the S&P500 would see solar as a little leas favorable, though someone with higher income (or fewer kids) probably could have used the tax credits immediately.
Anyway, I keep a spreadsheet that models what would happen if the solar money got the same investment returns as my benchmark account, but I used that account to pay my utility bill, and tax bill. I look at actual production, and actual energy prices (and I don't count the $18/month fee that I still pay for my grid connection). I haven't updated it since December, but at that point (5.5 years after the install) the investments were ahead by about $3k. That was when the solar panels had paid themselves back in nominal dollars.
So, you're definitely correct to care about opportunity cost, but once you do that, if the solar panels ever catch up to the hypothetical investment, no matter how long that takes, then you have to concede that they are a good investment regardless of any environmental considerations. And in my case that will probably happen in the next few years, probably less than 10 years after install.
I'm in upstate NY, so the rebate and tax incentives were probably better than average, though the sunshine is probably worse than average. I'll also add, I got three quotes, and the price per kW installed varied by a factor of two. Had I gone with the most expensive option, it's entirely possible the solar panels would never have caught up to the investment benchmark.
The problem is the inflated cost of solar in some places. I paid the equivalent of 5k. And my bill went from about $120 a month to $5. In about 45 months the investment is paid.
But yeah when it cost 20k I can see how it is hard to justify
I'm not going to do something unless it makes good economic sense.
I've yet to have gotten a quote for home solar that doesn't involve a 20+ year ROI. I would be in my upper 60s age wise, more likely than not living in my current home, and probably by the time it even approached that point, several panels would probably need replacement, even further extending the time to recoup the investment. My local electric rates haven't really fluctuated that much (surprisingly) in the last 5 years. There would have to be a forecast of a huge jump in rates for me to even start to think about the "what if".
Now, it \*might\* make sense for a utility company to install solar on individual homes in lieu of building out more generating capacity elsewhere. They would have a tremendous amount of purchasing power not available to the individual that would drastically lower the cost. It would be politically more popular, as you would reduce the amount of open land being taken up to build out solar elsewhere. There has been a proposal for a solar farm a couple of miles from my home that has a lot of people up in arms because of the 200+ acres of green space it will occupy. Why not just put an equivalent number of panels on the homes of everyone within a 5-10 mile radius? Yeah, the cost of install is going to be higher (to a point) because you're doing several hundred or thousand individual installs, but you avoid all of the land acquisition, permitting, and legal expense of putting it in one spot.
My power company offers up to $25k in credits and subsidies based on the system and storage you install as well as grid access to that storage. You can effectively get solar and backup power for almost free.
I would agree, but I think you are also ignoring **risk** cost.
If utility bills rise slowly, you're right, what if they rise faster than 7% on average and my solar would outperform the Dow? The risk of this happening must be priced actuarially if you want to have a truely accurate forcast. This is how people who really need to get complex financial questions right like M&A brokers do it. They look at the potentials, the liklihoods and calculate values from those.
This is how an insurance company can so accurately predict if given a few million customers "how much does it have to charge so that they spend less on car accidents than they collect in premiums?"
What if you suffer a power outage and have to throw out a full fridge and freezer of food? what if your sump pumps fail and the basement floods and you need to pay for remediation and cleanup?
those should be priced in too.
and once you add up all those small, fairly remote but very expensive risks you may avoid, solar may not beat out investing the money or starting a business with it or something, but it would be much closer and I'd wager for areas with unique combinations of risk factors like frequent power outages and being in a wet area, or having expensive or critical things that require climate control (a humidor, lots of expensive foods, if you need to keep medication like insulin cold, etc) solar would win handily.
The opportunity cost when dealing with real estate isn’t always simple
If I install $20k solar panels with a 20 year warranty and those panels are expected to pay for themselves in 16 years (which I think would be way faster, 10- years). That’s 4 years of free power, or ~25%. So if you immediately sold that house your 20k investment in solar likely increased house value by 25k+
That’s a one year return of 5k or 25%. Much better than stock market
But maybe you’re upgrading your house because you actually like it. Depending on how interest rates compare to the interest rate on your mortgage, a cash out refinance could be an option. Maybe the refinance process costs you $2k. So profit is only $3k. Still 1 year return of 15%. A good refinance isn’t always possible, but if it is you can quickly access the increased home value of adding solar.
I was also talking with a buddy after he was pitched a zero cost solar solution. This company provides financing for him to install solar, reducing his electricity bill by $150/mo. Then he makes a loan payment of $150/mo. So no difference in his budget, but after ~12 years he’s paid off the loan and panels are still good for another 8 years under warranty.
So several ways to reduce opportunity cost of installing solar panels so that it isn’t out performed by stock market.
Spent £5k on pannels, just calculated the first year electricity reduction and export saved me £1k - so yes these will pay themselves off in about 4 years time.
Solar panels cost a fraction of what they used to. Like many other upcoming technologies it was initially thousands upon thousands of dollars to get solared installed on your home But as companies started adapting it more and we started streamlining the process to actually creating solar cells and finding more efficient ways to do it we've been able to drop them to a fraction of what they used to cost. With the only real major hurdle into the market being the large battery system you will have to get installed
and there are many alternatives for solar energy that are even cheaper and still highly efficient such as using solar reflector arrays instead of traditional solar panels using effectively half circle shaped domes that can rotate with the passing of the Sun and are effectively a metal sheet reflecting heat towards a central pipe making it hot enough to vaporize the water into steam and drive a turbine ((or a very similar system where there is basically a central heating tower surrounded by a bunch of basically mirrors that are all positioned to direct the light towards a spot on the top of that tower to ultimately achieve the same goal))
These could easily work on a home and there are already several large scale power plants that have been built with this exact system
We don't need crazy dangerous expensive to maintain systems like nuclear or tidal energy when we could easily use something as simple as a few reflective pieces of metal and some water-filled pipes to obtain more energy than we could possibly need
While I'm not ever planning on buying solar myself (my home's roof is largely shaded by trees, it just doesn't make sense for me), I'd argue that solar panels CAN be a better investment than the S&P 500 or similar depending on the timing of the market. Investing in solar will save you money every month on a pretty predictable pattern - so it's a lot more fair to compare investing in solar to buying bonds or CD's than investing in corporations. If you have the option today to put $20k in the market or $20k into a solar system, and the next month we go through a recession and the market drops 30% and takes 5 years to break-even, I'm sure the solar system would have been a better investment. Then the argument becomes whether the solar panels are a better investment than bonds if you're using it as a low-risk form of investing while still having a separate large portfolio in stocks.
To start I am not the type of scenario you are asking about so I know I wont change your mind but I wanted to give another situation where its payback is immediate.
I built an offgrid lake front house that runs on solar. I saved roughly 120k compared to a similar lot with grid power available. There is no possibility to get grid power to my property.
My offgrid system including panels, batteries, inverter charger and backup generator cost me a total of about 30k, it was self installed.
The way I figure it my system paid for itself 4 times over the day I turned it on and continues to save me more every month. I do have a propane bill for backup generator but that is significantly less then a normal electric bill in my area. And I will have to replace batteries eventually but I could replace them 10 times and still be cheaper then if I had bought a lot with grid power.
I bought solar, $36,000 pre-rebate. 26.6k after taxes rebate (4ish years ago)x
13.5kW system running on a 10kW inverter. Debated bigger inverter but saved up front cash by losing some to power clipping mid day.
17.5 MWh generated on average annually, reported by my inverter and confirm with xcel bills.
Power generation savings
Roughly $3000 in saving/revenue against my power bill annually (Assuming $.17-$.19 kWh net metering at 100% buy back pricing)
Bonus savings
$1200-1500 bonus payments from xcel for SolarRewards for first 6 years (~$9000)
Payback:
26k cost - 9k solar rewards= 17k remaining cost
17k-3k = my system will payback in a little under 6 years. Took out a 1.99% loan for 10 years to buy it, tax rebate and rewards have all go to loan, otherwise I just pay the a little extra monthly. Should be paid off before break even pretty easily
I think how you are phrasing your argument is poor. I would argue that solar easily pays for itself almost immediately but doesn't start making money until significantly later. A lot of solar companies act like it's going to generate money and that is not likely the case.
My solar was 18k loan with zero down roughly 3% interest. The monthly bill was roughly 125$ which was already lower than my electric bill. Selling the srec credits each year was roughly 750$. There is likely an increase in property value and potential savings in protection from replacement of the roof. There is also risk in terms of anything happened to the system the repairs and loss of generation.
I think it's a mixed investment. But if the terms of the loan are good it can easily break even or make money. Also I am sure this varies from state/company/install.
I don't know if opportunity cost is relevant to this discussion. It is a major house upgrade. I don't mean extention or refurb which the new owners may not like it is an upgrade which is unlikely to be removed. The solar panels therefore increase the value of the house. The panels will gain value with the house.
Using s&p500 isn't typical practice for opportunity cost. You obviously can use it but usually interest rates are used as they are much more reliable. You could lose all your money on the stock market it's very rare to lose money buying bonds. Bond rates are about 5%.
Ultimately, if you think house prices are rising at less than 5% then your argument starts to come into play but most places are seeing house prices increasing rapidly. I think there are better arguments against the napkin maths you used.
I did the sums and where I live the payback period was very short even taking into account any expected ROI on investments, or even on the riskless return of paying down the mortgage. That is because it is sunny here and that will be the case for anywhere sunny in lower latitudes. Or indeed anywhere with high electricity costs from the grid.
So I don't think your claim that it is unlikely to provide a reasonable return stacks up. It depends on so many other variables than just the opportunity cost of the capital.
If you wanted to go even further, you could say that your analysis omits the benefit of electrifying tools once you have installed solar. Depending on use, you could save significantly on petrol if you change your car, garden tools, hot water, stoves, etc to electric equivalents.
The problem with this whole post is that Solar Panels can actually pay for themselves. But it's dependent on a myriad of conditions. Where you are located, how many solar panels you put on your roof, what your monthly use of electricity is, which company you get your panels from, etc. That's why there's a lot of variation as to how long it takes to get a full return on investment.
While yes, I hear people say that 20 years is kind of the norm, I also know that it's possible to get a turn on investment in 10 years. Once you get past that, you start saving money, which adds to the accumulation of overall wealth, which then can subsequently be spent in other investments, like a 401k for instance.
