Years to breakeven..? PA Solar worth it?

[SabrToothSqrl]

Trying to do some math, and thinking out-loud; I've run the numbers a few times, and haven't yet found solar to be financially advantageous in PA.

Tesla says I need a 16.32 kW system. $33,000 (plus 9k rebates).

Over the last 3 years I average: 2,400 kWh/month. (No anticipated changes coming up). (Would love a hot tub).

Here in PA, zip 17339, we have fairly cheap power.
ALL IN (not just generation) over the last 3 years: $0.1025 / kWh

I switch generation companies religiously to get the cheapest power.

Anyway, in my zip code with not ideal sunshine and cheap power... is the payback really 10 years?

Price After Incentives $23,185.

Google says: 1,445 hours of usable sunlight per year x 16.32 = 23,582.4 kWh/year. 1,965/month.
After Solar: 435 kWh/month from grid/average.

1965 / 2400 kWh = 80% solar powered house.

Grid Power: $2,952 / year
Solar Offset: $2,361.6 / year

$23,185 / $2,361 = about 10 years

Of course this doesn't account for missed opportunity costs of the $23($32) upfront costs.
I can do better than their 5% loan if I wanted to as well.

So after 10 years, when the panels are "paid for by the reduced electric bill", I just have a super cheap electric bill for life then, at the property.

Am I missing anything? 10 years seems reasonable for ROI for something for the house. Although it's a long time...

At 10 years, saving $2,361/year starts, so 10 years of that is $23,610. 20 year panels.

 

[arnolddeleon]

One of the ways I like looking at this is to calculate my per kWh cost with solar over whatever period I deemed as its lifetime (include cost of money, maintenance). You can think of solar as just prepaying for a bucket (with some uncertainty) of electrons. Rough numbers say solar is below $0.10/kWh. Given your low energy costs, 10 years to break even is not surprising. If you are modeling opportunity costs then you should also be modeling how energy prices are likely to change.

 

[DrSmile]

My electricity costs are twice yours, and I get SRECs which halves the payback period, and I calculate about 3.5 years payback with a slightly smaller system, so your calculations seem quite accurate to me.

I would add that the Tesla estimates are typically conservative and you may want to check PVWatts for more accurate yearly production.

 

[Laketime]

Are you likely to stay in the house for those 10 years? If so then I would look at is from a finance point of view. There are very few places where you can put your money and earn 10% tax free every year (which is essentially what you are getting).

 

[wwhitney]

Don't forget the personal utility of avoiding the unpriced externalities caused by using grid power. The utility (as in utility function) payback time should be less than the dollar payback time.

Cheers, Wayne

 

[sorka]

8.16 KW + 3 Powerwalls. I'm PG&E on EV-2A. My ROI payback is 6.8 years assuming I don't have any weeks long inverter failures in the middle of the summer. The interesting thing is that adding the powerwalls didn't increase the payback time hardly at due to the offset of eliminating 100% peak usage.

 

[smaster553]

My numbers are as under:

Historical Usage: 14800 kWh / year
Installed Capacity: 14.28 kW
Cost to install: $21,500 after rebate
Cost of funds: 3.5% (HELOC) hopefully stays around here
Cost of Electricity: 13.5c net
TREC: $1470 / year (hoping I generate 16 mW)

With these numbers I calculated years to payback at around 6-7 years. I will never put HELOC in any earnings investment as I want to keep my home.

I think with these numbers my ROI is 16% and cost of funds is 3.5% so net 12.5% (tax free)

 

[solarpindi]

My numbers are as under:

Historical Usage: 14800 kWh / year
Installed Capacity: 14.28 kW
Cost to install: $21,500 after rebate
Cost of funds: 3.5% (HELOC) hopefully stays around here
Cost of Electricity: 13.5c net
TREC: $1470 / year (hoping I generate 16 mW)

With these numbers I calculated years to payback at around 6-7 years. I will never put HELOC in any earnings investment as I want to keep my home.

