Solar payback assumptions

[sensij]

For the higher tiers maybe - 95% of the public have little interest or no chance if you step back and look at the solar PV concept clearly.

I'm struggling to understand this comment. Even without getting into the more complicated models, I look at it from the perspective of NPV. Assumptions:

1) Marginal price of a kWh is $0.17 (typical for a lot of San Diego in low tier usage?), and increases with inflation.
2) Inflation = 2.5%
3) Marginal price of a panel is $770 (assume 275 W panel for $4.00 / W, less 30% rebate)
4) 275 W panel will produce 440 kWh annually out of the box, and decrease 0.5% / yr

With a discount rate of 8%, NPV is positive after 17 years.
With a discount rate of 6%, NPV is positive after 14 years.

Let's say the house is sold after 5 years... with a 6% discount rate, a 10 panel system would need to add about $6500 to the sale price of the house to break even. Is that unreasonable, on homes that typically sell for $400k or more?

Granted, if the system is not purchased outright, and instead financed, leased, etc, the payback numbers fall off a cliff. Is that why you think 95% of the population should not be interested if they are looking at it clearly? Are there costs or assumptions that I'm missing?

[nomadh]

I don't think he said they shouldn't be interested. Just that they won't be. Lots of us SHOULD do or be lots of things but......... Sorry. Got to go. No time to think.

[russ]

Let's say the house is sold after 5 years... with a 6% discount rate, a 10 panel system would need to add about $6500 to the sale price of the house to break even. Is that unreasonable, on homes that typically sell for $400k or more?

Granted, if the system is not purchased outright, and instead financed, leased, etc, the payback numbers fall off a cliff. Is that why you think 95% of the population should not be interested if they are looking at it clearly? Are there costs or assumptions that I'm missing?

That 400k home would cost less in most of the states.

If the buyer has an understanding of solar it may help a sale or if the prospective buyer is against solar it will hurt - who knows - just one more wild card added in

Most systems are not bought outright and most people will move every few years

Many people live in apartments, condos or other places where solar won't fly

Many people with their own home don't have a roof with a good orientation or shade problems.

Most people don't have the cash to buy.

Solar is a very small bit player in the electricity generation scheme - it probably will not improve that position for many years to come.

[thejq]

I agree from a pure economic sense that more people should have solar on their roof. But like most things in life, there're many more factors, some personal, some external. I hope Russ's 95% is a just figure of speech not actual statistics. In my community of about 35 homes, about a third have swimming pools, ACs, many have yard lighting that burn all night. But only 2 have solar installed so far including me. Personally I don't think it's a money issue. Maybe some need to sell in 5-6 years and don't know how it will all play out, some may not have the best orientation, some may be too lazy to go through the calculation etc.. In other parts of the country, where electricity is cheaper and climate is less ideal for solar, the economics may even work against solar at the current price point. For the lucky ones that have the means, conditions and the time frame to benefit economically, it's a no brainer. There's very few things on earth that will save you money and good for the environment at the same time.

[sensij]

I agree from a pure economic sense that more people should have solar on their roof. But like most things in life, there're many more factors, some personal, some external. I hope Russ's 95% is a just figure of speech not actual statistics. In my community of about 35 homes, about a third have swimming pools, ACs, many have yard lighting that burn all night. But only 2 have solar installed so far including me. Personally I don't think it's a money issue. Maybe some need to sell in 5-6 years and don't know how it will all play out, some may not have the best orientation, some may be too lazy to go through the calculation etc.. In other parts of the country, where electricity is cheaper and climate is less ideal for solar, the economics may even work against solar at the current price point. For the lucky ones that have the means, conditions and the time frame to benefit economically, it's a no brainer. There's very few things on earth that will save you money and good for the environment at the same time.

Sure, in other parts of the country the payback calculations will be different. However, in SDG&E areas, which is what that 95% comment was directed towards, I think solar penetration would be higher than 5% when "looking at it clearly". Whether people have the means or not to purchase outright is part of it of course, but it seems there are some experienced and knowledgeable members of this forum who believe that solar doesn't make economic sense even under the assumptions I've made, and that it requires a huckster making ridiculous assumptions to come up with a positive NPV. Even steering people towards only replacing the high marginal cost electricity (tier 3/4, all those A/C's, pools, and 24 hour halogens) seems questionable to me... yeah, the payback is faster and the IRR is higher, but that by itself doesn't invalidate the reasoning that shows low cost electricity in San Diego is still worth replacing with solar.

Really, I'm honestly trying to understand why some believe the average homeowner in San Diego, with Tier 2 usage, should not see going solar as economically beneficial. If I've misunderstood the advice given in other threads, or am making bad assumptions, please set me straight.

[russ]

Wait until the tax credit goes - then see what happens.