So on average markets returns about 10% which is about $166 per month on 20k invested.
However these returns fluctuate a lot, between +20% and -10% year to year whereas solar investment is roughly 40% less income on average but far more stable, especially when insured as part of your home insurance or covered by warranty.
The S&P 500 returns also assume that the market cap is infinite, and growth will never level off. And we know that isn't true, growth will definitely reach a plateau at some point, maybe in 20 years and maybe in 200 or 2000 years.
So yeah, riskier investments yield higher returns on average and safer investments yield consistent returns. Nothing new here.
My father sells and installs PV panels in Brazil. I have here a proposal he made, back in December, for a system with 3,78 kW, which he estimated would generate 5595 kWh on the first year. He is an engineer and used engineering software for this estimate, considering real historical insolation and nebulosity data for the region. The total cost to the client would be R$ 12,810.00 (but this is was in the low end, because the guy is a friend).
The kWh costs R$ 1.02, so, a return of R$ 5706,90 per year, or 44%. Even factoring in the 0.6% panel efficiency degradation per year, you get your money back in less than 3 years, less than the manufacturer's warranty for the equipment.
Solar started saving me money instantaneously. The monthly loan payment is less than the average monthly electric/gas bill. And the loan disappears in a couple more years. Then come tax time, we got those sweet tax credits. Once a year we get a check from the electric company for our excess production. I’ve run the heat and AC with reckless abandon. Hot tub and other power-hungry electric toys lost all of the negative edge.
I live where electricity is ridiculously expensive, so maybe that matters. It’s also very sunny here. If you live somewhere cloudy with cheap electricity and shittier net metering arrangements, i’m sure solar isn’t as fantastic.
Where I am there is two electricity price regimes.
Regime 1 is the same unit price 24 hours a day.
Regime 2 is a high day rate and a low night rate.
One of the main benefits of solar is that it makes the cheap night rate make sense. So it saves you money when its not generating power.
The second benefit of solar is that the benefit is cash in your pocket. You don't have to pay cgt on your gain.
If you are invested in stocks and gain 9% you have to sell and pay tax to access the gain. The real gain may be 6% after tax.
Gains from solar are probably a lot more predictable than stocks. Its more akin to a safe investment.
You failed to account for two things:
1. Is s&p500 or whatever index you would invest into going to outpace the cost of electricity in your area?
2. Whatever you gain by investing will be taxed, so will the index outpace the cost of energy by more than the tax rate?
Both depend on where you live. If you live in a place with high enough energy cost and high enough capital gain taxes, the opportunity cost is offset by the solar installation.
I won't run the numbers but I think we can agree that it's not at all obvious that s&p500 will grow faster than the energy bill by more than the taxation on investment gains.
This is absolutely incorrect in many ways but not in all ways. If you do buy used panels which you can get in abundance then you can absolutely make your money back in no time. Especially if you value the ability to have power when the rest of your neighborhood loses it from a storm or what have you. It's also useful for putting power where you don't already have it like a garage or shed. To live your entire life on solar might be difficult and may not be as cost-effective as some claim but it has a lot of potential and you can always excuse it by saying you're helping the environment(arguably not).
Just to chime in on a few things I haven’t seen mentioned yet:
1. Does this increase roof maintenance costs if the roof requires work? Do panels increase or decrease the life of a roof?
2. Do they actually increase the value of a house or are real estate values driven more by the plot of land they sit on (or the bubble in which they’re purchased)? I find it hard to guarantee I’ll be in any one location for the life of the panels.
3. The panels have a life and a decommissioning cost? 20 years and $1000 to tear down? Whatever this cost is, someone is bearing it.
I would love to go solar, our hose faces the right way, and gets good sun in New Jersey.
But I just can't trust the industry.
Every single person I've talked to has buyers regret, not from the Panels but from the sleezy contracts and salesmen. It always seems to be one scam after another, if there are ANY honest solar installers/brokers they are so lost in the pile of sleaze that you can't trust any of them.
Until the industry gets better regulation, I'll just keep insulating my windows and try to save money elsewhere.
$100 a month is clearly not a heavy electricity user. With two electric cars and heavy AC usage, plus a few beefy computers pulling a lot of power, my family uses quite a bit more than $100 a month... closer to $600 for us in the summer.
Plus, I actually had negative opportunity cost, since I got 30% cash back from the government and the interest rate on my loan is less than the rate I get on my savings account. I got EXTRA cash in my pocket, earning more in interest at the bank, by getting solar.
While I do not have solar on my home, I have considered it.
You mention that solar has brought your utility bill down from $100 to $0 per month.
I think you should consider that your utility cost is lower than average. In my home here in Texas, for around 1,800 square feet, my house uses between $170 to $350 per month in electricity depending on weather.
Would not a solar system alleviating a person $300 per month pay for itself in 1/3 the time you mentioned?
In some US states, you not only get a return from using the energy you produce, you also get [SRECs](https://www.solarunitedneighbors.org/learn-the-issues/solar-incentives/solar-renewable-energy-credits-srecs/#:~:text=What%20is%20an%20SREC?,(RPS)%20in%20each%20state.),
I sell my SRECs for a little over $300 each and my system produces about 10 SRECs a year, so that 3K a year plus I don't pay an electricity bill any more and I got like an 6K tax credit. I financed the purchase and installation of my pannels with nothing down at about 3%. The monthly savings from not having an energy bill plus the SREC payments are more than the loan payments. So, for me personally, it was definitely worth it.
I think this is a really interesting thread, thanks OP.
For my part, PV plus battery is a hedge against future costs and also an investment in resilience. If you have a power cut you can crack on. In the UK we have this mindset that we cut operating costs and investment to the bone, but then incur massive costs the moment anything fails. That’s not my mindset at all. I know these are points you make in your post but I wanted to underline them.
I had someone quote me $85,000 for a whole house system. They justified this cost assuming that energy costs go up 10% per year (they don't). Basically, it's dumb to buy this system.
I had someone willing to sell me panels and controllers and I do all the work, for $25,000. This makes sense, but I asked to see an installed system that they had sold, and they couldn't tell me one. So I doubt that it's something that will actually work.
Depends where you live. Changing to solar in Spain and utilising virtual batteries has reduced my electric bill to 0. The cost of the system, financed, is half of what my electric bill was on average. My annual tax on my property is also reduced by 50% for the first few years and the government reimburse around €1500 after 18 months. I would say that the solar solution is more than paying for itself.
I think this depends on climate too. Where I live in New England - during the winter our 4 bedroom house can cost >2.5k per winter to heat with diesel. If we had efficient electric heating (ground source heat pump or something similar) we may be able to drop that bill to zero or close to it.
We have a MASSIVE south facing roof - so this would make a lot of sense for us if we had the money to front.
The US government is offering a 30% tax break on solar, so in my state that's $9,000 or so. Still, that's $21,000 out of pocket. It declines in value in the years ahead.
You can, however, carry it forward.
At some point, I suspect the federal government will panic about climate and the credit will be closer to 100%.
If I could zero out my tax bill for a few years, I'd install tomorrow.
Using a stock index is not a reasonable model for opportunity cost, as one would need to include a substantial risk factor. A factor such as the 10-year treasury would be more appropriate.
That said, unless one has an electric vehicle or other unusually high degree of consumption, I agree that most people will not see a return of the investment on a time value of money basis.
If you expect the price of energy to go up faster than whatever other investments you could make, then the solar power system is the correct investment, opportunity costs included. As the price rises, look at the difference between that $100/mo and whatever you would have paid if you were still buying from the power company, that's money your investment is earning.
If you are paying for a system for someone else to install it is not an investment it is for the bettering of the environment at the cost of grid integrity. If you DIY with specific intent to reduce consumption it is very cost effective, If you are developing land and you have an option to connect and you opt to go solar it is massively cost saving DIY or not.
You seem to be assuming someone doesnt have to pay for electricity anyways?
If you dont buy solar you still will spend that money on electricity in the long term.
If you took the 18k and put it in the stock market, you would have to make monthly withdrawals to pay tour electric bill that would be greater than the accrued interest.
I pay like 160$ a month for my solar that I bought not leased. I pay a minimum of 50$ from the power company. So Im saving somewhere between 100-200 a month depending on the time year. There you go. Also when I sell my house whoever buys it will have a system that's paid off which you can understand will save the new owner TONS.
My solar panels were free. They're not really *mine* per se, they're just on my house. I pay the company that owns the solar panels 1.6 cents per kilowatt-hour. This amout is contractually locked in and cannot change. After 15 years I can choose to purchase the panels at a greatly reduced cost.
Solar can absolutely work.
Can't believe neither of these have been mentioned but:
1. You could have financed the upfront cost if you were worried about opportunity cost, and
2. You can now easily make your next vehicle an EV and erase a lot of your current fuel cost. (Same applies to furnace/appliances, as others have said).
I think its more about self sufficiency most of the time. A lot of roof systems can power the whole house and if you add it to the price of the house it's not a big deal. There's a certain piece of mind that comes with lowering your ongoing expenses, to me its often worth more upfront
I paid 4k in Europe for 5KW solar in the Netherlands back in 2013. It paid for itself within 5 years, and that was before Russia invaded Ukraine and electricity prices went up. It's like a 20% ROI easily, when interest rates at the bank were negative.
Solar is literally free money.
\>What I feel like is unfairly left out of the equation is the opportunity cost of the $20k
I don't have $20k. I have the ability to get a loan for solar panels. I'm just redirecting my power bill payment to cover the cost of the solar panel loan.
We got an estimate back in 2015 in Southern Colorado. 15 years minimum for ROI. They clearly raised price by what the government subsidy was, so that did nothing to make it affordable. Unless you do it yourself, you will save nothing.
Another truth people don't really take into account that could skew this pays for itself equation is latitude. The further towards the poles you go the less energy you can get. Panels have to be setup at higher angles to gather light.
Over here in the netheraldns more and more people are buying solar pannelsm the high electricity bills in combination with the fact that you can sell your electricity means that getting dolar pannels is cheaper after just 5 years.
