Quantcast
Channel: Bogleheads.org
Viewing all articles
Browse latest Browse all 4434

Personal Consumer Issues • Solar: how do you ever break even?

$
0
0
We are getting quotes for solar. After rebates, we're being told it'll cost anywhere from 15-20k, installed.
So what peak kw capacity? And, checking on the various websites online (I believe NREL ie the government does one) what is your output pa - Colorado is a sunny place, so I would guess something like 1200-1300 kwhr pa/ peak kw?
Our monthly electric bill (with a heat pump and EV) hovers around $125-150. It will maybe hit $225 in the winter (haven't had the heat pump that long, so I'm not 100%). My napkin math says that it would take around a decade for the panels to break even, assuming $0 in maintenance.

Granted, our electricity prices are pretty average in Colorado, but I'm really surprised that solar is this expensive. I've been told multiple times that "it's a no brainer with a heat pump and EV to get solar" but I guess I'm not seeing why? The savings just aren't there.

I've also noticed a number of homes that are in desperate need of other maintenance/repairs, are getting new solar systems put on the roof. That too has me scratching my head because if a solar system costs upwards of $15k, and the "break even" is a decade, why would people be spending that kind of money? These aren't houses with heat pumps and EVs either, so presumably their electricity usage is even less.

Is there a different way to think about this, or a calculation I am missing?

Does it ever make sense to only partially offset our electricity use with solar?
Savings PA = kwhr produced * retail price per kwhr + any export to the grid (net metered, RECs etc)

We don't know your retail price. The average in the USA is about 13.5c/ kwhr. In California for higher tiers of consumption you can pay over 40 cents. Hawaii over 50. Connecticut you can certainly pay well into the 30s. Perhaps other places in New England/ New York. OTOH in the southern states you can pay 8-10c.

We also don't know your kw for your system (capacity) and kwhr pa per peak wk.

So your calculation cannot be made without this information.

Ideally you would have a good idea of your electricity consumption. As a rough estimate, if you converted your gas consumption in BTU (over a year) to kwhr (from memory 3466 BTU = 1 kwhr but if you google it, you'll find a calculator) then divide by 3.0, you should get a pretty good idea of your additional electricity consumption in kwhr.

Then divide total cost of system / estimated annual savings to get payback in years.

That corresponds to a Net Present Value calculation at 0% discount rate (ie unrealistic). To do NPV properly you'd also have to derive a Terminal Value.

The way I'd suggest do do this is a very simple MS Excel model:

- assume a 25 year life with residual value = 0
(implicit assumption, if you sell the house after 10 years, buyer will pay the remaining 15 years of present value of the electricity cost saving to you. That's probably optimistic but there's a couple of other assumptions which are pessimistic)

- use real cash flows, not nominal. So just assume a constant spend on electricity - never rises faster inflation

- So in year 0 you have: cost of system + benefit for first year (saving)

Year 1-25 you have have benefit of the system (saving)

Then use Excel =XIRR(values, dates, [rate]) to estimate the *after tax real* IRR.

If you assume 2.5% inflation over the next 25 years, say, you can convert your real IRR to nominal, and then compare to what you expect to get from your portfolio, but you must adjust for tax on your investment returns (ie reducing them). If your IRR (remember this is an after tax number) is greater than your expected return on your portfolio, it's worth considering.

You could also do this using =XNPV but then the discount rate is required. I would suggest around 3% real. If NPV > 0 then the investment is worth making (adds to your net worth).

If you want to do this nominal you have to make an assumption regarding inflation of electricity prices.

I have assumed no financing costs:

- if these are leased panels, then just don't do it - too many issues when you come to sell the property
- if financed using a home equity loan, then your returns (IRR) basically need to beat the cost of financing

Statistics: Posted by Valuethinker — Sat Jul 27, 2024 12:42 pm — Replies 49 — Views 3190



Viewing all articles
Browse latest Browse all 4434

Trending Articles



<script src="https://jsc.adskeeper.com/r/s/rssing.com.1596347.js" async> </script>