[sensij]

Wait until the tax credit goes - then see what happens.

Yes! I agree. Without the tax credit, and with the assumptions otherwise unchanged, the NPV is negative until year 23 with a 6% discount rate. With an 8% rate, the NPV is negative well beyond the expected system life. In that environment, it is rational to size only for the high marginal cost electricity (IE, tier 3/4).

[thejq]

Really, I'm honestly trying to understand why some believe the average homeowner in San Diego, with Tier 2 usage, should not see going solar as economically beneficial. If I've misunderstood the advice given in other threads, or am making bad assumptions, please set me straight.

You definitely sounded like a solar enthusiast. I'm with you. I wish everyone who can afford it should have it. It's good for the environment, our children, and by extension their children etc. But the matter of fact is that most people can't plan 10-15 yrs in advance. There was a statistics (can't remember when) that people in CA on average stay in their home for 7 years. That's why 5,7 ARM was so popular. So it's easier to suggest ROI that fits that time frame, and the only way it can happen is to assume Tier 3 or 4. Because solar is so new, price will drop in the long term and sizing is very personal, it's hard to estimate its value when you're selling your house. But as the end consumer, it's import to take those expert advice and apply it accordingly to your objectives and not blindly. Personally I don't think any expert here is trying to steer people in the wrong direction.

[sensij]

I'd like to say I'm more of a logic enthusiast. I'm talking narrowly about the financial justification for solar here, I haven't done enough research on the other aspects to be confident. For example, is the environmental aspect truly net positive? Making all those panels and inverters surely involves some nasty chemicals and emissions, and requires energy. How does that compare against what a clean burning power plant would produce? A true solar enthusiast might know, but I don't. It is good that there are people trying to figure it out.

To your other point, maybe my error is in overestimating the value of solar in a home sale. Requiring a breakeven NPV of 7 years (or less) makes a lot of sense if the new buyer is unwilling to pay for the electric production capacity. Buyers definitely *are* willing to pay for the revenue stream a rentable in-law apartment might produce, but solar is barely moving out of niche here and may not yet be fully appreciated. The real estate market here is so dynamic, it is hard to predict how solar will be seen in the future. Based on how many of my neighbors seem aware of it and interested in installing systems, I'm optimistic about the long term asset value.

I am definitely not saying that anyone in the forum is trying to steer people wrong. In fact, I like this forum because it seems to have more thoughtful analysis than many others. I'm just trying to bridge the gap between my understanding and theirs.

[slopoke]

Really, I'm honestly trying to understand why some believe the average homeowner in San Diego, with Tier 2 usage, should not see going solar as economically beneficial. If I've misunderstood the advice given in other threads, or am making bad assumptions, please set me straight.

For us, if we did not break out of tier 2, we would not have looked into solar. We average 11,500 or so kWhs per year and get into tiers 3 and 4 most months. Using this forum for my research, I used PVWatts as the calculator and with the numbers it spit out, it estimated that we needed a 6.9 kW system to offset around 80% of our usage. Getting bids for the system configuration that we wanted and armed with the price per watt I felt comfortable paying using the CSI data, we pulled the trigger at $3.70 per watt. With that, our estimated break even was just under 7 years. PVWatts was a little conservative on the production and it looks as if our system might offset almost our entire annual consumption and our adjusted break even point will be a few months less than anticipated. All of our calculations were based on todays actual costs and the tax credit, no inflation or other factors were used.

One of my neighbors did a lease three years ago with a system real close to what we were looking at and he showed me their numbers when I was doing our price research. Well, their lease over 20 years will be $71,000 in money just to the leasing company, plus the cost of electricity from PG&E. Roll the time forward to a few months ago, one of my coworkers did a zero out of pocket lease and the cost of any electricity they will use is 15 cents per kWh, big difference in prices!

[JCP]

For us, if we did not break out of tier 2, we would not have looked into solar. We average 11,500 or so kWhs per year and get into tiers 3 and 4 most months. Using this forum for my research, I used PVWatts as the calculator and with the numbers it spit out, it estimated that we needed a 6.9 kW system to offset around 80% of our usage. Getting bids for the system configuration that we wanted and armed with the price per watt I felt comfortable paying using the CSI data, we pulled the trigger at $3.70 per watt. With that, our estimated break even was just under 7 years. PVWatts was a little conservative on the production and it looks as if our system might offset almost our entire annual consumption and our adjusted break even point will be a few months less than anticipated. All of our calculations were based on todays actual costs and the tax credit, no inflation or other factors were used.

One of my neighbors did a lease three years ago with a system real close to what we were looking at and he showed me their numbers when I was doing our price research. Well, their lease over 20 years will be $71,000 in money just to the leasing company, plus the cost of electricity from PG&E. Roll the time forward to a few months ago, one of my coworkers did a zero out of pocket lease and the cost of any electricity they will use is 15 cents per kWh, big difference in prices!