I think with these numbers my ROI is 16% and cost of funds is 3.5% so net 12.5% (tax free)

Cool, I also get the same ROI (16%) but 0% cost of funds as I paid in cash.

 

[brian.c]

My first system I installed over 10 years ago was about a 10 year ROI. Its now paid for itself, but over that time, our electricity cost have more then doubled. My system likely paid for itself a while back, but 10 years was what we expected at time of install. I am in California, and rates range here from around .25-.50+ per kwh based on time of use, how much over baseline, and all kinds of other cost points. When we installed the first system, we were averaging around .13 per kwh at the time. Can you expect to be paying the same rates in 5-10 years?

 

[Southpasfan]

I’m in the Arnold Deleon camp. I don’t think years to pay off is useful. The system is set up for 20 years. At that point, like any mechanical system- it may need to be replaced. I figured my 20 year cost was 15cents per kwh (including PWs) solar indeed alone may cost 10 cents. That’s with the 5 percent loan. For me, buying electricity for 15 cents beats the 23 cents and up I would pay over the same time for the same amount of electricity. Done. At 10 cents to the utility you are probably simply replacing utility electrons with your own. Which might be enough at that if your utility electrons come from burning coal. At any rate no one can say guaranteeing a 10 cent rate for twenty years is a rash decision.

I do see people who post with electric rates below 10 cents per kWh. Don’t see how solar “beats” that on cost even with Tesla. Whether environmental considerations come into play is another matter.

 

[nomis_nehc]

I’m in the Arnold Deleon camp. I don’t think years to pay off is useful. The system is set up for 20 years. At that point, like any mechanical system- it may need to be replaced. I figured my 20 year cost was 15cents per kwh (including PWs) solar indeed alone may cost 10 cents. That’s with the 5 percent loan. For me, buying electricity for 15 cents beats the 23 cents and up I would pay over the same time for the same amount of electricity. Done. At 10 cents to the utility you are probably simply replacing utility electrons with your own. Which might be enough at that if your utility electrons come from burning coal. At any rate no one can say guaranteeing a 10 cent rate for twenty years is a rash decision.

I do see people who post with electric rates below 10 cents per kWh. Don’t see how solar “beats” that on cost even with Tesla. Whether environmental considerations come into play is another matter.

To be fair though, anywhere that has super cheap electricity, the purpose of going solar isn't so much about savings as it is about energy independence though.

It's like saying if it's cheaper for me to rent a house, why ever pay a mortgage.

 

[Zer0t]

OP should look at new loan rate of .99% and recalculate is break even point. I don't believe solar is a great investment for myself but I am more interested in the backup power generation. Currently, in my neck of the woods, a 22kW Generac Guardian is about 17,000 to install if you can find one based on a quote I received yesterday. The wait could be 7-9 months but this contractor thinks he can get one in two.

Installing a 12.24kW PV with 3 PW2 isn't much more even when selling the energy credits up front (which I am on the fence about but I think Tesla may require it). It's $48,100. The net cost is $28,620 after incentives. I pay .1476/kWh with my current utility provider. The payback varies a lot if based on how you view the backup power component. If I did a generator alone I'd be out 17k and have no energy bill reduction. So do I see my investment as 28,620 or the spread between 28,620 and the 17,000 I'd pay for backup? To me there is no financial value in backup power (on a ROI basis) but there is the comfort of not being without power. Thus, I would do backup power either way. I think at the net 28,620 it's not a horrible investment but knowing that 17,000 would've been spent regardless makes me feel 11,620 is easy to justify. And now with the incredibly low (nearly free money) interest rate of .99% it makes the investment look a bit better. I'd have had an outlay of 17,000 cash vs having that invested for same period of time of the loan. The minor haircut of interest paid would pale in comparison to the expected returns and the carry (spread of cost of funds vs actual returns) will actually reduce my costs further.

This is why I am going Solar vs Generator power. The additional bonus is I am fascinated with clean energy and generating my own power for consumption. I also checked PVWatts and it has a higher production estimate than Tesla gave me.