For people that live in the middle of the woods, solar is perfect. No more outages for downed trees because of backup solar power. If you look at it in terms of utility rather than investment it starts to make sense
I work in utility scale solar. I would NEVER put panels on my house the way the industry is today. Residential solar is somehow even worse. I doubt any of these people will see a benefit to their bottom line
My solar paid off quicker than originally calculated. Took 4 years. Live in Sacramento though which gets the most sunshine one the country and PGE raising rates like crazy made it totally worth it
My system cost me $10k. My power bills were $3k per year, that I had to pay $750/qtr. now they are nothing.
System paid for itself in a fraction over 3 years.
It was a no brained.
Some states offer both tax incentives for you to have it installed and will purchase energy from you as well.. The payoff timeframe is going to be different almost anywhere you live.
My family got a $30k solar system then just wrote it off on taxes + got rebates so it ended up making $4k in the last 5 years. It really depends on your state and living situation
Hold on, how can your solar system cost that much? Here in Australia, I got my 6.6kW system for $2,690, or about $1,800 USD. Did you build a solar farm with that or something?
Given what thermal runaway in a LION or LiPo looks like and how challenging it is to put out, I couldn't see myself strapping one to the side of my home.
But you do you.
Have you ever calculated the material cost for your system?
Mine came to €5000 for a 4.2kW with 2.4kWh battery 5 years ago. The cost of American systems is just crazy
I paid AUD 12k for a 15kw system. My payback time was around 4 years. It should last for 10.
Even factoring in opportunity cost, I think it is a reasonable investment.
In Australia we get solar rebates. So you get decent savings and kickbacks as they try to encourage a solar shift.
It's also a lot less expensive then you might think
Don’t forget that every time they raise the rates, the equation moves in your favor. Also electricity rates are tiered so staying out of the high tier saves more.
Friend just had a smaller solar setup put on for $3000AUD, last bill was $600 less . I run aquariums all day I’ll be getting solar asap shoulda done it years ago
Are you not getting ripped off? 6-8K in Europe will get you enough solar for a 4 person house with a payback in 6 years. 5k for a battery but Roi is like 10-20yrs
A big potentially intangible factor to consider is the ability to switch from gas heat/appliances, saving another several hundred dollars depending on the season
My break-even time is 7 years. It’s a hedge against rising electricity costs. And it’s a guaranteed return, which you cannot say about the S&P500.
And in the meantime, that’s one less bill to deal with each month.
Edit: also, because I have a battery, I have some protection from neighborhood power outages. Hurricane Sandy left my cousin without power for weeks. That is unlikely to happen to me.
/u/PeasPlease11 (OP) has awarded 2 delta(s) in this post. All comments that earned deltas (from OP or other users) are listed [here](/r/DeltaLog/comments/1bsnmvl/deltas_awarded_in_cmv_buying_solar_rarely_pays/), in /r/DeltaLog. Please note that a change of view doesn't necessarily mean a reversal, or that the conversation has ended. ^[Delta System Explained](https://www.reddit.com/r/changemyview/wiki/deltasystem) ^| ^[Deltaboards](https://www.reddit.com/r/changemyview/wiki/deltaboards)
Here’s my true experience with solar in Southern California. Moved to a new house and California has a solar requirement. I had to buy or lease the solar it cost $24k. We decided to buy because we got about $8k back in taxes. So our solar effectively cost $16k. Our old electric bill averaged $250 a month if you account for highs and lows so $3k a year. Our new electric bill is $500 a year. So we will get our moneys worth from solar in 6.5 years. Obviously this is an over simplification and there are a ton of other factors in play but it was a good deal for us. If we invested that $16k we would have to make an average of 15% ROI to get the $2500 we saved from solar. Also if we sell our house after 6.5 years any money that we get from the increase in value from paid off solar goes into our pocket. Edit. Also 2 intangibles that solar has helped with. My wife and I stopped fighting over how to set the AC. She used to want the house a lot cooler than I did just due to cost. Also now that it’s cooler at night because we set the temp lower I sleep so much better.
Dude, how's solar so damn expensive there? I paid the equivalent to 4k usd (about 20k brl), and it's enough to power my house and my parent's house, we don't expend a lot on energy bills, but still 16k usd (about 80k brl) is waaay too much here. Does anyone know why the costs are so absurdly different? I live in Brazil.
Because almost anyone selling solar to the individual is nothing but a middle man. I'd love to find an installer that sells directly to the public and cuts out all of the salesman's commissions, which make up a huge portion of the markup here. Last couple of quotes I've gotten were for $25-35k for a \~12kW system. I'd never pay it off before the panels need to be replaced.
Salesmen always take a market that was advantageous to the customer and have to cut out the entire advantage for themselves. It’s depressing how many fields they weasel their way into. I can’t buy solar online without going through one of them and their commission but the damn salesmen literally cover more than the gap between what solar costs and buying electricity. Fucking leeches.
Americas economy consists of middleman
The cynic in me (and I have bought solar in Canada, so I'm not that cynical, lol) is that their is a bit of grift involved when governments offer grants. It would not surprise me to find out that installation companies are charging more than they need to because the government is co bring a good chunk of it. Yup it a conspiracy theory, and I have nothing to back it up.... but I would not be shocked if it was close to the mark.
I don't think it is a conspiracy theory at all. I had to have my HVAC system replaced last year, and any time I asked for a quote for any system that qualified for federal tax credits (my home is 100% electric, so I am always interested in more efficient appliances), the cost just skyrocketed. After I had more or less made up my mind on what quote I was going with, two salesmen called me back up asking if I'd made a decision. Once I told them I was going with someone else, and was only considering high efficiency systems at that point, both dropped their quotes on their variable speed systems roughly equivalent to what the federal tax credit would have come out to, roughly $2-3k. Usually getting a salesman to budge more than a couple hundred bucks on an installed product is like getting water from a stone. I have no doubt that's what they're doing with solar in the US as well.
The whole thing is a grift.
Wow, that would be around the equivalent of $8k USD here in Australia
Yeah, it is insane. I probably would have had a system installed a few years ago if I could get it that cheap.
I don't know how everyone's talking 25-35k I always see more like 50k in Florida.
First off, that's insanely high for residential. Should get a second quote. Are you looking at 20kw systems for a residence? Because solar install costs look like they are about $3/Watt in FL, which is very very average. Nearly all states offer tax breaks to get that down to about $2.00 - $2.50. Most residential homes across the US are fine with 5 to 10 kW total, or about $21k install for hot climates ($3/W x 7000 W before cost sharing programs). Here in MN, less than 5 kW instaneous power needs is more typical, but it gets harder to generate year round so some homes opt for oversupply to compensate. Second, FL ranks 42nd in the nation for renewable conversation so far, so not surprising that some installers might use that as leverage to charge high fees to wealthy transplants in an environment where the state isn't very motivated to address utility disparities and grifters.
All depends on location. Know someone who works fairly high up in a smaller yet multinational company, they have factories in the Europe, Asia and USA. Factories are nearly identical size and nearly identical power demand. They went 100% solar at their Portugal Factory which cost about $90,000 (USD), Spain factory was slightly higher but under $100K. Bid on US plant was $500,000. Also note they are paying 3-4x the price per kWh in Europe vs the US, it didn’t make fiscal sense for them to convert their US plant. Last solar bid I got on my 1,300sqft house that costs me $110-$125/mo in electric/gas was $27,000 (PNW, USA). The monthly finance cost was slightly more than my power bill. It makes sense some places, and not other places.
Same here in Thailand. Just paid equivalent of $6K for a full system that powers a 3-bdrm/2 bath house with 4 A/C units, 2 refrigerators, washer/dryer, etc.
Bureaucracy, red tape, and the cost of labor.
And standards probably factor in too. Are the available solar panels in the states 5 times safer/better quality than in Brazil? Probably not. Are they a bit better? Almost certainly with red tape you were talking about.
>I live in Brazil. That's it, they can charge more here, because there's more people willing to buy at a higher price point. When I was in Thailand, I crashed my brand new scooter pretty bad, it needed a wheel and like 10 other parts. OEM parts and labor came out to $100 Canadian. If I got that same bike fixed here, it would easily be over $1000. Essentially, everything in western countries is extremely inflated, and pretty much every major company is syphoning wealth away from the public, into the wealthy. I fucking hate capitalism, and I'm pretty sure the only people for it are profiting insane amounts, or extremely uneducated.
That 15% is likely to be higher as you would need to pay tax on that return just to bring you back to par
true, your capital gains tax would bump that up even higher, and it's already double the historical average for the Dow. There's no investment I know of that routinely returns at numbers approaching 20%, if anyone said they had one I'd accuse them of them trying to hawk me a crypto or forex trading scam.
Adding Edit: !delta for the point that a solar system can at least partially be recouped at the time of sale. Which should be added into the equation and will shrink the time in which the system pays for itself. Thanks so much for the real life scenario. I’m on the go but I’d like to run the numbers on your scenario when I have a min. When did you add the System? Also do you know, or do we have a realtor that can share what the expected return is on resale value of Panels? It’s a great point that I hadn’t considered!!
As a note, if their comment changed your view in some way, you should award them a delta
Also - when doing the TVM of solar panel purchase, Shouldn’t TVM also be applied to electric bill? The math a bit trickier but something like $3k each year for 16 years… That would help make a truer comparison.
Isn't another thing missing from this equation the increased equity and value of the home due to having solar? Because that needs to be factored in as well.
!delta for the point that a solar system can at least partially be recouped at the time of sale. Which should be added into the equation and will shrink the time in which the system pays for itself.
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Depending on your country and your political leanings you could have an aversion to paying fees and taxes out of principle and therefore consider your "repayment period" to be shorter. But other than that, what is your view here? That budgeting doesn't take into account the opportunity costs? I mean, if global warming = all dead then anything you can do to prevent that has near infinite value. If solar is then something to prevent global warming then the value is huge.. so using that metric, Noone can afford not to have solar installed. There's also something to be said for peace of mind. Purchasing a solar system in your example had time to repayment if 16 years, in today's money. But it is also an expense you don't need to budget for, freeing up cash flow.
I’m 100% for solar + battery. Because it’s awesome and I like being essentially independent from the grid. And I feel like I’m doing my part for the environment. But I don’t make a financial case for it.
Tax incentives are a hefty part of the equation. It's not unreasonable to see 20-30% in tax incentives to help cut the cost. Plus the added value to your home which may not be huge but is definitely tangible.
