Archives August 2020

Going Solar, Part One: Up on the Roof

Solar panels can be fun!

The adventure of installing solar panels on an existing home

Follow this blog as I learn things no contractor will ever tell you.

It is more complicated than I thought it would be, but probably it’ll be worth it.

I pulled the trigger yesterday (August 28, 2020) and arranged the first concrete step toward installing rooftop solar panels: the site inspection. The solar company will be out to take a look at my roof. They’ll make sure it’s structurally able to support the panels, and that the angles, inclinations, tilts and azimuths will provide sufficient direct sun exposure.

On-grid or off-grid?

Mine will be an on-grid (or grid-tied) system, where I can pull energy from the utility as I need it (at night, for instance) and send excess energy back to the grid when my panels produce more than I’m using. In my case NV Energy will pay me 75% of their usual rate for any excess I send them. For instance my solar panels will likely produce more energy than I need in Las Vegas winters, but less than needed in the hot summers. Being tied to the grid allows me to balance those out to some extent. I will still have to pay a monthly base (about $13.00) to the utility , plus the cost of whatever energy I use from the grid (at night or peaks), plus taxes.

One disadvantage of grid-tied systems, which surprises many people, is that if the grid goes down in a blackout, your solar panels are completely disconnected and will not supply power to your house. You’re blacked out too! This is mostly for safety, to make sure your panels don’t send power through the lines as workers repair them.

NV Energy offers me a 20-year contract that supposedly guarantees my access to the grid on the current (pun!) terms. That’s important, because as more private solar installations come online those terms are likely to adjust without a contract. I need to take a closer look at that contract … I had no choice but to sign it.

Every Kilowatt hour (kWh) of energy counts: those you generate with solar, those you feed to the grid and what you use from the grid. An old-fashioned 100-watt light bulb consumes 1/10 of a Kilowatt in an hour, for which Nevada Energy would charge me about 1.2 cents on their standard rate plan. (Learn about TOU rates here.)

If you go off-grid you will need batteries to provide power when the solar can’t keep up, like at night, cloudy days, or peak temperatures. The amount you save might well pay for the batteries but I haven’t built that into my spreadsheet yet, and I don’t plan to go that route at first. A big advantage of off-grid systems is that they continue to operate when the grid goes down (blackouts). You also avoid paying the utility a monthly access fee.

My general advice is to install a grid-tied system if you can, because you can always add the necessary batteries and equipment to go off-grid later. The incremental cost will be about the same, or less as batteries get cheaper.

Here’s a more detailed (though somewhat outdated) opinion.

Rent or Own?

As I understand it, you should not choose to rent your system, though the monthly cost may be much lower than owning. Your lease may run for many years, with a lien on your house. If you decide to sell, it may be difficult to find a buyer willing to pick up the lease. You may have to pay the lease off yourself. You might even have to pay (a lot) extra to have the system removed if the new owner doesn’t want it up there.

Now or later?

Many people think the cost of solar panels and batteries will decrease significantly in the next few years, so it might be wise to wait. Factoring in the US rebate, low interest rates, climate change, rising utility costs and current terms of contracts with the grid (which will no doubt become less favorable as cost of solar decreases), it’s risky to delay.

Conservation is the cheapest way to save

You should do everything you can to manage your electrical usage before you start looking at Solar. See Part Two for details. Then you can compare solar to your reduced usage to calculate needed capacity and payback.

The numbers

The financial benefits of rooftop solar panels are not overwhelming

Using a few numbers you can calculate how much you might save by using solar.

  • Your overall consumption of electricity in a year, let’s say 12,000kWh. (Actual numbers will vary depending on your own situation.)
  • The amount your system generates, let’s say 13,200kWh, and it cost $14,400 after rebates.
  • The portion of what you generate that you don’t use and can sell to the utility, let’s say 4,800kWh
  • Using these numbers, you would have to get 3600kWh from the grid, but you would get credit (at perhaps 75%) for the 4,800kWh you send back, so it’s a wash.
  • You’re saving the cost of the 12,000kWh you’re generating. At $0.10 per, that’s $1,200 a year.

You might say you have a 12-year payback (14400/1200). But there are factors that tend to make payback quicker: rising utility rates, increased consumption due to climate change and improved public perception of solar power resulting in higher prices paid for solar homes. There are also factors that may reduce payback: maintenance and loan costs.

When I first started looking at the numbers, solar seemed to be almost a no-brainer. The US government is providing a 26% tax rebate. On a $23,000 system (like mine) that’s $6.000 dollars up front.

If you’re self-employed, keep in mind the credit CANNOT be used to pay self-employment taxes, only income tax.

Most people take a loan to pay for the system, and the rebate might cover the first few years’ payments. I will be cash-flow positive for about six years, even while paying the monthly loan, the utility base fee, some kWh from the utility, and the increase in my homeowner insurance premium and property taxes.

