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May 2012
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Solar Systems: An Investment Perspective

The sun is by far the world’s largest available power plant. The amount of energy we receive from the sun in just one hour is enough energy to supply the entire world with electricity for one year.

I’m not going to focus on the numerous environmental issues we are faced with from our dependence on fossil fuels. But, just to set the stage for my financial discussion, here are a few facts:

American consumers and businesses presently spend close to $1 trillion each year on fossil fuels. (Coal, oil and natural gas). Approx. 36 percent of this usage is spent on importing fossil fuels.

The United States depends on fossil fuels for 85 percent of our energy supply.

In the U.S., the process of generating electricity is by far the single largest source of CO2 emissions, representing approximately 41 percent of all CO2 emissions.

We need to change our dependence on fossil fuels. This dependence is costly to everyday citizens, and sends valuable dollars overseas and out of our domestic economy.

The cost of fossil fuels to our economy and environment will most likely continue to mount in the years to come. If we continue along a business-as-usual energy path, U.S. fossil-fuel spending will continue to grow, totaling an estimated $23 trillion over the next 20 years.

It’s time to invest in clean renewable energy that never runs out. For an individual consumer, the option to produce their own clean energy with a very attractive financial return is available right now.

With long-term CD rates around two percent and an overvalued stock market, where is that double-digit investment return we’re all looking for? The answer is “Going Solar”! By going solar you will generate your own electricity from a photovoltaic solar system, normally mounted on top of your roof. The investment risk is minimal and the return on investment is in the 14- to 16-percent range, including existing state and federal renewable energy incentives.

Yes, it sounds too good to be true! Well, here’s the scoop.

First, a photovoltaic solar system is not for everyone. However, if you own your home, have an electric bill of at least $150 per month and have an unshaded, unobstructed roof facing Southeast to Southwest, you probably have a “money tree” on top of your roof!

The only two additional questions are: Are you planning on continuing using electricity in your daily life and can you afford not to invest in a photovoltaic solar system?

The investment risk is minimal! Solar modules come with a 25 year manufacturers warranty and are estimated to keep producing electricity for well over 100 years. There are no moving parts in a photovoltaic solar system and the upkeep is minimal.

So why are there so many perfect solar roofs throughout California without solar modules? The main reason is the initial investment.

Even with the cost of solar components being at their lowest level ever right now, the initial investment is still in the $10,000 to $20,000 range for an average residential solar system. (Compared to approx. $30,000 about four to five years ago) So, how do I get a solar system if I do not have the initial investment readily available? 

The key is financing.

The three main financing options are:

1. purchase with a home equity loan or line of credit;

2. purchase with solar system financing; or

3. lease the solar system.

If you are looking for the best rate of return, do not lease the system. The savings are not substantial as the lease agreement normally includes a two to three percent annual escalation clause with a normal lease term of 20 years. And since you do not own the solar system, it does not add much value to your home.

Instead, first consider a purchase using a home equity loan or line of credit. Interest rates are very low right now, and your return on investment will still be in double digits. In addition, home equity interest is normally tax deductable.

Solar system financing is the second alternative. This alternative is offered through most installation companies at an interest rate slightly higher compared to a home equity loan. Still a very viable option to go solar and save. 

How does my solar investment give me a rate of return?

The return on investment is technically a reduction in payment to your utility company. Take a look at your electric bill from SDGE. As you can see, your electric consumption is priced at different tiers. The first kilo watt hours (kWh’s) consumed every month (in tier 1 & 2) are priced at a relatively reasonable cost, while your usage that falls into tier 3 & 4 is very expensive. From an investment standpoint, the best rate of return is to replace the electric usage in tier 3 & 4 with solar power. Add up all your annual usage (in kWhs) in tier 3 & 4. This is the number you want to replace with solar production. The return on investment becomes your annual savings divided by the net cost of the solar system.

In addition, a solar system increases the value of your home. The question is, by how much? There are a fair amount of articles published on the internet about this. Every publication has their own formula for estimating the increase. However, all published reports agree that the value of your home will increase more than the cost of the solar system. So, the bottom line is, you will get your investment back if you sell your home, with a premium in most cases.

As good as this sounds, you always have some resistant to change. People say, “I like to save money, but I don’t care for the look of a bunch of solar panels on my roof!” I’ve heard that a few times from my friends.

Well, the truth is, most people are silently impressed and intrigued when they see a solar system mounted on one of their neighbor’s roof. And when you invite the neighbors over to check out your utility meter running backwards, they will be amazed! A solar system installed on your roof shows that you are concerned about the future of our environment and rising utility costs.

In the end, the feeling of generating your own clean electricity on your roof is a very satisfying feeling. It’s a statement showing that you are doing your share of cleaning up our environment and getting a great return on investment as a result! 

Jan Strand is a partner in BedRock Solar, which designs and installs solar systems. Contacted him at [email protected] or 760-473-3545.