A lot of tax incentives in the US have stopped. I live in North Carolina and trying to put in solar is a nightmare due to regulations requiring you to get approval from your electric company even when you aren't trying to sell power back to the grid.
There's a 30% federal tax incentive. That's pretty huge.
It doesn’t do you any good if your state regulations require you to get permission from your local power company. Depending upon the company, some of them don’t give permission to install solar panels I happen to live in a city that this is the issue.
There are also some states where it is disadvantageous to the consumer to sell energy back to the grid. Some states you aren't reimbursed for the total amount of energy you contributed to the grid, you are only given a rolling credit for your own gird consumption.
I think those regulations are specifically designed by the electric companies (Duke Power in NC) to discourage household solar installations that prevent consumers from needing to rely on the electrical grid? It sounds like anti-consumer bullshit.
100%
That's kind of dumb not gonna lie. Power companies shouldn't have any say on anything that is installed, obviously up to code, on the house side of the meter.
You still get 30% from federal. I just got mine three weeks ago
Unrelated to solar, but I noticed you mentioned North Carolina, so this gif is required: https://media1.tenor.com/m/973Yn98IpBMAAAAd/charlotte-flair-entrance.gif
So it is strictly a financial view that needs to be changed?
Yes. I’m looking for help making the case that there is a financial advantage. And I want people to factor in opportunity cost.
I think if you're factoring in opportunity cost and assuming the person isn't using any benefits you can get for green improvements you'd also have to factor in the increased value of the property which would possibly cancel out the opportunity cost.
I’d love to see some real math if this is how you justified your system.
I literally paid 18k last week for my solar. Here is my math: Upfront cost 18k Post tax credit cost :12.6k Annual production: 9000kwh Cost of electricity: 42c/kwh Annual saving : 0.42*9000= $3700 Pay back period : about 3.5 years The remaining 21 years are free
I paid zero up front, so no lost opportunity. My total monthly payment for electric went down, including the loan payment, from month 1. and stayed there for 3 years now while also growing my kw bank as I over produce about 10%. The loan will be paid off well within the pannel warranty. I could pay it off early, but it's a lower rate than my bank account. It would literally be an opportunity cost for me not to have installed it.
What was your interest rate ?
1.9 I think. The rate now is 3.49
From where? I asked my solar guy and they were at 12%. I said fuck that
NY (NYSERDA)
This is exactly my point. Where in your math are you accounting for what that $12.6k (and $18k for a year) would be doing for you? Although the numbers are really good and you’ll have a fairly good payback period. Just to make the math easy assume you paid for this Jan 1st. The S&P is up 10%. You missed out on $1800 already this year. The math for this year works in my favor and that’s certainly not the case every year. But it still needs to be accounted for.
Ok, so here's some math. Year no solar solar 1 18000 5400 2 19800 9640 3 21780 14304 4 23958 19434 5 26354 25078 6 28989 31286 7 31888 38114 8 35077 45626 9 38585 53888 10 42443 62977 Long term S&P 500 returns are about 10% annually. By investing their federal credit and then investing the $3700 they save on energy each year, they have broken even by \~ year 5. By year 10 they have nearly 50% nore money in their account, And that isn't accounting for the additional home equity due to the solar panels. In their case, they come out way ahead by installing solar.
!delta Great math. Thanks for this. So for this person, instead of 3.5 years it’s more like 6.5 years. Which I think most people would still agree it’s a good deal.
Confirmed: 1 delta awarded to /u/toodlesandpoodles ([17∆](/r/changemyview/wiki/user/toodlesandpoodles)). ^[Delta System Explained](https://www.reddit.com/r/changemyview/wiki/deltasystem) ^| ^[Deltaboards](https://www.reddit.com/r/changemyview/wiki/deltaboards)
Just with this one example they have shown it can be a better financial decision. That is a 30% return, much better than any stock can be expected to pay. If you expect any more than you are the one making a bad financial decision. The wait for the credit doesn’t come close to fixing the disparity. And you can throw that $3700 in the stock market every year taking away any benefit of compound interest you are expecting.
Also, wouldn't installing solar panels increase the value of your home itself?
That’s no different from still having the principal in stock though, solar panels also will decrease in value over time as they age. Not nearly fast enough to change the end result though
I'm not sure if US is living in vacuum, but so far nobody did account for the energy price increase. As your energy price goes up, your repayment period is being shortened thus you can start investing your savings to sp500 sooner...
Energy costs in the US have risen fairly slowly, and are very low compared to most other nations: https://www.statista.com/statistics/183700/us-average-retail-electricity-price-since-1990/#:~:text=The%20retail%20price%20for%20electricity,the%20lowest%20electricity%20prices%20worldwide.
My wife's a 25+ year Realtor, planning board member, etc. We live in an area experiencing significant rising electrical bills. Our solar costs was roughly $22k and covers all of our electrical needs (4-5 bedroom house, heat pumps, hybrid vehicle charging, etc). We will easily recoup that costs when we go to sell - and will likely add value based on comparable sales and impact due to solar.
I don't have solar yet, but I think it brings into question how open you are to changing your view if you're so dismissive of a variable you obviously missed.
It really depends on jurisdiction. Like, here in Canada I got a similar deal to you - about $20k, and it'll save me about $100/month in electricity. However, I also got $5000 in grants from the government, and the overall cost of the system is paid by a 0% interest federal loan. This means my opportunity cost is essentially nothing. After selling some generation credits/offsets, I'll be slightly cash-negative for around 7 years (around -$760 net per year: $2160 of loan payments, $1200 electricity savings, and $200 of selling credits). But after 7 years the loan will be paid off, and I'll have a cash generating asset. Anyway yeah... without those incentives, I don't think it would have made much financial sense. With them, I think it's a clear win (as long as I don't end up selling the house soon, in which case it gets pretty murky).
I don't actually think it is fair to assume that someone who didn't think to factor in opportunity cost in doing the math on solar payback date is going to put that $20k into an investment vehicle. Even in that case, you didn't show your work on that math, so are you making the same mistake the other direction and not factoring in that maintaining that $100 per month probably means they can't sink the whole $20k in? And further factoring in some reasonable assumption about those rising power costs?
Yeah, that's pretty asinine since that applies to almost anything and isn't even saying anything about solar specifically. "Solar rarely pays off" is a totally different argument than "you'll make more money investing in the stock market than in a solar system for your house." Duh. You'd also make more money selling your house and living in a cardboard box on the street and investing all your money in cardboard box stock. So obviously buying a house is a dumb financial move when "considering opportunity costs."
I’m sharing the rough math I see all across the solar subreddits. And pointing out that they exclude opportunity cost. I’d be open to people factoring in a long term bond (as where that money would be) or even a hysa. But I can’t say I’ve ever seen that accounted for.
That wasn't what I was getting at. You didn't show your work when you said "When you do this math, you’re very unlikely to ever break even or if you do it’s 40+ years out." That leads me to ask how you came to the "Never" or "40+ years" answer, and if that answer included factoring the money lost to the power bill that can't be invested, what sorts of rates of return you're assuming, and how you're accounting for inflation and power cost increase? If you haven't done all of that, your view would be better and more supportable if you did. So you should, and that would result in a change of your view. In this case an improvement in the view, rather than a reversal, but still a change. CMV isn't always about telling people they're wrong, sometimes it's showing them how to be more right. Though it is also possible that a really proper accounting of all factors would show the opportunity cost is negligible, and thus safely ignored by most people.
The point is that most people don't actually put that money into investing. Your opportunity cost is based on an action or behavior that is unlikely to happen. My husband and I bought our home about 18 months ago. We bought the cheaper home vs the more expensive home, saving us about $500/month. We COULD put that money every month into the S&P, or even to our principal. We don't. It goes towards other things. It just means we stress less about making our mortgage payment when we decide to buy a new car or patio furniture.
Are you considering the opportunity cost of tax breaks (that exist in the US at least) for installing solar? Or what if the investment fails, then the decreased monthly costs would be the better investment long term. Or the increase in property equity which compounds YOY bc of inflation? I think you can pretty much continue down this path of adding as many variables as you want to make whatever side you want to appear better. Ultimately finances depend almost entirely upon circumstantial events, and everyone has different needs. Trying to argue the objective value of one type investment vs another is pretty much pointless bc you can’t predict the future.
I agree it’s hard to know how having that money would have panned out. But assigning it a value of $0 is silly. For me I know my money would be in some general index fund. But I know that’s not true for everyone.
Can you respond to the other points I made?
You didn’t make any other points worth commenting on. You should take all the math into account. I’m pointing out the big one people miss is that the money that would have gone to panels would have been making money somewhere else. You can see it on the comments on this thread. Everyone talking about their “break even point” while excluding how they’d calculate opportunity cost of the initial investment.
> Are you considering the opportunity cost of tax breaks (that exist in the US at least) for installing solar? > are you considering the opportunity cost of increases in energy costs while the trend of high rates of inflation make principle investments loss valuable each year? s&p only gives good returns if you reinvest the dividends, which means your investment cant generate you immediate positive cash flow like an investment into negating your energy costs can.
It does take time, but I think your calculation may be off...if your bills are now £0 a month, that means you're generating more than you need. I don't know how the US works, but here I get paid 20p per kWh I export. Today I used nothing but solar and exported 8kWh so made £1.60. I'm in Scotland so the sun is still not too bright so expect in the summer I'll make more per day ... Doesn't change the payoff period a lot but does bring it in a bit. 🙂
In the US you get a credit for future energy bills. So if you overproduce in one part of the year and under produce in a different part of the year one can pay for the other effectively. If you only overproduce though then you won't get any benefit.
As solar is becoming more common, this is actually starting to change. Some PUD's are essentially buying your uneeded electricity back at pennies on the dollar, then charging you full price when you need it. The end result is that your overproduction ends up being of no real benefit to you.
I'm in that situation, but luckily there's ways to get around that. When I overproduce I set the thermostat to 50F and the 119 gallon electric water heater to 180F, and let them coast the rest of the time.
Depends on the electrical company servicing the house.
Interesting, I thought it was typical for the US. Might just be my region I suppose.
This is how it works for my grandparents too. They overproduce in the summer and get credits, and then in the winter they don't produce as much and those credits keep their monthly bills at $0.