After six years, though, I will have “used up” the rebate and my cash flow may take a steep downturn. Expenses probably exceed the benefits for the last 5 years of the 12-year loan. I may go under by about $2500 at the end of the loan, but after that monthly savings kick in. By year 14 I’m cash-flow positive again with at least 10 more years of life in those panels. I’ll probably be dead by then but for a younger person who is settling down those would be the energy gravy years. If I do happen to live past age 80, I’ll especially enjoy the “free” energy. One of the benefits of going solar is that you tend to pay energy costs up-front, and save when you may most need to save.

The fact is, most people don’t live in the same house for much more than 5 years. One way to look at the “investment” is that the rebate will pay your bills for the first five years. When you sell your house you’ll pay off the loan (hopefully with some of the proceeds), so what matters most is finding a buyer willing to pay a reasonable amount extra for the solar.

I live in Las Vegas, one of the sunniest places in US. Your results will probably be less cost-effective than what I describe in this blog.

To estimate daily sunshine in your location, use pvwatts.

Don’t worry about the utility base fee

If you’re on the grid you will pay the same basic “entrance” fee as any other users, anywhere from about $10-$25 a month. Not much you can do about that, except to go off-grid. When calculating cost-effectiveness of solar, compare only the actual cost of electricity above the base. There’s no point to comparing your total bills now to your total bills with solar; all that matters is how much you save on the kWh.

Watch out for the “little things”

When you’re looking at 25 years, every little expense tends to add up. The economics of solar seem to have been figured out to the penny, by the utilities, government, manufacturers and the contractors. Seemingly insignificant things like the monthly utility base fee, the 5% utility tax, or getting only 75% of retail for the kWh you send back to the grid, tend to tip the balance out of your favor. No matter how many pencils you wear out figuring, you’ll still have only a rough estimate of what will happen in the real sunlight. It’s not a slam-dunk, financially.

Monitoring

You will need to monitor your system for as long as you care about whether it’s working or not. That means your system needs to communicate somehow. My system includes a GSM transmitter (like a cell phone) that costs $5 a month for the service. The first five years ($300) were included in my contract. I didn’t notice this item, or I would have asked about using my home wifi to connect the system to the Internet for free.

Building equity?

In the meantime, the saving grace is that I may be building up equity that will be returned when I sell the home. That may be better than funneling all that cash to the utility. At the end of the loan, when I’m $2,500 in the hole in cash-flow, I hope those panels will still be worth at least $10,000. It is a risky investment, but perhaps a sensible one.

One way to look at your solar investment is that it’s an asset that pays much or most of its cost itself.

Choose your loan wisely

Like car salesmen, solar providers sell their systems by quoting a low monthly amount that involves a long-term loan. That can be a reasonable approach if you’re planning to keep the car (or solar panels) for the life of the loan and beyond. It makes a lot less sense if you think you’ll trade your car in after three years, or sell your home in five or seven years.

I was offered loans as long as 20 years, which would reduce the monthly payment and make the cash-flow look a bit better. Keep in mind that you will probably have to pay that loan off early when you sell your home. A longer-term loan is going to have a bigger balance to pay for two reasons:

  • Principal is paid off over a longer term
  • You may have paid a significant “fee” to obtain the loan. Although that fee is spread out over the term of the loan, you’ll basically have that extra chunk to pay if you pay off early.

I chose a shorter 12-year term, with a smaller fee, to reduce the risk that I would face an unmanageable amount to pay if I have to pay the loan off early. Otherwise it could eat up a lot of the “profit” I’d make when selling.

Your agent may not like it

Real estate agents frown on solar because they believe it narrows your market when you sell. They’ve also run into significant issues when a solar installation is rented instead of owned, of if the bank puts a lien on your house instead of just the panels. (That should never happen. There may be a UCC-1 lien, however, which is different.) You may have to wait patiently for a buyer who appreciates the value of solar and is willing to pay a reasonable amount extra for it.

Some studies indicate solar panels add an average of 2%-4% to the value of a home. On a $300,000 house that might be $12,000 for a system that cost you over $20,000. Here’s a more optimistic view from Green Mountain Energy.

I used a depreciation model in my spreadsheet. I start the value of the system at 70% of cost and depreciate by 0.39% per year.

A hedge?

The value of the system may be more as a hedge against future climate change (in the warming direction) and increased energy costs from the utility. I’m not figuring in climate change, but estimates are that utility costs will increase 3% per year.

Your carbon footprint

It sure seems like solar panels on your roof will go a long way toward reduction of your personal contribution to global climate change. Even if you were to wind up losing a bit of money over the long run on solar, this benefit seems significant.

This article indicates that the carbon costs of producing and transporting my solar panels might be paid back within the first year. The cost of recycling/disposing of the panels at the end of their life cycle remains unknown.

I’ll post here again as I go through the process, and I’ll provide helpful details about the calculations involved.

Part Two: A Secret Way to Save

Resources:

PVWATTS calculator

Rough Draft of my spreadsheet. Click “Assumptions” tab after opening.