I wrote last year about solar power as an investment and it being a key part of my early retirement strategy. With its high annual “dividend” in the form of no power bill and only a slightly declining asset value (no volatility), it is sort of an alternative asset class that is immune to the market fluctuations. With power companies always trying to increase rates 4-6% each year, I know my dividend is staying ahead of inflation.
The folks over at Planting Our Pennies had a post recently about adding solar. I was excited to read it to see their thought process and, of course, it made me want to share my continued experience sooner rather than later.
Results so far
I could not wait until the full year is up to give an update. As of the end of June, I have a credit balance of $277.85! To be clear, the power company OWES ME MONEY! It has been over 100 degrees for nearly a month straight and I still had a bill credit of $16.05 for June. Based on that I expect July and August to each result in a small credit, but close to $0 overall.
Actually, I received the paperwork today to decide whether or not to cash out the 12 month credit or roll it forward. I am leaning toward getting the check. If I roll it forward and still over produce, wouldn’t I just be ignoring the time value of money?
To put this in perspective, I spent $1,970 in the year before I added solar power. That means I avoided $2,028 in costs (last year’s bill plus 8% increase less $100 cleaning cost) since the installation (my first year estimated savings was $2,160- not too bad!). Based on my after tax purchase of $15,243 for 26 panels, my first year return was about 14.9% (edited from 13.3% to include the $250 credit I expect to cash out too). I had projected it to be 13.5%, so I am quite pleased by the result. This is also assuming it to be the annual amount, when it is really just 10 months. I expect my production to continue, but it should be a wash for July and August.
Avoiding that $350+ bill in July is a huge win for us (August was over $250 as well in 2012 and 2013). When you add in the rate increase since last summer of close to 8% on average, we would have been looking at a 12 month rolling bill of about $2,128. Using the rolling 12 months that lines up with our installation, the previous year was about an 18% increase. However, part of that was just increase usage from having our first child and running the AC with my wife at home during the day.
The good news now is that rate increases only affect me if the peak and off-peak rates do not move together. I could actually benefit if they increase the peak rate faster as that is when I am producing the most power. I planned on our usage going up a bit over time, but not for the rates to cost us anymore.
Ongoing Costs of Solar Panels
There are really not many ongoing costs for adding solar power to your house. Depending on your installer, there should be a warranty for installation, etc. There is also a time when the company will charge a fee to come out, but all of the panels and inverters are still under warranty. Finally, you have to keep the panels clean. That is the main expected cost and in my model I projected $150 a year for cleaning. Paying the connection fee to the power company is less than $22 a year (about $1.80 a month), so it is almost a rounding error!
I only spent $100 in getting the panels cleaned in early June, so combined with my payment each month for a connection fee I have spent about $115 in power related costs since the installation. It was more expensive than I expected for the cleaning, but since they had to use a scissor lift to get up that high I was okay with it. The guidance was to have them cleaned 3 times a year given the terrible air quality in the California central valley. However, I saw only a slight increase in productivity, so I will probably continue with the 8-10 month cleaning schedule unless rainfall patterns change (we could use the rain). Does anyone know how to keep pigeons from roosting under solar panels? Annoying problem I did not anticipate…
The bad news is that the power company is trying to get a $10 minimum monthly charge implemented. They claim it is because high energy users have subsidized lower energy users over time, but most think it is to recoup lost revenue from residential solar installations. This is disappointing to me, but not something that would have changed my decision to add solar power. The savings, return, and payback are all still extremely attractive.
My production has been about what I expected. June 2015 was my best month yet at 1.189 MWh. Since the installation at the end of July 2014, I have produced 8.27 MWh (through 7/2/2015). We get an awful lot of sun in Central California, so I had expected 6-8 hours a day of high production and I have not been disappointed. I was surprised that the panels did not produce much less when dirty, but maybe the few rain showers in the spring helped in that area.
Solar and Rate Plans
One of the most amazing things about using solar to reduce my power bill is that you can choose the rate plan that fits you the best. At the advice of my installer I choose one targeted to those with green cars and solar panels. Talk about a smart move. Now that the summer rates are in effect, I can generate 1 kWh of power during peak times (12-6 pm weekdays) and use about 2.5 times that amount in the morning and night and still owe $0!
Since the panels are really producing much more power than we use from 12-6 pm, we are generating more credits than we end up using. Hence, the credits adding up each month. It was especially pronounced in March, April, and May when we did not need the air conditioner. We try to avoid using the dryer during peak times to help pad the bill, too. The peak/off-peak plan is really great for anyone that is not home during the day, but also if you have moderate usage in that time (no pool helps, too).
I know someone that bought the exact same amount of panels with the same set-up just a month or two after me. She has not experienced anywhere near the bill credits that I have. After asking her more about it, I think it is due to two factors. They want to run their AC more at home and they did not switch to the new rate plan like I did. We had the same installer, so I am surprised it was not recommended at the time. They are now requesting the change, so I expect them to see a difference this fall.
Here is another comparison shows kWh usage for 2013, 2014, and 2015 for June. The panels were installed the last day or two of July 2014, so that month was part of the baseline. Also, the power company did not move us over to the new rate plan for more than a month. That meant that in August and part of September I could only reduce my usage to zero when the panels were producing power. I could not create any credits, because the net metering was not turned on! This shows that our usage, according to the power company, went down about 82% in June.
The Future of my solar panels
Solar panels degrade over time. In order to factor in that impact, I added a few extra panels to my system. Based on that if I didn’t have a credit this year one of two things occurred. First, my power usage could have gone up because we no longer had to watch our power usage. Or second, my calculation based on historical usage and how many panels were needed was incorrect (actually more of the installers calculation, I just added 10% to it). Since I have a large credit, neither of those occurred!
In 10 years or so, the panels will be producing only about 90% of what they do now. I may have a small bill then, but since I only used an average rate increase of 4.5% I think I will be okay. I will continue to see a return in the mid teens each year since the power bill will be increasing faster than the degradation of my production. If rates have doubled, I am confident this will still be an excellent investment over the next 25-30 years. Plus, if I move, I can sell the panels and install new ones at our new home!
Summing it all up
All in all, I am still 100% happy with my solar purchase and try to tout the benefits of buying versus leasing (or power purchase agreements). For those without the cash flow or credit to get a loan, the leases can be an okay deal. My worry is getting trapped when trying to move and getting someone to take over the lease. Not all agreements are like that, but people don’t always ask all of the right questions. If I move, the solar panels will be part of the sale of the house. I will have copies of old bills, new bills, and rate increases on a spreadsheet to show potential buyers what a huge asset the panel array is and why they should pay a $15,000 premium to buy the house!
I realize solar power is not for everyone and in many states it is too expensive or not practical. Some people want to benefit the environment, but don’t have the money. Others rent and don’t have access to this type of savings plan.
Anyone thinking of adding solar? What about other home upgrades that save money like insulation, better windows, or light tubes/sky lights?