 

[wwhitney]

Cool, I also get the same ROI (16%) but 0% cost of funds as I paid in cash.

Paying cash doesn't mean your cost of funds is 0%. You could have put the money in a CD or some other safe investment and gotten at least a bit more than 0%. So your cost of funds is the foregone return on the cash.

Cheers, Wayne

 

[gpez]

Paying cash doesn't mean your cost of funds is 0%. You could have put the money in a CD or some other safe investment and gotten at least a bit more than 0%. So your cost of funds is the foregone return on the cash.

Cheers, Wayne

Don't conflate cost of funds with opportunity cost of capital.

@solarpindi is correct that the cost of funds, which is defined as the interest rate paid, in his scenario is 0% as he paid in cash.

In the US opportunity cost is calculated against the risk free rate of return ie T-bills of the investment duration, so 10 year US treasuries in this case. Today that's about 1.5%. To do a complete ROI analysis on your PV system you'd compare the risk free rate against your investment and consider depreciation. Most ROI calculations for solar however do neither and are actually a simple breakeven analysis like @SabrToothSqrl did. Not that the simple breakeven analysis is bad or anything, just not a complete picture.

 

[sorka]

Paying cash doesn't mean your cost of funds is 0%. You could have put the money in a CD or some other safe investment and gotten at least a bit more than 0%. So your cost of funds is the foregone return on the cash.

Cheers, Wayne

You have to look at it like any other investment. What's the risk/reward ratio? My ROI is about 16% a year for my system (I paid cash). It has close to zero risk. Not absolute zero, but pretty close. Compare that to the risk of anything else that could approach those returns long term over 25 years.

Oh, and that 16% is assuming PG&E doesn't continue to raise rates

 

[astrorob]

one thing to think about when looking at payback horizons is that utilities can (and do) "rig" the system against solar customers. for instance, my system was sized based on trying to make my yearly bill net out to around $0. however, whether or not that happens is strongly dependent on the exact schedule you are on and when the peak/off-peak times occur. when i installed my PV system in 2015, i was on a plan (EV-A) which fulfilled the design point. a while back PGE got permission from the CPUC to end that plan and force all EV-A customers onto a different TOU plan, with only 5 years of grandfathering from the original PTO date. my yearly cost went from $0 to about $1000 per year overnight.

installing powerwalls will bring me down to probably $200-$300 per year but at a savings of $700 per year the powerwalls will never pay for themselves. of course i did the PW installation because of the nuisance of PSPS events, not for the money. the presence of the powerwalls made EV-2A the right schedule for me but it would have been different w/o powerwalls.

so, just because your system looks like it will pay back on some schedule at the time of installation does not guarantee that the schedule will last...

 

[Southpasfan]

To be fair though, anywhere that has super cheap electricity, the purpose of going solar isn't so much about savings as it is about energy independence though.

It's like saying if it's cheaper for me to rent a house, why ever pay a mortgage.

Oh I agree with that. For me that's more of a consideration that the savings. I now run my house and two EVs off the sun. It's just crazy cool.

The fact that with expensive California power I save money doing it is nice, but sort of embarrassing almost - you can make an argument for doing your bit to save the planet even if you don't save money.

But on the other hand, as someone once said "money is money."

You can see how many different ways there are to calculate how much it costs. There are:

1. "Years to break even" - the formula being figure out the cost of the proposed system and divide it by one's current electric bill.
2. "Cost per kwh" - I like it because its apples to apples in my mind. I would also note that its only with Tesla's recent price drop that for solar alone this gets close or just below the 10 cents per kwh figure Before that, traditional solar without battery back up, and with less efficient panels, was more like 20 cents per kwh. Since at 20 cents per kwh many people were actually not saving any money, its not surprising that solar salesman chose Option 1 as the default. It sounds way better to say "and the system pays for itself in ten years" then "it basically costs the same as you are paying now."
3. As an investment to replace the income stream needed to pay for the kwh. This makes solar look the most valuable. If the choice is to have $20k be invested at the aformentioned 1.5%, that only produces $300 per year or $25 a month. If that same $20k can pay for a system which produces electricity which currently costs $166 per month, thats a 10% tax free rate of return if you look at it as what the return would have to be for that $20k to pay for your electric bill.

