Solar financial payback

[daniel]

I hope this is the right place for this.

When I got my solar install (36 Solar Edge panels and two Tesla Powerwalls) for the house (ignoring for now the cottage) the installer told me my estimated pay-back time (taking the tax credit into account) was around five years. I wondered how he came up with this, and if he really took everything into account, such as the lost income from the money taken out of investments to pay for the installation. Now that I've had the system running for close on to a year (so I know how much electricity I actually use) I decided to do some numbers, and I discovered that I cannot even find a meaning in the term "pay-back" or "break-even" time.

I've averaged 845 kWh/month and MECO, the utility here, charges about 35¢/kWh, so my average bill would have been (rounding a bit for ease of calculation) $300/month.

After tax credits (another reason for waiting until now: my tax return is done and I know the amounts) the installation for the house (panels + Powerwalls + inverters/gateway/installation) came to $45,100. On the educated assumption that the investments I sold to buy the solar installation were yielding 3.5%, the real cost to me of the installation is a reduction, in perpetuity, of $130/month of income. And since MECO charges me a $25/month minimum fee, of which I only use $7 worth (about 20 kWh) I'm also paying them $18/month for nothing so 130+18 = an actual cost to me of $148/month for my electricity, which would have cost $300, a net gain of $152/month.

How this can be turned into a "break-even" calculation, I am at a loss to figure. If I were to invest the saved $152/month in 3.5% investments, I have no idea how to figure how long it would take before I'd have enough to replace the whole system. I suspect that the 5-year break-even was based on bistromath (for fans of Hitchhiker's Guide to the Galaxy) but I'd have gotten solar even if it cost more than grid power. And how do you put a value on having power when the grid goes down? We've had a few power outages lasting a few hours each, but the longest mine was down was about 15 seconds, and I think that was because the A/C was trying to start.

Even just dividing my after-tax-credit cost of $45,100 by the $300 value of the generated electricity gives a break-even of 12 1/2 years, not five. They'd have had to have assumed an electric bill of over $700 to come up with 5 years, and even that does not count the lost income.

One final caveat: I over-built because I wanted to have power even on cloudy days. And I can afford it. A much smaller system would have maximized the economic outcome. A system half the size that used grid power during cloudy weather and the hottest months would have "saved" me more money overall, but that was not my goal. My goal was to minimize grid usage regardless of cost. (Though with two more Powerwalls I probably could have disconnected from the grid entirely. )

I am posting this in order to be brutally honest about the cost of solar, though none of this might be useful since I probably spent double what the most economically efficient system would have cost.

 

[daniel]

P.S. I found a compound interest calculator on line. If I invested that $152/month at 3.5% compound monthly, I'd have enough saved to replace the solar installation in 18 years.

 

[Need]

The way they usually calculate your break even years is by you taking out a loan. You monthly payment should be about the same as your electric bill would have been. And they will project an annual increase on the rate. So this year is $300/month, then the year after would be $310/month, etc... The amount of years that will take you to pay off the loan should be your break even point.

When they tell you 5 years, that can't be including the powerwalls. Even without the powerwalls, 5 years is too short for your system. I think when they quote you, they quote you a system will produce just enough for your last 12 months usage (not over built like you said). If you reduce your system to a 28 panel system, it will cost you about $25,000 or $17500 after tax credit.

So if you take out a loan of $17500 with a 4% interest rate, you will be paying $322 a month for 5 years. After that, you have no more loan so that's your break even point.

As your system right now, taking in the estimated annual electric bill increase, I think you will be at about 10 to 12 years to break even. I think that sounds about right. Powerwalls usually don't save you money. It is good when you are out of power! Normal system without powerwall if sized correctly will take about 5 to 7 years to break even.

 

[swaltner]

I'd ignore the Powerwalls and all associated installation costs when calculating the payback on your solar panels. That might remove half of your purchase/installation price from the equation. That's done to let you run your house when the grid power is out, not anything to do with saving money by installing solar panels to produce your own electricity. You get a lot of benefit from the Powerwalls other than lower electricity bills.

If you're going to include the Powerwalls in your calculations, you at least need to subtract off the purchase/installation/maintenance cost of a similarly sized gas generator with automatic transfer switch and whole-home UPS that lets you seamlessly run the house in the event of a grid power failure. I don't know what something like that would cost, but it won't be cheap, particularly the seamless transfer UPS part of that.

Another way to look at it is that your $45,100 purchase price at your stated 3.5% yield of the investments was earning $1,578.50 per year in gains. You generate $300/month or $3,600/year in electricity, so you went from getting just 3.5% yield on your investments to getting 7.9% yield. That means, you immediately make more money by investing in the home solar system than you made investing in whatever you had the money stored in.