Most likely, tiers 3 and 4 will go away. Tier i and 2 will go up though.

Currently, with a decent roof exposure, the Fed tax credit and not taking into account the time value of money, your average installation will produce electricity at 10 cents a KWh over the next 20 years. With net metering, it's a no brainer in CA. Fast forward a few years, and without net metering or Federal tax credits, it's going to be tough slogging go forward unless costs go down another 30%.

[J.P.M.]

Lots to consider.
Some thoughts:
1.) If the latest rate of solar installs in the SDG & E service area were to remain constant, the 5% NEM cap will be reached in about 33 months. As things ramp up I'd SWAG that down to 18 to 24 months. The 30% fed. tax credit will expire 12/31/2016 unless changed by legislation.

2.) NPV is one way to look at costs. I'd favor LCOE as a more useful tool although both and indeed all other methods of life cycle costing and process economics are SWAGs with a lot of sensitivity to assumptions about the future - something most people are unaware of or forget.

Depending on how you guess(ed) costs, both present and future rates of increase and tier (re)structure (or T.O.U.), provided any solar ( the 1st Watt installed ) has an LCOE less than the LCOE of the highest tier (last) kWh you buy, ramp up the solar size, bringing down the LCOE until it equals the LCOE of the last kWh bought for that largest system size. That's one way to estimate the most cost effective system. If the solar LCOE/kWh is higher than your highest POCO LCOE/kWh, solar is not cost effective under your assumptions.

3.)The mandates of AB 327 as regards rate restructuring will change a lot of the assumptions used in this thread. One of the bills purposes is to do some rate leveling. There may be 2 tiers, or more. What looks to be the thinking at this time, and as the bill at least strongly implies is that lower tiers are increasing and upper tiers are coming down.

[solar pete]

Solar Payback Calculator

Hey guys there is a good tool that you can use to run solar numbers its the free solar calculator on the front page of the forum.
It is the leading solar payback calculator in the US. Once you enter your zipcode, utility and power bill it tells you how much solar you need to wipe out your bill. It also shows the rebates and incentives that are available in your area and your payback period (or return on investment)

[inetdog]

And if you lose track of this thread and want to find the calculator later, you will find a banner ("FREE SOLAR CALCULATOR") linking to it on every forum page (as long as you do not use an ad blocker in your browser.)

[sensij]

The responses in this thread were interesting enough that I went through a somewhat more involved thought experiment. I used Slopoke's system as test case, since it seems typical for a higher tier user. For power each month, I scaled my own data to achieve the right annual usage.

Here's the assumptions:
1) Annual usage is constant at 11505.5 kWh
2) Tier 1: 0.156 / kWh, Tier 2: 0.18 / kWh, Tier 3: 0.36 / kWh, Tier 4: 0.38 / kWh
3) Electricity price inflation: 2.5% / yr
4) Tier thresholds are based on data from my own bills
5) Panels - 300 W, up to 23 installed at $3.70 / W (this obviously wouldn't hold if only a couple panels were installed), less 30% federal rebate
6) Panel degradation, 97% after year 1, 0.7% / yr thereafter (matching LG 300 datasheet)
7) Discount rate: 6%
8) Assume the installation has zero value to a future buyer. In words, all payback stops at the time the house is sold.

With these assumptions, I came up with a current annual electric bill of $3333. Yikes!

Next, I calculated the LCOE ($ / kWh) over time periods from 1 year to 20 years, assuming the house was sold in that year, and using NPV to keep all costs in today's dollars. Note that this has the effect of reducing LCOE when longer time periods are considered, because the discount rate used is higher than inflation. For each end year, I found the number of panels that minimized the LCOE over that period.

First column is the year the house is sold.
2nd column is the LCOE if solar wasn't installed
3rd column is the minimum LCOE with solar
4th column is the number of panels installed in year 0 to get that minimum

1---0.26---0.26---0
2---0.25---0.25---0
3---0.25---0.25---0
4---0.25---0.25---0
5---0.24---0.24---6
6---0.24---0.22---11
7---0.23---0.20---13
8---0.23---0.18---16
9---0.23---0.17---18
10--0.22---0.15---20
11--0.22---0.14---21
12--0.22---0.13---22
13--0.21---0.12---23

In other words, under these assumptions, installing solar that covers close to 100% usage is the optimum solution only if the house will not be sold for 13 years. If the house would be sold in 5 years, might as well not install solar at all.

I've tried in these assumptions to create the *least* convincing case for solar that I could. Many people might have assumptions that are more optimistic, and that could change the results significantly. However, I think I understand better now some of the arguments that have been used to caution against over-installing.