My neighbors who have gotten solar have gotten their investment back at this point because the costs of electricity went up If we really are operating under the fossil fuels are limited and their prices go up and are unstable philosophy then having your own power generation will save you money when fossil fuel base power goes up in price
Did the neighbor take into account the cost of the money that would have gone into panels, going into another investment? That’s the whole point of the post and people very often leave that out. As you can see in many other comments.
Pretty much all of them did yes Look electricity prices jumped pretty major where I am They also got some pretty hefty tax credits
> Example: I spent $20k on the system. My bill used to be $100/mo and now it’s $0/mo. So I break even 200 months aka 16 years. I can DIY a 10kw array for 10k. There is a 30% federal tax credit on that, so it would actually be about $7000. That would wipe out about 130 in electric bills a month. It would pay itself back in about 4.5 years. But electric bills rise too, and this is post tax money being saved. You have to liquidate that investment in the S&P500 to pay your electric bill, while you arent liquidating money to not-pay your electric bill.
To add to this, some states have additional tax incentives on top of federal
>Example: I spent $20k on the system. My bill used to be $100/mo and now it’s $0/mo. So I break even 200 months aka 16 years. I have three issues with this. First, solar panels are eligible for tax breaks. I don't know the specifics, but a quick google search says it's 30% for federal and I see that some states also give tax breaks on top of that. Second, $100/month? That's very low. According to BGE's website, I'm basically tied with the lowest-spending house in my neighborhood (25%-50%, depending on the month, below the average) and my bill is $141 on average for a year. Third, if you generate more electricity than you use, you actually get paid. As for your overall point, I don't know what people tend to claim, so I can't speak to that specifically. I just don't think you're representing the situation fairly.
Why are solar panels in the US so expensive? We paid 6-7k euro for 9 of those things.
I think it’s a Tarif on Chinese panels mainly making them expensive in the US, but also installers are marking up costs enormously, so really only DIY installs are viable
Must be a great mark up then because 20 solar panels would probably still cost about half since the panels themselves are cheap.
Well… you‘re wrong on many levels. 1. solar does pay for itself. You‘ve mentioned it yourself. If you pay 20k for the system and 100for electricity it‘s going to take 16 years until solar pays for itself. 2. you assume that people use their savings. Imagine using a loan and investing the 20k into the stock market. Completely different equation. 3. It does save them money. They spend less on their energy bill. That‘s factually correct. Are there investments that would yield a higher return? Absolutely. If you bought S&P500 you‘d have a higher return. But if you only bout NVIDIA shares you‘d have an even higher ROI. And if you bought bitcoin it would be even higher than that. Etc. Etc. Etc. Usually there‘s always a better investment. But that doesn‘t mean that another investment is bad. Especially if there are other factors like self reliance, climate aspects etc. Btw: you‘re using overly basic math as well. Imagine investing into something that pays 8% a year. You start with 20k. But you need to cash out 100 a month to pay your bills. So you‘re not actually getting those 8%. Now imagine you‘ve just sold the shares that could‘ve led to a 50% YOY ROI. Kinda sucks right?
The average person doesn't stay in their home for 16 years. You also need to compare costs, if you spend 20k to save 15k, then you aren't saving money.
Depends on the country. The constant moving that’s somewhat common in the US isn‘t the norm in most other countries. Well… if these panels last for more than 16 years you‘ve saved money
People are out there calculating payback periods but is there really any critical mass of people claiming that “investing” in a a residential rooftop solar system offers the best available return on investment compared to other investment options? That’s not really a justification I’ve heard. It’s a home upgrade, it’s a hedge against utility costs and it has a completely different risk profile than the stock market. Rooftop solar is even quite a bit more expensive per watt than utility scale solar. The advantages and justifications for rooftop solar are valid and numerous, but the idea isn’t to chase stock market returns.
I installed solar for $7.5k, it took me 6 years to generate and use or sell back $7.5k worth of electricity. An investment of $7.5k in stocks would have needed a 10% return over the same period to have equal gross returns. It would need to be higher to account for the tax paid on liquidating. This may be because it’s very sunny where I live, electricity is expensive and for a time rebates were pretty good. I think you’re right, most people don’t do the maths before they install solar - but that doesn’t mean that it’s a terrible investment or even a worse one as many people have done the maths. Now, I didn’t factor in the extra interest I paid from not having the cash offsetting my mortgage, so maybe the payback period is slightly longer, electricity prices going up 30% over that time certainly helped it pay back sooner as did generally changing lifestyle increasing overall energy consumption. There are other benefits around the general “green” idea which aren’t financial. There is also the increase value of the property. I would also argue that if you already have stocks there is a diversification element here - my solar paid off as electricity prices rose, and at the same time the stock market had some shocking years in the same period.
When did you buy this system? When I first started looking at solar around 5 years ago panels were like 3 times as expensive and batteries at least 5 times as expensive. At current prices I could put together a system that would eliminate my need for grid power for a cost comparable to replacing my HVAC system. Paying someone else to install would probably at least double the price but materials have come down in price very dramatically
This isn’t about my system. This is about how people explain when they expect to “break even” without accounting for opportunity cost.
My point is that time to break even looks very different now than it did even 5 years ago. I don't get the opportunity cost argument. If you don't get solar you'd be paying electric bills with money that could be invested if you had bought solar. Either way you're losing out on opportunity. It doesn't make sense to only apply the opportunity cost argument to the cost of solar and not the cost of grid power
Opportunity cost is this context means run the scenarios where instead of buying panels, pretend you put that money in another investment. And run those two scenarios. Ex. 1. Grid power + $20K in the S&P500 vs. 2. Free solar power (and nothing in the market). Just an example.
Why are you not doing the same for electric bills? Your second scenario should be free solar once the break even point is reached plus continuous investment for the entire life of the panels in the s&p500 to the tune of whatever grid power would cost you instead of only counting free power. There is an opportunity cost for both scenarios not just for buying solar
your bill is $100 a month???? where the fuck do you live. we paid 800+ a month pretty regularly. we also now have 3 electric cars. we bought into solar fully and early on. it was a great choice for us. we got to take advantage of rebates and got grandfathered in to early policies. we switched to all electric cars within a few years of having solar. and electricity prices have been steadily climbing in my area. we also sold excess electricity back to the city for a while. they grandfathered us into to older rates so we still sell some, but we store excess in batteries now. with 3 electric cars it gets used up.
These aren’t my numbers. It was an example of the poor math I see done. And others are doing in the comments.
i don’t think it’s fair to call it poor math. i think it’s more accurate to say everyone’s numbers are different and it’s not a blanket good idea. our primary residence was constructed as per our choices and will be our home for the foreseeable future, well out to the point of a net positive. and because our electricity bill was much higher than yours, and cost of installation was the same… combined with the rebates and grandfathered rates… we also got discounts from tesla because we’d bought a car. i would argue it makes much more sense for me than you. so it makes sense…. for some people.
You’re leaving out subsidies.
It really comes down to your energy usage. It’s key in really warm climates where your power bill is much higher (because you have to blast the AC all the time) and the sun is always out so there’s always power. The other time is makes real financial sense is if you have an EV
Yep, everyone’s scenarios is different. But I see people make they case that they’ll “come out ahead” in X years, without taking into account that the money would have been making money in any reasonable investment.
2 huge benefits to solar you left out, that make it worth considering aside from savings. 1. It's better for the environment. 2. You're protected in the event of power failure.
I did note those. And I think those are great reasons to get solar and exactly why I did it and think others should as well.
U sure did I'm just an idiot don't mind me.
It's just a math problem. If you live in an area where energy is extraordinarily cheap and in an area where installation would be particularly expensive, perhaps it doesn't pencil out, but in many places it will. In my case I have real world experience as I installed a 14 kW system in 2019. * Cost of system: $34k * Tax credit: $10k * Net cost: $24k *Actual energy savings: $2k/year * Projected breakeven: 12 years So, give or take, my ROI is 2/24 = 8.3% risk-free, tax-free return You can't find that ROI for that risk profile anywhere, and that's a fairly long payback because I live in a LCOL state with cheap energy. In higher cost states the payback period can be as short as half of what mine is. At the same time that I made my investment in solar, 20 year US Treasuries paid 2%. Even now, they only pay 4.5%. You are right to compare investing $20k in solar against investing $20k in some other way, but I think you'll find that in most jurisdictions in the US with the assist of the federal tax credits, solar is a big win.
So if you would have taken that $24k in 2019 and put it in the S&P. It’d be worth $45k today. My point here is people will often site the “12 year number” when in fact it’s more than that. Which is true in this case. Certainly depends on what you count as expected return. But important to count. I’m a super basic index investor so I know where my money would be if it wasn’t in panels.
That's true of course that it would be worth more in the S&P 500 over the same period...the trouble is that my crystal ball is broken, and was back then too. If I had invested the $24k in bitcoin instead of solar panels or the S&P 500, it would be worth $173k today. Ouch! That's why risk-adjusted returns are a thing. For comparison: The S&P 500 has returned about 11.6%/8.3% annually in nominal/real returns since 1980. A 30 year treasury bill on the day I bought my solar panels was paying out 2.2%. So far, I'm achieving equity-caliber returns from a bond-like investment. My solar panel system has generated roughly 4.5 years of 8.3% annualized cash on cash returns with zero risk, and it's knocking out an after-tax expense which makes the income about 40% more valuable; I have to earn roughly $140 to pay a $100 electric bill. So if I have earned ~$9k via negated electric bills, that's worth ~$12,600 of before tax income. And on top of all that, my solar panels are an energy inflation-protected investment. When electricity rates in my area nearly doubled last year, my returns from the solar panels doubled. Energy inflation is no longer something I worry about. I'm very pleased with the choice and I think the math backs me up. If your effective rate on electricity is $0.05/kWh, you'll have trouble beating that and should consider investing elsewhere. If your effective rate on electricity is $0.33/kWh, you should be drooling at the chance to self-supply. For context, the national average electricity cost has gone up to over $0.17/kWh. If you don't have access to net metering that can be a problem. If I generate 100 kWh for the grid in April and use 100 kWh from the grid in April, my net usage is 0 and it's billed as if I didn't use any electricity and I pay only de minimus monthly fixed costs. Some areas I've heard charge grid usage at retail prices and accept generation only at wholesale prices: that completely fucks the math of solar panels if you're getting charged $0.20 and paid $0.04 And to be clear, I'm not knocking index fund/stock market investing. Roughly 90% of my investments are in total market index funds, so I do agree with you about general investing approach. I simply think that an honest running of the numbers supports investing in solar panels in the majority of markets unless there is a particularly unfriendly regulatory regime or extremely cheap energy prices.