For me, my $13,000 installation costs (installed back in 2012, and after the federal tax credit) generates about $900/year of electricity. That gives me a payback timeframe of 14.4 years. I wrote the check in 2012 and didn't think about it ever again.

 

[nwdiver]

When I got my solar install (36 Solar Edge panels and two Tesla Powerwalls) for the house (ignoring for now the cottage) the installer told me my estimated pay-back time (taking the tax credit into account) was around five years.

How many kW is your system? Solar Edge doesn't make panels so I'm guessing you're referring to the Inverter and optimizers?

 

[jboy210]

We work from home and need computers, internet, etc. one big factor in our quick analysis was loss productivity. Here in the land of multi-day power shutoff it does not take very long to make the Solar + PowerWalls a worthwhile investment.

With the PWs we are capable of running for multiple days without PG&E providing power. In my testing, this month we have been self-powered 100% of the time.

 

[Merrill]

I do not make decisions solely based on payback time, here in Northern California we have many factors to consider. I hate paying a corrupt monopoly anything, I hate paying big oil, I want clean energy and would like power during the PSPS situations. If it gets down to payback time I do not care if it is 5 years or 20, I will install solar and battery storage for the above reasons. Also why I purchased 2 all electric vehicles.

 

[gpez]

I've found it better to look at the expected rate of return of the "investment" instead of a breakeven analysis. The former can be done irrespective of opportunity costs while the latter needs to consider what interest rate you'd otherwise be getting on your capital.

I have pages of spreadsheets that will probably bore most but the analysis I did was to look at what the total all-in cost of the PV system was net of the federal tax credit then project out for 15 years how much the panels will produce given they'll degrade about 1% YoY. WA state had a production incentive of 18.00c/kWh for the first 8 years of production and my utility provides full net metering so each kWh I produce is deduced from my usage. My utility does not do ToU pricing but does charge at two tiers with the second being a bit higher (9.24c/kWh to 11.13c/kWh after 600kWh) and since anything I produce comes "off the top" it's always returned to me at the highest rate, including energy banked from previous months as part of the net metering agreement.

Rough numbers is that with the production incentive my $19,500 system will return about 11.6% per year for 8 years and 4.8% per year after. This does not consider depreciation of the equipment (they'll have a non-zero value during the lifetime of the system) and assumes that energy rates will continue to rise at about 2.5% YoY but otherwise structured the same. That last assumption is pretty conservative as the local utility is petitioning to change the rate structure from 9.24c/kWh and 11.13c/kWh to 8.73c/kWh and 12.51c/kWh for the first 600kWh and beyond, respectively. I believe this is an effort to move the cost of the increasing demand of electric cars on the grid to those EV owners. In a state like ours where capacity is fairly fixed (hydro) and electric cars are only going to become more common I believe this and other changes (like ToU pricing) will become the norm in the next few years. The PV system will only increase in ROI with those changes

 

[bkp_duke]

I hope this is the right place for this.

When I got my solar install (36 Solar Edge panels and two Tesla Powerwalls) for the house (ignoring for now the cottage) the installer told me my estimated pay-back time (taking the tax credit into account) was around five years. I wondered how he came up with this, and if he really took everything into account, such as the lost income from the money taken out of investments to pay for the installation. Now that I've had the system running for close on to a year (so I know how much electricity I actually use) I decided to do some numbers, and I discovered that I cannot even find a meaning in the term "pay-back" or "break-even" time.

I've averaged 845 kWh/month and MECO, the utility here, charges about 35¢/kWh, so my average bill would have been (rounding a bit for ease of calculation) $300/month.

After tax credits (another reason for waiting until now: my tax return is done and I know the amounts) the installation for the house (panels + Powerwalls + inverters/gateway/installation) came to $45,100. On the educated assumption that the investments I sold to buy the solar installation were yielding 3.5%, the real cost to me of the installation is a reduction, in perpetuity, of $130/month of income. And since MECO charges me a $25/month minimum fee, of which I only use $7 worth (about 20 kWh) I'm also paying them $18/month for nothing so 130+18 = an actual cost to me of $148/month for my electricity, which would have cost $300, a net gain of $152/month.

How this can be turned into a "break-even" calculation, I am at a loss to figure. If I were to invest the saved $152/month in 3.5% investments, I have no idea how to figure how long it would take before I'd have enough to replace the whole system. I suspect that the 5-year break-even was based on bistromath (for fans of Hitchhiker's Guide to the Galaxy) but I'd have gotten solar even if it cost more than grid power. And how do you put a value on having power when the grid goes down? We've had a few power outages lasting a few hours each, but the longest mine was down was about 15 seconds, and I think that was because the A/C was trying to start.

