July 12, 2007

Solar Power wi Solar City

Solar City is ramping up business, getting lots of customers to help them bid down panel prices. With the Solar City discount, California's rebate and the $2k federal tax credit, we're saving about 40% of the cost, resulting in an investment that will produce a 12.6% ROI.

The system is made up of solar (photovoltaic) panels, mounting brackets, an inverter and the wiring and have Solar City install the system. (No batteries- they are costly. It's more efficient and economical to push extra power back onto the grid. Batteries are only valuable to avoid black-outs, which we experience less than a day per year, or to have power at night for homes not connected to the power grid.)

Melissa Kann is my (great!) sales engineer- 415-368-5400

WHAT YOU'LL NEED:

My energy usage averages 527 kW (kilowatts). I submitted a letter with my solar application to justify a few more panels- I'll be converting the dryer to electricity, maybe hot water, too. And we'll be less stingy with A/C...
  Jan    Feb     Mar    Apr     May    Jun  
600566488 566462583
  Jul    Aug     Sep    Oct     Nov    Dec  
683481405 413511515
  Jan    Feb     Mar    Apr     May    Jun  
694533___ _________


Analysis: Return on investment of Solar Panels

Non-monetary return

Return On Investment (ROI)

The cost/return:
Cost: $15,158 $25,385
- $6,730 rebate from the state
- $1,496 solor panel discount since Solar City bought in bulk
- $2,000 federal tax credit
Return: $915 The cost savings of the electricity produced in the first year. This is an estimate- the actual electricity is worth less, but homes tend to use it morning and night and PG&E pays more for electricity produced in the day.


Financial Model

Assumptions:

To model this, say I put the $15,158 in a bank account and earn interest of X% and that bank account exactly covers the exact cost of the electricity that the panels produce in 25 years plus the $1500 needed to buy an inverter in 15 years. Since the bank account at X% interest has the same value as the electricity, then by putting that same money into buying the solar panels, the money is returning X% on the $15,158 investment.

In addition, I have to pay $1 for every $3 I make in a bank account, but nothing on the panels' electrical savings. So if a bank account would return $2 after taxes, it would have to earn $3 before taxes. So a return of X% on the panels is like a taxable investment returning 1.5 x X%.

I set this up as a spreadsheet, below. I filled out the 2nd and 6th columns, the cost savings and the principal, plus the extra $1,500 charge in the 15th year. Each year of cost savings is 1.05 times the previous year, and the simulated X% return is just the before-tax interest rate times the amount of principal left. Each Principal amount is the previous principal plus the money it would have earned in the bank (Return), minus the electricity cost, minus the expenses- as if the bank account were paying for the electricity.

Thus I found, if I put $15,155 in the bank at 8.44% interest, it would produce enough (untaxed) money to give me the same benefit as my solar installation, giving me a before-tax ROI of 8.44%. Assuming I have a 33.3% income tax (25% Fed and 9% Ca), this is a 12.66% after-tax ROI. Considering this is a very low-risk investment, that's great!

For comparison, I also made a spreadsheet for a principal of $23,381, for someone in a state with no subsidy but who can get the federal tax credit, and one for no subsidies, for a principal of $25,581. The before-tax ROIs were 4.7% and 4.06%, respectively. The after-tax ROI depends on your tax bracket. For a state with no income tax, a 25% federal tax means these are about 6.3 and 5.4 respectively- competitive with the best savings and CD rates currently available (about 5 to 5.5%) excellent for a low-risk investment helping save the planet.

Check back at the end of July, 2008 and I'll try to get numbers of how much we saved and how much rates have risen...

 Yr  Elec cost
savings/yr 
 Before Tax
Int Rate 
 After Tax
Int Rate 
 Return  Principal  Expenses 
0$9158.44%$15,158
1$9158.44%12.66%$1,280$15,523
2$9618.44%12.66%$1,311$15,873
3$1,0098.44%12.66%$1,340$16,204
4$1,0598.44%12.66%$1,368$16,513
5$1,1128.44%12.66%$1,394$16,795
6$1,1688.44%12.66%$1,418$17,045
7$1,2268.44%12.66%$1,439$17,258
8$1,2878.44%12.66%$1,457$17,427
9$1,3528.44%12.66%$1,471$17,547
10$1,4198.44%12.66%$1,481$17,609
11$1,4908.44%12.66%$1,487$17,605
12$1,5658.44%12.66%$1,486$17,527
13$1,6438.44%12.66%$1,480$17,363
14$1,7258.44%12.66%$1,466$17,104
15$1,8128.44%12.66%$1,444$15,236$1,500
16$1,9028.44%12.66%$1,286$14,620
17$1,9978.44%12.66%$1,234$13,857
18$2,0978.44%12.66%$1,170$12,930
19$2,2028.44%12.66%$1,092$11,820
20$2,3128.44%12.66%$998$10,505
21$2,4288.44%12.66%$887$8,965
22$2,5498.44%12.66%$757$7,172
23$2,6778.44%12.66%$606$5,101
24$2,8108.44%12.66%$431$2,721
25$2,9518.44%12.66%$230$0

PS: Current solar panels have reached about 24% efficiency, says this article. The next technology, organic polymers, promises to be cheaper, but they're currently only achieving 5% efficiency. I haven't seen any estimates, but they seem to me to be at least 3 years away and probably more like 5-10...

Another article, this one focusing on photovoltaics built into objects. Adding a coating to glass is reasonable, though some of the other ideas are pretty far out there, at least in years.