I started this blog about my solar experience because I am super excited about joining the solar community and I am also super interested in the opportunities for solar and how that might go beyond the individual. I plan to focus primarily on the following topics but will explore other interesting topics as they arise:
1. My experience with evaluating and purchasing a solar PV system for my home.
2. The ongoing performance of my home solar PV system.
3. Solar issues and trends, with a bent toward California.
4. Business aspects and opportunities in solar.
Hopefully, my experience, research, tools, insights and commentary by the blog community might become a practical resource to help you go solar too.
So why did I decide to go solar? I had three main philosophical reasons for going solar.
First, I wanted to do my part in helping the environment and I knew that nothing was going to change unless everybody did their part. Let me caveat this by saying that I’m not a so-called “tree hugger”, so going solar would still need to make financial sense. When I thought about my decision recently, I realized that going solar is actually very empowering. You can wait for the big utilities or regulators to decide how to clean up the environment or you can make a decision yourself by building your own private clean energy plant on your roof with solar. I call this the "privatization of energy" and I think this will become a bigger trend in the future.
Second, the practical aspects of a solar PV system appealed to my practical nature. Once a PV system is installed, it requires little or no maintenance. There are no moving parts – the sun shines on the panels and they produce electricity. Solar PV technology has been around for decades and the products have long warranties (25 years for the panels and 10 for the inverter), so you have security in the technology and system.
Lastly, it finally dawned on me that the conventional way of thinking about solar (i.e., you are investing in solar to save money) was wrong. If you think about it, that does not really make sense. Why should a premium product like solar energy that is entirely clean cost less than energy produced from dirty fossil fuels? Clean energy should cost more – it’s a better product. Once I started thinking about solar this way, I realized that I was not trying to make money like an investment in a stock. Instead, I realized I was willing to pay a premium to have a superior product. Going solar was like buying organic produce or beef from free-ranging cattle instead of buying the blander mass produced variety. I had to pay more to get something better.
I was prepared to buy a solar PV system even if it cost me a little more than what I was paying my utility for dirty energy over the long run. But as it turned out, when I finally put pencil to paper, I discovered that going solar was actually going to be a very good investment, especially with the current State and Federal incentives.
I bought a 2.28KW system for $13,000 before incentives. I saved $5,600 (or 43%) from California incentives and Federal tax credits, so it ended up costing me only $7,400. In my first year, I expect to produce 2,780 kilowatt hours of electricity and save $550 off of my bill in my first year. With the rising cost of energy, I expect to cover my investment in 10 years (payback) and generate an annualized return on investment (ROI) of 12%.
After I put down my deposit on my solar PV system, I had time to rethink the financials and decided to analyze them in a different way. I realized that the conventional returns were not really the best way to look at my solar purchase. Instead, it was better for me to look at my solar investment on a cashflow return or a return on equity (ROE) basis, especially since I was rolling the cost into my mortgage. Here's my analysis.
I refinanced my mortgage and took out extra money to pay for the solar investment, so effectively, my out of pocket (equity) investment was zero. I used 100% debt to finance my solar PV system, which I think is actually a sound and responsible financial move. Unlike taking on debt to buy some discretionary item (car, jewelry, clothes), I was taking on debt to reduce my monthly fixed expenses (utilities). To pay for solar, my mortgage payment went up by only $50 per month (including an increase in insurance and after netting off the mortgage interest tax deduction) but my electric bill is expected to go down $46. The premium I'm paying for clean energy is only $4 more per month. Effectively, I just transferred a portion of my expenses from my utility provider to my mortgage lender.
Mortgage Electric Bill Total Mo. Pmt
With Solar $1,050 + $ 54 = $1,104
Without Solar $1,000 + $100 = $1,100
Difference $50 $(46) = $ 4
As the price of energy increases, I will actually start making money every month. My ROE is astronomical because my solar purchase was financed entirely through my mortgage so I had no out of pocket investment except to cover the initial $4 per month in higher expenses. I don’t think you can get a better deal than that and you are doing your part to help the environment to boot. If you are planning to refinance your mortgage, there really is no reason not to get solar since it is essentially free.
Thanks,
Solar Chris