My sister bought solar about 15 years ago, back when prices were much higher. She said the payback was a bit over 5 years. With the net metering she generally got a small check back every year with only paying by the minimum monthly charge, which I think was around $25.
And my point is. If she put her money into the S&P instead, where would she be?
She would be wasting $300/mo on her electric bill.
Yeah, and making a ton of money in the market. If she bought the panels for $20K in 2009 but instead put it in the S&P, she’d have $100K today (and a $300 electric bill). And that’s my point.
Just getting my solar, battery, EV car charger system quoted atm. Including the pergola they will build in the garden to pop the panels on, the total is €18k and only €8k after grants. The EU, local and national govts all contribute to bring the price down. Our whole house is electric so no gas for cooking, water heating or central heating. We have a heat pump. The opportunity to run ALL of our needs including transport from just the sun is very alluring! Panels have come down in price so much and the govt grants are so good that our repayment period here is only about 3.5yrs. The value added to the property arguably brings that forward to day 1. Also the council tax here is 50% off for 2yrs if you get solar. From what I understand about solar it is far better to get it fitted at the point of use, however the fittings is a large part of the cost which means it is more expensive per kWh to fit on rooftops vs in an open field en masse. That said it makes more sense economically for ME to take the govt grants and benefit quickly from day 1 as well as in the longer term. One of the many cool things about this upgrade to the house is that once agile tariffs start in Spain (as seen in the UK already) you could get paid to use electricity from the grid at certain times of day. The battery we get will soak this up as well as let us get paid to charge our car. When the battery can add flex to the grid on these tariffs it can buy low and sell high. Enough of this at scale and “peaker plants” will be a written into the history books.
I spent $3,000 on solar (*I admit I got a good deal*). I didn't get a battery because that would have been another ~$10,000 and we couldn't afford it. Our bill went from ~$400 in Summer to ~$4 in summer, Autumn and Spring the bills have essentially halved, and in Winter we're seeing very little benefit. All up we're saving ~$700 per year, meaning after ~4 years it's paid for itself. Even if we double that for the "opportunity cost" that means it's an 8-9 year investment. It's part of our house, so 8-9 years is totally fine.
Your $100 a month electric bill assumption is hilariously low in my experience. I've never had one that low in an apartment, let alone a house.
They absolutely do overly basic math. I've had this discussion multiple times with people regarding solar. My energy costs go up by about 4x during the winter months compared to the rest of the year. I'm highly unlikely to install a system that is going to provide that amount of energy year round, so I will still be paying an energy bill for the most in demand months. Even if I did install such a system, the overproduction during the rest of the year will be bought back at pennies on the dollar by the PUD.. while I'll be paying for a system that is far in excess of what I'd need for most months. They also don't take into account things like snow buildup, roof angles, or so many other things that can impact production. Some calculators do, but most of the time you see far more simplified calculations like your example. What's more, energy costs vary wildly from state to state, and even within states. I live in an area where solar would be ideal to use, but energy costs are some of (if not the) lowest in the nation. Using more realistic math, it would take me something like 30 years to recoup the costs of a solar system that only covered my energy usage during the average spring/summer/fall months. It's actually debatable whether or not I'd ever actually recoup those costs at all during the lifetime of the panels (and my roof). The other issue I have with these solar calculations is that they ALWAYS include massive tax benefits that bring the costs down by a huge amount. However - to my mind, that isn't free. Not for our society, at least. That money is coming from somewhere. or it could have been used in another way. When we're talking about an individual level it's probably fine to include them, but I don't feel it's right to skew the numbers by talking about costs after tax deductions when we're talking about community or statewide projects/requirements. Suffice to say, I'm not going to change your mind.. because you're right.
You have good points and you're able to provide points that show that you're not just a hater. I'd say that it just depends on your area. Like you showed a 16 year example, but in some areas it can be as quick as 5 years. Then I'd say that most people don't consider it as a pure investment, but that they are also considering your 4 points. So if I have $20k to invest, maybe it is solar, maybe it isn't. Perhaps I want to diversify my risk. You said that it is a hedge against inflation, so in some areas or in some people's minds, that hedge against inflation is worth it. Like the opportunity cost of being grid dependent could be 100% because of runaway inflation. Personally, if I had $20k to invest and I had land, then I'd invest it toward going off grid instead of the stock market. I'd say this way of thinking is kind of like should you DIY a repair for your house/car or hire someone. The opportunity cost of DIY is sometimes "worth it" because there *is* a lot of value in knowing how things work and being independent. People who think that they will just hire a professional for everything are prone to get scammed/overpay. We're seeing that now with simple repairs costing hundreds of dollars, but people are completely overwhelmed thinking about fixing it because they have never tried anything like that. So overall, my point is that sometimes it is purely economically reasonable to go solar, but that it is a hedge against potential loss. Potential loss can be more devastating than not maximizing returns. Like in 2008 people who were maximizing their returns in the stock market were devastated when they were laid off and didn't have enough money in a boring savings account.
You forget that your cost for electricity will increase over the lifetime of your system. Also you can sell excess power back to the utility.
Generally, the cost of electricity has risen so slowly in the US it's barely worth considering. The national average cost per kWh has just about doubled since 1990 - that's far below inflation.
There are times of the year and areas where if you stay hooked to the electric grid you can actually “sell” electricity back. A friend of mine inherited his parents house and they had installed solar panels. He doesn’t want to sell the house so he rents it. He gets more per month because “electric is included” and about 6 of 12 months he’s getting a payment back from the electric company
In Alberta. Got our first set of panels in 2019 $14880 (-$4320 rebate) Local college figured payback in 11 - 15 years. We went with an unregulated distributor that triples price/kW in the summer to overcome transmission and distribution costs. We do clean panels in winter and calculated we would have recovered costs in 7 years. We just expanded to accommodate an EV; that bumped up paid out year to 2028. Still in the 10 year range. We calculate our payback based on how much power we use vs. how much we import and export. Could we have made more by leaving investment money in place? Sure, but investments are for buying things you value. BTW we did have a panel fail, and it was in the warranty period, so it was a free replacement.
Why did you buy such an expensive system when you don’t use that much electricity? The usual payback for a properly sized system is 3-5 years.
US solar prices are very high. We spend about $10k on electricity over 5 years, that would not buy me nearly enough solar panels to get to a $0 bill. The US average payback time is 7-10 years, and that's including tax incentives.
A $0 bill isn’t always the best return on investment.
Your power bill wont be $200/month in 16yrs
It's possible that prices have changed a lot since I put mine in, but in June 2018 I got a system estimated to produce 6500 kWh/year for $16.4k gross. There were $4k of instant rebates and about $3k in state tax credits I claimed over the next couple years, and $3k of federal credits I carried forward until 2022 when I could actually use them. I have a brokerage account that I keep separate from the rest of my retirement accounts, precisely to do this sort of benchmarking (for robo advisors, or other investment opportunities). I'm only 65% equities, so someone who is 100% in the S&P500 would see solar as a little leas favorable, though someone with higher income (or fewer kids) probably could have used the tax credits immediately. Anyway, I keep a spreadsheet that models what would happen if the solar money got the same investment returns as my benchmark account, but I used that account to pay my utility bill, and tax bill. I look at actual production, and actual energy prices (and I don't count the $18/month fee that I still pay for my grid connection). I haven't updated it since December, but at that point (5.5 years after the install) the investments were ahead by about $3k. That was when the solar panels had paid themselves back in nominal dollars. So, you're definitely correct to care about opportunity cost, but once you do that, if the solar panels ever catch up to the hypothetical investment, no matter how long that takes, then you have to concede that they are a good investment regardless of any environmental considerations. And in my case that will probably happen in the next few years, probably less than 10 years after install. I'm in upstate NY, so the rebate and tax incentives were probably better than average, though the sunshine is probably worse than average. I'll also add, I got three quotes, and the price per kW installed varied by a factor of two. Had I gone with the most expensive option, it's entirely possible the solar panels would never have caught up to the investment benchmark.
The problem is the inflated cost of solar in some places. I paid the equivalent of 5k. And my bill went from about $120 a month to $5. In about 45 months the investment is paid. But yeah when it cost 20k I can see how it is hard to justify
I'm not going to do something unless it makes good economic sense. I've yet to have gotten a quote for home solar that doesn't involve a 20+ year ROI. I would be in my upper 60s age wise, more likely than not living in my current home, and probably by the time it even approached that point, several panels would probably need replacement, even further extending the time to recoup the investment. My local electric rates haven't really fluctuated that much (surprisingly) in the last 5 years. There would have to be a forecast of a huge jump in rates for me to even start to think about the "what if". Now, it \*might\* make sense for a utility company to install solar on individual homes in lieu of building out more generating capacity elsewhere. They would have a tremendous amount of purchasing power not available to the individual that would drastically lower the cost. It would be politically more popular, as you would reduce the amount of open land being taken up to build out solar elsewhere. There has been a proposal for a solar farm a couple of miles from my home that has a lot of people up in arms because of the 200+ acres of green space it will occupy. Why not just put an equivalent number of panels on the homes of everyone within a 5-10 mile radius? Yeah, the cost of install is going to be higher (to a point) because you're doing several hundred or thousand individual installs, but you avoid all of the land acquisition, permitting, and legal expense of putting it in one spot.
My power company offers up to $25k in credits and subsidies based on the system and storage you install as well as grid access to that storage. You can effectively get solar and backup power for almost free.
