Solar Power Update

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

solar bills0

Funding my Roth!!!

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.

solar bills1

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.

Panel Productivity

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 production1

High production from April to August!

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!

solar bills2

June 2015 power bill detail

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.

solar bills4

Gotta love those negative months!

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.

Ebates Coupons and Cash Back

Anyone thinking of adding solar? What about other home upgrades that save money like insulation, better windows, or light tubes/sky lights?

You may also like...

30 Responses

  1. I am actually considering the solar purchase. They have been selling them like crazy in my neighborhood. I plan to have someone come out and go over the details in the next few months.

    Not sure if it makes sense for us yet. Our monthly bill usually only runs about $60/month. But we are going to be getting a hot tub soon so that will increase the bill. I think someone told me that solar doesn’t really pencil unless your bill averages over $100/month.

    Dominic

    • vawt says:

      It probably won’t until you add the hot tub. Let me know what the quotes look like, compare them based on cost per watt for the system.

      • I thought I would circle back with some numbers I got from Solar City.

        Based on my usage for the last 12 months my cost per kWh was $0.155 and the purchase price of the system to meet my energy needs is $17,570 before the tax credit. After the tax credit it is $12,299. They have my estimated kWh at $0.077.

        • vawt says:

          That is in the ball park of my usage. Look at the cost per watt based on the system size. I paid $3.35 per watt (before tax) for a 6.5 kW system (use the DC rating, not the AC one to divide by). The after tax cost was $2.345 per watt.

  2. SavvyJames says:

    As a resident of Arizona, with plenty of sunshine, I have given some consideration to solar. At this point however, I have not sat down and crunched the numbers to determine what the timeframe would be on my ROI. We have only recently decided that we will definitely retire in our current home; therefore, now might be the time to look more closely at the solar option.

    • vawt says:

      My payback is under 6 years and I came up with an npv that was pretty high. Be sure to get several quotes!

  3. Great job Vawt! I live in the Northeast, so solar panels are a lot less talked about. I think once I reach FI and maybe decide to settle down in a home, being somewhat off the grid is definitely something I’d consider and solar panels would definitely be important. How long is your warranty for?

    • vawt says:

      Panels are 25 years, inverter is 15, and install is 10? Going to evaluate batteries when tesla gets the prices down!

  4. TheMoneyMine says:

    Hey Vawt, congrats on this, the solar panels look like a great investment!

    Also great investment from a sustainability perspective, this is definitely the future. That’d be interesting to see how Tesla batteries would affect the ROI of such investment, esp. as their cost comes down once their huge factory is ready in a few years.

    My electricity bill is always <100$ so solar might not be for me yet and in the meantime we purchase 100% renewable energy from our electricity provider.
    Is there a break-even point at which it would make sense to switch to solar?

    • vawt says:

      I think solar is also a hedge against rising energy prices, so even at lower usage levels it might still make sense. You might want to get a couple of quotes to find out. Thanks!

  5. Retire29 says:

    Wow, that is some amazing returns. You had a crazy summer electrical bill–I’m glad we’re not that high.

    Did you have any issues with your HOA getting the panels approved?

    Thanks for sharing!

    • vawt says:

      Fortunately we don’t have an HOA, so no hoops to jump through on that part. It gets to 100+ for months in a row here, so my bills were actually below average!

  6. So great that you’re seeing excellent returns on your solar investment. The upfront cost is so large, that it’s easy to understand why so many folks are put off by it all. We’d love to do solar at our house, but we’re surrounded by big trees and have nothing but shade! We’re in wildfire land, though, and joke (while not really joking) that if our house burns down, then the trees will go too, and we’ll get solar when we rebuild. 🙂

    • vawt says:

      Tree can definitely be a deal breaker. My neighborhood is about 10 years old, so nothing is big enough to shade them. I may have to trim a tree down a bit in 5-10 years, but what I have planted doesn’t get much taller than current heights.

