WHAT WILL SOLAR GIVE YOU?

ARE YOU CRAZY?

Buying solar is like going into business for yourself (in the power industry). Why would anyone want to buy, maintain, and operate their own power plant when they can buy electricity from a utility company with no up front investment? Why spend tens of thousands of dollars for something that you can buy for a couple of hundred dollars a month with no up front costs? Do you really think you can compete with public utilities and win?

MAYBE NOT SO CRAZY

The reason most people buy solar is to save (make) money. With money in mind, look at the solar question from a business perspective. How much would you be willing to pay me right now, if I promised to pay you $2,500 a year? (that is really exactly what buying solar is like).

The question you should be asking is, “for how many years will you pay me that money?” What if I said, 25 years? You could then take a calculator and multiply 25 times $2,500 and arrive at a number of $62,500. You would then know how much you would make over a period of time, but what will it cost you up front to get that money?

If I promised you that annual payment of $2,500 for 25 years, for an up front fee of $50,000, would you do it? It might sound good at first. You would get $62,500 later for only $50,000 now. But, what if you put your $50,000 in an investment (i.e. in stocks) earning 5% a year? At the end of only ten years you would have $81,400. My annual payment of $2,500 a year would only get you $25,000 (plus the value of money). You would be a fool to give me $50,000 for ten years of payments of $2,500. You would lose money.

But, if I offered to pay you $2,500 a year for an up front fee of $25,000, you might consider it more seriously, if the amount of time was great enough. You would probably want ten years at least. The truth is that you would need more.

THE RISKS AND REWARDS

Obviously, three things will affect your decision to buy solar and invest in it up-front. How much do you have to pay up-front, how much you will get each year, and how many years will you get that annual return. When it comes to solar, these can be very difficult questions to answer.

The amount you pay up front for solar will be several tens of thousands of dollars -- lets say $40,000, perhaps. But, then you will get varying federal and state tax breaks, other rebates, etc. Those breaks and rebates will come to you over a period of time; not all up front. The tax breaks may take several years to collect. Figuring out just what you will actually invest for solar is also complicated by the fact that you must consider things like maintenance, insurance, interest on loans, etc.

The number of years that solar will give you an annual return is also hard to understand. What if you sell your house after you have had solar for only five years. Once you’ve sold the house, the solar is worth nothing to you. All you get is what solar paid you before selling the house (plus any extra money the buyer of your house might pay you since the house came with solar).

To figure out how many years you should expect to collect from solar, you need to ask yourself some questions. How long will you be in your home? How long will you live? How long will the system last? The lowest of these numbers is the most years you can consider for your calculations.

When it comes to solar, there is one more big question. How much will your utility provider pay you for the power you don't use (and sell to them instead)? It is important to understand that you only make money by selling power to the utility, or buy using your own power instead of buying power from the utility. What you make is called the net metering rate. It is a very important number, and it could change in the future.

Remember, you make money when you sell power to the utility, and when you are using your own power instead of theirs. In the later case, the money you make will equal what you would have paid the utility for that power, minus what you could have earned by selling it to them. The risks you face when purchasing solar include having to leave your home too soon, having the utility drop the amount they are willing to pay you for electricity, and having unforseen additional expenses for maintenance, repairs, or other issues.

SOME SUGGESTIONS

I would suggest that you consider ten years as the amount of time you expect solar to make money for you, assuming you live that long, and don’t sell your house. The size of system and the net metering rate will determine how much the system will pay you. You can then calculate what the system will be worth to you compared to what you pay for it.

Things to consider include the fact that electric prices will be going up. But, that only matters to you if they raise the price during the time you are generating power. For example, if the price goes from ten cents to fifteen cents per kilowatt hour, you are saving money only while you are making power – during the day (when it is not cloudy). If your system produces 8 kWh during an hour, and you use three of them, then you earned what it would have cost you to buy that power plus what the utility paid you for the other five.

It really does not matter what you electricity bill was or is or will be. Whether you were paying the utility company $100 a month or $300 a month, your solar system will produce the same amount of power - based on the size of system you buy – and you cannot earn more than what it produces. Don’t think that the amount you earn will be what you paid for electricity in the past. You must calculate your earnings based on how much power you make, use, and sell, and how much the utility is willing to pay you for it when you sell it.

WHAT ABOUT CONVENIENCE?

When your are producing power, and using what you produce, you are not buying power from the utility company. There may be times when you would have tried to save power before you had solar, when you would use that power now that you have solar. For example, maybe you did not run your air conditioner in the afternoon. With solar, you will be more inclined to run it because you are using your own power at a fixed cost instead of paying the utility a higher cost.

AND, THERE IS THE ENVIRONMENT

If you are worried about the environment, it might bring you to a place where you are willing to spend money to protect it. I’m not there. If you are, you need to figure out about what you think the environmental value is to you, and deduct that amount from your system costs. That number will reflect the money you are willing to pay to protect the ozone layer.

WHAT DOES IT ALL MEAN?

You have to decide what you are willing to pay for solar, and what you will be getting from it. The size of your system, the amount the utility company will pay you for power you don’t use, the increased costs that solar will have (i.e. insurance), and how long you will be in your home must all be determined. Once you know these things, you can use the calculator on this site to estimate how long it will be before you break even – before you are spending less than you would have without solar.

WHAT WILL SOLAR COST YOU?

A SIMPLE GUESS

Before you get a quote from a solar provicer (or two or three), you should find out how much electricity you currently use each year. This can be found on your monthly bill from your electricity provider. It will be something like 800, 1200, 2000, etc. and is measured in killowatts per hour (kWh). For example, you might find that you are using an average of 1,600 kWh per month on average. Multiply that number by 12 to get your annual estimated usage (i.e. 1,600 x 12 = 19,200).

Take your annual usage number (i.e. 19,200 in our example), and multiply it by 1.20. You want to buy a system that will provide all the power you need for the next twenty years or so. A system will decreace in productivity by at least half a percent a year, and your usage might go up that much. In our example, 19,200 x 1.20 is about 23,000. You would like to buy a system that will produce about 23,000 kWh per year (in our example).

Note: Depending on your environmental factors -- local weather (how many sunny days), location (length of days), roof configuration (what size and what direction does it face), the angle of your roof, and whether or not your roof is always in the sun, your system will produce more or less electricity. The panel size and count will determine the maximum productivity of your system. The number of panels multiplied by the panel size (rating) will be the "official" size of your system (i.e. 12,075 kwh would be the rating of a 35 panel system of 345 watts each), but does not tell you how exactly much power it will produce. Your environmental factors determine that. In a great environment (location, weather, etc.), your system might produce twice its rating per year. It will probably produce less.

Take the amount of power you need to produce (i.e. 23,000 kWh per year in our example) and multiply that number by somewhere between 1.4 and 1.8. This will give you a VERY rough purchase price range for your system, without a battery. For example, if you need to produce 23,000 kWh per year, you might think you would pay between $32,000 and $41,500.

Try this simple calculator to estimate the size of system you might need.

The assumptions used here are VERY approximate, and will be quite different depending on your location, the solar provider you choose, etc. Do your homework and find out what you really need.