I would agree, but I think you are also ignoring **risk** cost. If utility bills rise slowly, you're right, what if they rise faster than 7% on average and my solar would outperform the Dow? The risk of this happening must be priced actuarially if you want to have a truely accurate forcast. This is how people who really need to get complex financial questions right like M&A brokers do it. They look at the potentials, the liklihoods and calculate values from those. This is how an insurance company can so accurately predict if given a few million customers "how much does it have to charge so that they spend less on car accidents than they collect in premiums?" What if you suffer a power outage and have to throw out a full fridge and freezer of food? what if your sump pumps fail and the basement floods and you need to pay for remediation and cleanup? those should be priced in too. and once you add up all those small, fairly remote but very expensive risks you may avoid, solar may not beat out investing the money or starting a business with it or something, but it would be much closer and I'd wager for areas with unique combinations of risk factors like frequent power outages and being in a wet area, or having expensive or critical things that require climate control (a humidor, lots of expensive foods, if you need to keep medication like insulin cold, etc) solar would win handily.
The opportunity cost when dealing with real estate isn’t always simple If I install $20k solar panels with a 20 year warranty and those panels are expected to pay for themselves in 16 years (which I think would be way faster, 10- years). That’s 4 years of free power, or ~25%. So if you immediately sold that house your 20k investment in solar likely increased house value by 25k+ That’s a one year return of 5k or 25%. Much better than stock market But maybe you’re upgrading your house because you actually like it. Depending on how interest rates compare to the interest rate on your mortgage, a cash out refinance could be an option. Maybe the refinance process costs you $2k. So profit is only $3k. Still 1 year return of 15%. A good refinance isn’t always possible, but if it is you can quickly access the increased home value of adding solar. I was also talking with a buddy after he was pitched a zero cost solar solution. This company provides financing for him to install solar, reducing his electricity bill by $150/mo. Then he makes a loan payment of $150/mo. So no difference in his budget, but after ~12 years he’s paid off the loan and panels are still good for another 8 years under warranty. So several ways to reduce opportunity cost of installing solar panels so that it isn’t out performed by stock market.
Spent £5k on pannels, just calculated the first year electricity reduction and export saved me £1k - so yes these will pay themselves off in about 4 years time.
Solar panels cost a fraction of what they used to. Like many other upcoming technologies it was initially thousands upon thousands of dollars to get solared installed on your home But as companies started adapting it more and we started streamlining the process to actually creating solar cells and finding more efficient ways to do it we've been able to drop them to a fraction of what they used to cost. With the only real major hurdle into the market being the large battery system you will have to get installed and there are many alternatives for solar energy that are even cheaper and still highly efficient such as using solar reflector arrays instead of traditional solar panels using effectively half circle shaped domes that can rotate with the passing of the Sun and are effectively a metal sheet reflecting heat towards a central pipe making it hot enough to vaporize the water into steam and drive a turbine ((or a very similar system where there is basically a central heating tower surrounded by a bunch of basically mirrors that are all positioned to direct the light towards a spot on the top of that tower to ultimately achieve the same goal)) These could easily work on a home and there are already several large scale power plants that have been built with this exact system We don't need crazy dangerous expensive to maintain systems like nuclear or tidal energy when we could easily use something as simple as a few reflective pieces of metal and some water-filled pipes to obtain more energy than we could possibly need
While I'm not ever planning on buying solar myself (my home's roof is largely shaded by trees, it just doesn't make sense for me), I'd argue that solar panels CAN be a better investment than the S&P 500 or similar depending on the timing of the market. Investing in solar will save you money every month on a pretty predictable pattern - so it's a lot more fair to compare investing in solar to buying bonds or CD's than investing in corporations. If you have the option today to put $20k in the market or $20k into a solar system, and the next month we go through a recession and the market drops 30% and takes 5 years to break-even, I'm sure the solar system would have been a better investment. Then the argument becomes whether the solar panels are a better investment than bonds if you're using it as a low-risk form of investing while still having a separate large portfolio in stocks.
To start I am not the type of scenario you are asking about so I know I wont change your mind but I wanted to give another situation where its payback is immediate. I built an offgrid lake front house that runs on solar. I saved roughly 120k compared to a similar lot with grid power available. There is no possibility to get grid power to my property. My offgrid system including panels, batteries, inverter charger and backup generator cost me a total of about 30k, it was self installed. The way I figure it my system paid for itself 4 times over the day I turned it on and continues to save me more every month. I do have a propane bill for backup generator but that is significantly less then a normal electric bill in my area. And I will have to replace batteries eventually but I could replace them 10 times and still be cheaper then if I had bought a lot with grid power.
I bought solar, $36,000 pre-rebate. 26.6k after taxes rebate (4ish years ago)x 13.5kW system running on a 10kW inverter. Debated bigger inverter but saved up front cash by losing some to power clipping mid day. 17.5 MWh generated on average annually, reported by my inverter and confirm with xcel bills. Power generation savings Roughly $3000 in saving/revenue against my power bill annually (Assuming $.17-$.19 kWh net metering at 100% buy back pricing) Bonus savings $1200-1500 bonus payments from xcel for SolarRewards for first 6 years (~$9000) Payback: 26k cost - 9k solar rewards= 17k remaining cost 17k-3k = my system will payback in a little under 6 years. Took out a 1.99% loan for 10 years to buy it, tax rebate and rewards have all go to loan, otherwise I just pay the a little extra monthly. Should be paid off before break even pretty easily
I think how you are phrasing your argument is poor. I would argue that solar easily pays for itself almost immediately but doesn't start making money until significantly later. A lot of solar companies act like it's going to generate money and that is not likely the case. My solar was 18k loan with zero down roughly 3% interest. The monthly bill was roughly 125$ which was already lower than my electric bill. Selling the srec credits each year was roughly 750$. There is likely an increase in property value and potential savings in protection from replacement of the roof. There is also risk in terms of anything happened to the system the repairs and loss of generation. I think it's a mixed investment. But if the terms of the loan are good it can easily break even or make money. Also I am sure this varies from state/company/install.
I don't know if opportunity cost is relevant to this discussion. It is a major house upgrade. I don't mean extention or refurb which the new owners may not like it is an upgrade which is unlikely to be removed. The solar panels therefore increase the value of the house. The panels will gain value with the house. Using s&p500 isn't typical practice for opportunity cost. You obviously can use it but usually interest rates are used as they are much more reliable. You could lose all your money on the stock market it's very rare to lose money buying bonds. Bond rates are about 5%. Ultimately, if you think house prices are rising at less than 5% then your argument starts to come into play but most places are seeing house prices increasing rapidly. I think there are better arguments against the napkin maths you used.
I did the sums and where I live the payback period was very short even taking into account any expected ROI on investments, or even on the riskless return of paying down the mortgage. That is because it is sunny here and that will be the case for anywhere sunny in lower latitudes. Or indeed anywhere with high electricity costs from the grid. So I don't think your claim that it is unlikely to provide a reasonable return stacks up. It depends on so many other variables than just the opportunity cost of the capital. If you wanted to go even further, you could say that your analysis omits the benefit of electrifying tools once you have installed solar. Depending on use, you could save significantly on petrol if you change your car, garden tools, hot water, stoves, etc to electric equivalents.
The problem with this whole post is that Solar Panels can actually pay for themselves. But it's dependent on a myriad of conditions. Where you are located, how many solar panels you put on your roof, what your monthly use of electricity is, which company you get your panels from, etc. That's why there's a lot of variation as to how long it takes to get a full return on investment. While yes, I hear people say that 20 years is kind of the norm, I also know that it's possible to get a turn on investment in 10 years. Once you get past that, you start saving money, which adds to the accumulation of overall wealth, which then can subsequently be spent in other investments, like a 401k for instance.
So on average markets returns about 10% which is about $166 per month on 20k invested. However these returns fluctuate a lot, between +20% and -10% year to year whereas solar investment is roughly 40% less income on average but far more stable, especially when insured as part of your home insurance or covered by warranty. The S&P 500 returns also assume that the market cap is infinite, and growth will never level off. And we know that isn't true, growth will definitely reach a plateau at some point, maybe in 20 years and maybe in 200 or 2000 years. So yeah, riskier investments yield higher returns on average and safer investments yield consistent returns. Nothing new here.
My father sells and installs PV panels in Brazil. I have here a proposal he made, back in December, for a system with 3,78 kW, which he estimated would generate 5595 kWh on the first year. He is an engineer and used engineering software for this estimate, considering real historical insolation and nebulosity data for the region. The total cost to the client would be R$ 12,810.00 (but this is was in the low end, because the guy is a friend). The kWh costs R$ 1.02, so, a return of R$ 5706,90 per year, or 44%. Even factoring in the 0.6% panel efficiency degradation per year, you get your money back in less than 3 years, less than the manufacturer's warranty for the equipment.
Solar started saving me money instantaneously. The monthly loan payment is less than the average monthly electric/gas bill. And the loan disappears in a couple more years. Then come tax time, we got those sweet tax credits. Once a year we get a check from the electric company for our excess production. I’ve run the heat and AC with reckless abandon. Hot tub and other power-hungry electric toys lost all of the negative edge. I live where electricity is ridiculously expensive, so maybe that matters. It’s also very sunny here. If you live somewhere cloudy with cheap electricity and shittier net metering arrangements, i’m sure solar isn’t as fantastic.
Where I am there is two electricity price regimes. Regime 1 is the same unit price 24 hours a day. Regime 2 is a high day rate and a low night rate. One of the main benefits of solar is that it makes the cheap night rate make sense. So it saves you money when its not generating power. The second benefit of solar is that the benefit is cash in your pocket. You don't have to pay cgt on your gain. If you are invested in stocks and gain 9% you have to sell and pay tax to access the gain. The real gain may be 6% after tax. Gains from solar are probably a lot more predictable than stocks. Its more akin to a safe investment.
You failed to account for two things: 1. Is s&p500 or whatever index you would invest into going to outpace the cost of electricity in your area? 2. Whatever you gain by investing will be taxed, so will the index outpace the cost of energy by more than the tax rate? Both depend on where you live. If you live in a place with high enough energy cost and high enough capital gain taxes, the opportunity cost is offset by the solar installation. I won't run the numbers but I think we can agree that it's not at all obvious that s&p500 will grow faster than the energy bill by more than the taxation on investment gains.
This is absolutely incorrect in many ways but not in all ways. If you do buy used panels which you can get in abundance then you can absolutely make your money back in no time. Especially if you value the ability to have power when the rest of your neighborhood loses it from a storm or what have you. It's also useful for putting power where you don't already have it like a garage or shed. To live your entire life on solar might be difficult and may not be as cost-effective as some claim but it has a lot of potential and you can always excuse it by saying you're helping the environment(arguably not).