The third method is more complex, so I rarely see that one, although its just as valid as the other two.

And:

4. No one quite knows how to put a value on back up batteries. If you have major TOU rate shifting you can do it if you are comfortable enough with the calculations, but that's where the dollar value breaks down and intagibles come in.

 

[sorka]

one thing to think about when looking at payback horizons is that utilities can (and do) "rig" the system against solar customers. for instance, my system was sized based on trying to make my yearly bill net out to around $0. however, whether or not that happens is strongly dependent on the exact schedule you are on and when the peak/off-peak times occur. when i installed my PV system in 2015, i was on a plan (EV-A) which fulfilled the design point. a while back PGE got permission from the CPUC to end that plan and force all EV-A customers onto a different TOU plan, with only 5 years of grandfathering from the original PTO date. my yearly cost went from $0 to about $1000 per year overnight.

installing powerwalls will bring me down to probably $200-$300 per year but at a savings of $700 per year the powerwalls will never pay for themselves. of course i did the PW installation because of the nuisance of PSPS events, not for the money. the presence of the powerwalls made EV-2A the right schedule for me but it would have been different w/o powerwalls.

so, just because your system looks like it will pay back on some schedule at the time of installation does not guarantee that the schedule will last...

Just to be clear, and I'm sure this is what you said, the 5 year grandfathering 5 years to be allowed to stay on EV-A if your PTO was before July 31st, 2017. I'm on EV2A since I only got PTOed last year. But since PTO, I'm only about $40 more in the hole with EV2A than with EVA.... and that's because of the powerwalls which allow me to put all of my solar prior to peak time into charging the batteries while I use cheap off peak grid time during the day to run the house. EV2A let's load shift far more than EVA would have.

 

[gpez]

3. As an investment to replace the income stream needed to pay for the kwh. This makes solar look the most valuable. If the choice is to have $20k be invested at the aformentioned 1.5%, that only produces $300 per year or $25 a month. If that same $20k can pay for a system which produces electricity which currently costs $166 per month, thats a 10% tax free rate of return if you look at it as what the return would have to be for that $20k to pay for your electric bill.

The third method is more complex, so I rarely see that one, although its just as valid as the other two.

You'd also need to depreciate the system over that period of time - a $20k PV system today will be worth less in 10 years. $20k invested in a 10 year treasury will be worth $20k + the interest. Worse a very old PV system could actually be worth negative, a liability, if it needs to be removed.

Assuming a simple 20 year linear depreciation to $0 your system will be worth $10k less after 10 years or about $83/mo which is huge! That's half of your monthly electricity savings in the scenario you gave.

This is why a breakeven analysis is common with PV systems because it tells you how long it will take for the system to pay for itself so that even if it's worth $0 it's still providing a return, so to speak.

 

[sorka]

You'd also need to depreciate the system over that period of time - a $20k PV system today will be worth less in 10 years. $20k invested in a 10 year treasury will be worth $20k + the interest. Worse a very old PV system could actually be worth negative, a liability, if it needs to be removed.

Assuming a simple 20 year linear depreciation to $0 your system will be worth $10k less after 10 years or about $83/mo which is huge! That's half of your monthly electricity savings in the scenario you gave.

This is why a breakeven analysis is common with PV systems because it tells you how long it will take for the system to pay for itself so that even if it's worth $0 it's still providing a return, so to speak.

If I exclude my powerwalls, my 8.16 KW system was $12000 after the tax deduction. With the powerwalls it's saving me about $4500 / year. Without the powerwalls, it's saving me about $3300 / year or $66K over 20 years.

That's a bit less than 4 years to pay it off. Is my example typical? If so, then your example numbers might not reflect the scale of ROI on solar investments today.