Even just dividing my after-tax-credit cost of $45,100 by the $300 value of the generated electricity gives a break-even of 12 1/2 years, not five. They'd have had to have assumed an electric bill of over $700 to come up with 5 years, and even that does not count the lost income.

One final caveat: I over-built because I wanted to have power even on cloudy days. And I can afford it. A much smaller system would have maximized the economic outcome. A system half the size that used grid power during cloudy weather and the hottest months would have "saved" me more money overall, but that was not my goal. My goal was to minimize grid usage regardless of cost. (Though with two more Powerwalls I probably could have disconnected from the grid entirely. )

I am posting this in order to be brutally honest about the cost of solar, though none of this might be useful since I probably spent double what the most economically efficient system would have cost.

Rarely do powerwalls pay for themselves. Many of us have them because either:

1) we want to give the big middle finger to our utility
2) we want to be prepared for a prolonged outage
3) we want to be as self sufficient as possible

For me, it was primarily 1 and 2.

Solar without powerwalls usually pencils out pretty well in utility areas that average 30c/kwh or more. The powerwalls really kill the calculation, however, even with tax credits.

 

[gpez]

Rarely do powerwalls pay for themselves. Many of us have them because either:

1) we want to give the big middle finger to our utility
2) we want to be prepared for a prolonged outage
3) we want to be as self sufficient as possible

For me, it was primarily 1 and 2.

Solar without powerwalls usually pencils out pretty well in utility areas that average 30c/kwh or more. The powerwalls really kill the calculation, however, even with tax credits.

Should have added this to my reply too - I specifically did not consider the Powerwall as part of the cost of the PV system because with full net metering and no ToU the only utility (pun intended) for the Powerwall for me is backup power (#2 on @bkp_duke's list). That required a separate analysis looking at the total cost of ownership and utility of a Powerwall vs a whole home standby generator vs a portable generator. The Powerwall won.

 

[bkp_duke]

Should have added this to my reply too - I specifically did not consider the Powerwall as part of the cost of the PV system because with full net metering and no ToU the only utility (pun intended) for the Powerwall for me is backup power (#2 on @bkp_duke's list). That required a separate analysis looking at the total cost of ownership and utility of a Powerwall vs a whole home standby generator vs a portable generator. The Powerwall won.

Agreed.

I recently did the calculation of what it would take for us to go 100% off-grid, and it's just not worth it. It's an exponential curve.

3 powerwalls meet 95-97% of our needs. Where we run into trouble is winter weeks where it is grey and/or raining here. Those days we often will not replenish the powerwalls from solar, and if we have a string of those together we then pull from the grid (even with no AC or car charging).

To go 100% offgrid, we would need 5-6 powerwalls, and increase our solar PV by an additional 50%. That would be to get to 99.5% self-sufficiency or higher. The problem with that is we are building capacity that is not frequently used, and we would even have to find a way to dump excess solar (ground it out or shut off the PV system) when the powerwalls and cars are full.

We are going to be installing a 4th powerwall, and increasing the solar by 10-15%, but we are no longer aiming for off-grid. Sadly, there is a viable function for the utility in our case.

 

[roblab]

P.S. I found a compound interest calculator on line. If I invested that $152/month at 3.5% compound monthly, I'd have enough saved to replace the solar installation in 18 years.

Well, I suspect you buy things at a Costco or a Best Buy to save a buck now and then. I'd recommend to anyone listening that they try to save some money by checking out lower priced panels and labor. I bought 32 panels from Arizona Wind and Sun and had the semi lay them beside my driveway. From there my wife and I moved them one at a time to the back of the house, and from there we shoved them up a ladder to the roof where my sister-in-law helped me put them on the frames I had built and installed myself. That was a dozen years ago, and they should last another ten as far as I can figure. I did not take out a loan, but borrowed from myself at around 2%. Of course, not everyone is able to do this, but is sure saves if you can at least help the installer in some way and buy at a discount.

I have no trouble believing my payback was less than six years.

 

[nwdiver]

Well, I suspect you buy things at a Costco or a Best Buy to save a buck now and then. I'd recommend to anyone listening that they try to save some money by checking out lower priced panels and labor. I bought 32 panels from Arizona Wind and Sun and had the semi lay them beside my driveway. From there my wife and I moved them one at a time to the back of the house, and from there we shoved them up a ladder to the roof where my sister-in-law helped me put them on the frames I had built and installed myself. That was a dozen years ago, and they should last another ten as far as I can figure. I did not take out a loan, but borrowed from myself at around 2%. Of course, not everyone is able to do this, but is sure saves if you can at least help the installer in some way and buy at a discount.