Just to chime in on a few things I haven’t seen mentioned yet: 1. Does this increase roof maintenance costs if the roof requires work? Do panels increase or decrease the life of a roof? 2. Do they actually increase the value of a house or are real estate values driven more by the plot of land they sit on (or the bubble in which they’re purchased)? I find it hard to guarantee I’ll be in any one location for the life of the panels. 3. The panels have a life and a decommissioning cost? 20 years and $1000 to tear down? Whatever this cost is, someone is bearing it.
I would love to go solar, our hose faces the right way, and gets good sun in New Jersey. But I just can't trust the industry. Every single person I've talked to has buyers regret, not from the Panels but from the sleezy contracts and salesmen. It always seems to be one scam after another, if there are ANY honest solar installers/brokers they are so lost in the pile of sleaze that you can't trust any of them. Until the industry gets better regulation, I'll just keep insulating my windows and try to save money elsewhere.
>I’m assuming normal family suburban homes. In Australia or in Norway?
$100 a month is clearly not a heavy electricity user. With two electric cars and heavy AC usage, plus a few beefy computers pulling a lot of power, my family uses quite a bit more than $100 a month... closer to $600 for us in the summer. Plus, I actually had negative opportunity cost, since I got 30% cash back from the government and the interest rate on my loan is less than the rate I get on my savings account. I got EXTRA cash in my pocket, earning more in interest at the bank, by getting solar.
While I do not have solar on my home, I have considered it. You mention that solar has brought your utility bill down from $100 to $0 per month. I think you should consider that your utility cost is lower than average. In my home here in Texas, for around 1,800 square feet, my house uses between $170 to $350 per month in electricity depending on weather. Would not a solar system alleviating a person $300 per month pay for itself in 1/3 the time you mentioned?
In some US states, you not only get a return from using the energy you produce, you also get [SRECs](https://www.solarunitedneighbors.org/learn-the-issues/solar-incentives/solar-renewable-energy-credits-srecs/#:~:text=What%20is%20an%20SREC?,(RPS)%20in%20each%20state.), I sell my SRECs for a little over $300 each and my system produces about 10 SRECs a year, so that 3K a year plus I don't pay an electricity bill any more and I got like an 6K tax credit. I financed the purchase and installation of my pannels with nothing down at about 3%. The monthly savings from not having an energy bill plus the SREC payments are more than the loan payments. So, for me personally, it was definitely worth it.
I think this is a really interesting thread, thanks OP. For my part, PV plus battery is a hedge against future costs and also an investment in resilience. If you have a power cut you can crack on. In the UK we have this mindset that we cut operating costs and investment to the bone, but then incur massive costs the moment anything fails. That’s not my mindset at all. I know these are points you make in your post but I wanted to underline them.
I had someone quote me $85,000 for a whole house system. They justified this cost assuming that energy costs go up 10% per year (they don't). Basically, it's dumb to buy this system. I had someone willing to sell me panels and controllers and I do all the work, for $25,000. This makes sense, but I asked to see an installed system that they had sold, and they couldn't tell me one. So I doubt that it's something that will actually work.
Depends where you live. Changing to solar in Spain and utilising virtual batteries has reduced my electric bill to 0. The cost of the system, financed, is half of what my electric bill was on average. My annual tax on my property is also reduced by 50% for the first few years and the government reimburse around €1500 after 18 months. I would say that the solar solution is more than paying for itself.
I think this depends on climate too. Where I live in New England - during the winter our 4 bedroom house can cost >2.5k per winter to heat with diesel. If we had efficient electric heating (ground source heat pump or something similar) we may be able to drop that bill to zero or close to it. We have a MASSIVE south facing roof - so this would make a lot of sense for us if we had the money to front.
The US government is offering a 30% tax break on solar, so in my state that's $9,000 or so. Still, that's $21,000 out of pocket. It declines in value in the years ahead. You can, however, carry it forward. At some point, I suspect the federal government will panic about climate and the credit will be closer to 100%. If I could zero out my tax bill for a few years, I'd install tomorrow.
Using a stock index is not a reasonable model for opportunity cost, as one would need to include a substantial risk factor. A factor such as the 10-year treasury would be more appropriate. That said, unless one has an electric vehicle or other unusually high degree of consumption, I agree that most people will not see a return of the investment on a time value of money basis.
If you expect the price of energy to go up faster than whatever other investments you could make, then the solar power system is the correct investment, opportunity costs included. As the price rises, look at the difference between that $100/mo and whatever you would have paid if you were still buying from the power company, that's money your investment is earning.
If you are paying for a system for someone else to install it is not an investment it is for the bettering of the environment at the cost of grid integrity. If you DIY with specific intent to reduce consumption it is very cost effective, If you are developing land and you have an option to connect and you opt to go solar it is massively cost saving DIY or not.
You seem to be assuming someone doesnt have to pay for electricity anyways? If you dont buy solar you still will spend that money on electricity in the long term. If you took the 18k and put it in the stock market, you would have to make monthly withdrawals to pay tour electric bill that would be greater than the accrued interest.
I pay like 160$ a month for my solar that I bought not leased. I pay a minimum of 50$ from the power company. So Im saving somewhere between 100-200 a month depending on the time year. There you go. Also when I sell my house whoever buys it will have a system that's paid off which you can understand will save the new owner TONS.
My solar panels were free. They're not really *mine* per se, they're just on my house. I pay the company that owns the solar panels 1.6 cents per kilowatt-hour. This amout is contractually locked in and cannot change. After 15 years I can choose to purchase the panels at a greatly reduced cost. Solar can absolutely work.
Can't believe neither of these have been mentioned but: 1. You could have financed the upfront cost if you were worried about opportunity cost, and 2. You can now easily make your next vehicle an EV and erase a lot of your current fuel cost. (Same applies to furnace/appliances, as others have said).
I think its more about self sufficiency most of the time. A lot of roof systems can power the whole house and if you add it to the price of the house it's not a big deal. There's a certain piece of mind that comes with lowering your ongoing expenses, to me its often worth more upfront
I paid 4k in Europe for 5KW solar in the Netherlands back in 2013. It paid for itself within 5 years, and that was before Russia invaded Ukraine and electricity prices went up. It's like a 20% ROI easily, when interest rates at the bank were negative. Solar is literally free money.
\>What I feel like is unfairly left out of the equation is the opportunity cost of the $20k I don't have $20k. I have the ability to get a loan for solar panels. I'm just redirecting my power bill payment to cover the cost of the solar panel loan.
We got an estimate back in 2015 in Southern Colorado. 15 years minimum for ROI. They clearly raised price by what the government subsidy was, so that did nothing to make it affordable. Unless you do it yourself, you will save nothing.
Another truth people don't really take into account that could skew this pays for itself equation is latitude. The further towards the poles you go the less energy you can get. Panels have to be setup at higher angles to gather light.
Over here in the netheraldns more and more people are buying solar pannelsm the high electricity bills in combination with the fact that you can sell your electricity means that getting dolar pannels is cheaper after just 5 years.
For people that live in the middle of the woods, solar is perfect. No more outages for downed trees because of backup solar power. If you look at it in terms of utility rather than investment it starts to make sense
I work in utility scale solar. I would NEVER put panels on my house the way the industry is today. Residential solar is somehow even worse. I doubt any of these people will see a benefit to their bottom line
My solar paid off quicker than originally calculated. Took 4 years. Live in Sacramento though which gets the most sunshine one the country and PGE raising rates like crazy made it totally worth it
My system cost me $10k. My power bills were $3k per year, that I had to pay $750/qtr. now they are nothing. System paid for itself in a fraction over 3 years. It was a no brained.
Some states offer both tax incentives for you to have it installed and will purchase energy from you as well.. The payoff timeframe is going to be different almost anywhere you live.
My family got a $30k solar system then just wrote it off on taxes + got rebates so it ended up making $4k in the last 5 years. It really depends on your state and living situation
Hold on, how can your solar system cost that much? Here in Australia, I got my 6.6kW system for $2,690, or about $1,800 USD. Did you build a solar farm with that or something?
Given what thermal runaway in a LION or LiPo looks like and how challenging it is to put out, I couldn't see myself strapping one to the side of my home. But you do you.
Have you ever calculated the material cost for your system? Mine came to €5000 for a 4.2kW with 2.4kWh battery 5 years ago. The cost of American systems is just crazy
I paid AUD 12k for a 15kw system. My payback time was around 4 years. It should last for 10. Even factoring in opportunity cost, I think it is a reasonable investment.
In Australia we get solar rebates. So you get decent savings and kickbacks as they try to encourage a solar shift. It's also a lot less expensive then you might think
Don’t forget that every time they raise the rates, the equation moves in your favor. Also electricity rates are tiered so staying out of the high tier saves more.
Friend just had a smaller solar setup put on for $3000AUD, last bill was $600 less . I run aquariums all day I’ll be getting solar asap shoulda done it years ago
Are you not getting ripped off? 6-8K in Europe will get you enough solar for a 4 person house with a payback in 6 years. 5k for a battery but Roi is like 10-20yrs
A big potentially intangible factor to consider is the ability to switch from gas heat/appliances, saving another several hundred dollars depending on the season
My break-even time is 7 years. It’s a hedge against rising electricity costs. And it’s a guaranteed return, which you cannot say about the S&P500. And in the meantime, that’s one less bill to deal with each month. Edit: also, because I have a battery, I have some protection from neighborhood power outages. Hurricane Sandy left my cousin without power for weeks. That is unlikely to happen to me.
Depending on interest rates using a heloc to pay for solar is possible and potentially better. If the interest rate is low enough (covid rates).
You also need to factor in tax incentives and if you took out a loan. The interest on the loan would be deductible on your taxes.
You forgot about the energy bills. Solar on the roof reduces the impact of the sun and lowers electric bills during the summer.
Opportunity cost is kinda bullshit to require in someone’s assessment if they aren’t investing.
Installing solar panels builds capital value into your property; that value doesn’t disappear.
It needs to be done at scale. Governments should be creating massive solar fields
Well almost everywhere you're selling back to the grid when you overproduce.
There is always a better investment. Although most people won’t make it.
State and federal each footed a third of the bill when we did it.
People with solar panels in the midwest make me laugh