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 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 on the grid allows me to balance those out to some extent. I will still have to pay a monthly base (about $12.50) to the utility , plus the cost of whatever energy I use from the grid (at night or peaks), plus taxes.
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 heat. 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.
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 extra to have the system removed if the new owner doesn’t want it up there.
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 financial benefits of rooftop solar panels are not overwhelming
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 $20,000 system (like mine) that’s $5,200 dollars up front. Most people take a loan to pay for the system, and the rebate will 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.
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.
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.
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.
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 solar company put a lien on your house instead of just the panels. 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 65% of cost and depreciate by 0.6% per year.
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.
I’ll post here again as I go through the process, and I’ll provide helpful details about the calculations involved.
Rough Draft of my spreadsheet. Click “Assumptions” tab after opening.