  7. Steve says:

    I have always been interested in solar energy, but I’ve been consistently steered away, even by those who have worked in the solar industry, because of how much efficiency they lose over time. They have always told me that you’ll never recoup your costs, but that seems to be changing nowadays.

    And honestly, I hope it is, because my wife and I are considering solar panel for our RV that we plan to purchase in the next couple of years that we will live in full time. Solar panels will enable us to go anywhere we want and still have power, assuming we’re in a part of the country with lots of sun – like the west coast, especially southwest.

    I’m glad to see that it’s worked out so well for you thus far. It helps prove to me that solar technology is advancing and you really can begin to legitimately save money after doing the switch.

    Nice article, thanks! 🙂

    • vawt says:

      Thanks Steve. The costs have really dropped the last few years. Even without any state rebate my payback period is 5-6 years. It may be longer in other parts of the country, but should be viable in many states.

  8. Mrs. PoP says:

    So glad to see that almost a year in your system is performing better than expected. Ours continues to produce more than we are using even though we’re now solidly in our hot/humid/rainy season which is the double whammy of lower production due to the cloud cover and rain, and higher bills from running the A/C. But we should end up with another month of adding credits instead of paying for energy when we get our next bill in a few days.

    One big difference from our utility is that we don’t have peak/off-peak pricing based on the time of day, so we don’t get to benefit from that. Instead, we have tiers. The first 1,000 kWh each month are charged at a slightly lower rate. If you go over that, those additional hours are charged at a higher rate.

    • vawt says:

      Did you check about the alternate pricing? I was on a tier schedule before. The new one is geared towards those that have electric cars (weird).

  9. Kyle says:

    Nice! an efficiency renewable energy guy. I’m planning on getting some wind energy at my home this year. I’ll look forward to watching your results with the solar panel system. subscribed 🙂

  10. Chella says:

    Does this solar thing work? I had my house installed solar lighting system and it was just terrible. Though the electricity bill reduced, for about $15 monthly, the system was breaking down after every fortnight. This time, it’s the battery, next it’s a cell in the solar panel. What could have been the problem in my case?

    • vawt says:

      those smaller panels get dirty and blocked by a lot of shade. I know they can also come with terrible rechargeable batteries in some cases.

  11. That’s pretty fascinating. I wonder why we don’t see a lot more solar here in Houston.

    We have an older house and our electric bill has been a disaster even after paying quite a bit to re-insulate.

    • vawt says:

      Maybe Texas doesn’t offer state rebates? I didn’t get one in California, but the price and federal rebate still made it work.

  12. Joseph Beckenbach says:

    Congrats on running a well-sized solar array! Great example for those considering this option.

    When I last lived in southern California, we bought a house with an active solar array on the roof. I sacrificed the back of an envelope one summer day, and figured it got me $100/month benefit in generated electricity directly plus another $100/month benefit in avoided energy need from shading the roof.

    I was tempted to put on the home’s marketing flyer when we sold it as “solar array: like a $100K bond portfolio built into the roof” and raising the asking price. 🙂 Got few folks looking, even at the height of the housing boom, simply because it was “different”. Even so, we sold at a slight premium to a recent retiree who liked having the lower operating expenses. So maybe I should have put that blurb on!

    • vawt says:

      I think it is easier to get that premium these days. You can show an old bill and a current one to justify the price. I would mark my house up at least $10k if I put it on the market now. And I would tell people it saves them $2,500 a year!

  13. It says on the quote that it is a 3.45 kW system that will produce 5,751 kWh/year. Not sure what the difference between the AC and DC reading.

    The price after the $5,200 tax credit is $12,299.

    So what number do I divide it by to get the effective price to compare what you paid?

    Thanks!

  1. November 10, 2015

    […] you guys know that this was all inspired by Vawt over at Early Retirement Ahead, when he shared his Solar Update. For some reason after reading that post, I decided to do my own homework and reach out to a few […]

Leave a Reply

Your email address will not be published. Required fields are marked *