I have no trouble believing my payback was less than six years.

Yep; It's hard to have a payback period of <10 years with a pro install. I helped our electrician DIY a 4.6kW system on his home. Cost <$3500 for the panels, inverters, racking.... everything. After the tax credit that's ~$2500. He's saving >$800/yr. So his PV system will pay for itself in ~3 years.

 

[gpez]

Yep; It's hard to have a payback period of <10 years with a pro install. I helped our electrician DIY a 4.6kW system on his home. Cost <$3500 for the panels, inverters, racking.... everything. After the tax credit that's ~$2500. He's saving >$800/yr. So his PV system will pay for itself in ~3 years.

The price difference was such a challenge for me to get past when I was putting in my system...

I'm certainly not qualified to fully DIY but would have loved to have done as much of the project management and non-skilled work myself. For me the extra cost is mostly validated by 1) the permitting process being completely taken care of 2) better resale for when we do sell (this is not our forever home - a new buyer could easily be skeptical of a DIY install) and 3) some assurance that if something goes wrong it's warrantied and will be fixed at no charge.

Not to mention, despite what you may think based on how much time I spend on these boards, I don't have the time to DIY

 

[efusco]

Daniel,
I certainly think the 5-year payback was fanciful.
I would not include the cost of the powerwalls in your payback calculations. They are not energy saving/producing parts of the solar process. If you had not installed solar and had gone with a generator for backup power you'd never try to calculate a payback for that.

One other factor to consider would be the potential increased cost of electricity in the future.

I looked at my solar install as a long term investment. We installed ours at our lake house where the system currently produces many times more electricity than we currently use since it's mostly a weekend getaway location for us. However, we hope that it will be a retirement home in the coming years and having minimal electrical payments once our income is lower is important to us. Our payback may end up being 15-20 years if we figure in the cost of the generator and soon to be installed Powerwall (referral reward).

We anticipate electrical cost will go up. We did not figure in potential lower cost for solar going forward, which may have made it a wash and technically more cost effective to wait until we 'needed' the solar. that said, we're pretty happy to have it there. We have unlimited credits for our produced electricity, so we may have a year or two of free electricity stored up by the time we permanently move in down there.

 

[nwdiver]

Not to mention, despite what you may think based on how much time I spend on these boards, I don't have the time to DIY

I agree; DIY isn't for everyone. That's why I started a Solar installation company. I was tired of boutique Solar Companies wanting $5/w AND tired of equipment sitting in a friends garage for 12 months when I offered to help design and install it. So.... I went with the middle ground. Started my own company and installed solar for ~$3/w.

 

[MorrisonHiker]

We calculated our ROI based on each solar array. For panels facing southeast, it will only take 4-6 years to break even. For panels on the array facing northwest, it might take 12 to 13 years.

One thing that really helps our ROI besides reducing our electric bill is the fact that we no longer have ICE vehicles and no longer buy gas. We're easily saving over $400 a month between reduced electric bills and the elimination of buying gas for ICE vehicles.

 

[charlesj]

My solar system only is paying for itself, with the tax break, March 2021, 9th year, with my DIY installation. Have 110% annual production so far.

My PW install coming up on the 21st most likely will never pay off. But, peace of mind is priceless.

 

[charlesj]

...

Even just dividing my after-tax-credit cost of $45,100 by the $300 value of the generated electricity gives a break-even of 12 1/2 years, ...

One final caveat: I over-built because I wanted to have power even on cloudy days. ..

That is a good outlook in my opinion and a good plan to over do production if the power company allows it.

 

[Dan123]

Ok, first of all, you are not supposed to take into account the 3.5% that your investment can yield. That's called opportunity cost (the income from other investments that you forgo to make this investment). There is always a higher yielding investment, so you can't take it into account in calculating your payback.

At 45000 cash cost, and 300 per month bill, your payback is in fact close to 10 years. You also have to take into account the fact that electricity prices are probably going to be increasing every year. Also, you should take into account the value of backup protection that your PWs provide (if outages are an issue in your area).

I am also not sure why you need 36 panels if your consumption is only 800-900 per month. I think you are overproducing, and not getting paid for it. So that's obviously is negatively affecting your payback period. You could probably get the same financial result with a 6kw system and 1PW, at a cost of about $25000 before tax credits.