One last look before we sign for Sunpower system

[cyph]

I was referring to a rough average of the two posters' (System Cost - Net Cost) for their two similarly priced systems.

I explained that in an answer at http://www.solarpaneltalk.com/showth...ll=1#post73796

No harm no foul...

Maybe I'm being dense but that's the same figure I was referring to. 1474+10687+500 = 12661 and 1761 + 12222 = 13983. In both cases, the CSI rebate (first figure) is carried by the installer whereas the tax rebate is refunded in the federal return (30% of total cost of system is 10687 and 12222 respectively). There are two incentives here, the CSI rebate which is carried by the installer and the federal incentive paid as a tax credit. In either case, they would lose the opportunity cost for that 10.6k and 12.2k for one year (or less depending on when they purchase the system).

[SunEagle]

Are those 10 cent rates inclusive of both supply and delivery charge? That's so much less than it is in NY.

The rate is for electric used. There are other costs like tax and meter charge which increases the bill somewhat. I think the "fixed rider" cost is about $0.44/day during the lower tier and about $0.92/day during the upper tier. Overall I think the cost is closer to $0.14/kwh when you add it all up.

I also have a credit of about $5.75/mth for allowing to have my AC and Pool pump shed during critical need times. It use to be about $10/mth when I had an electric water heater but I went to a solar heated one about 2 years ago.

My last months bill was $176.70 for 1316kwh. Energy was $148.22 and the rider cost was $28.48.

[Noob]

I guess I should consider myself lucky that my electric rates have been pretty stable over the last 6 years. Right now I have a 2 tier rate. Tier 1 < 1000kwh @ $0.1076 and Tier 2 > 1000kwh @ $0.1285.

Although now that I am looking at it ours went up about 6.5% from $0.101 to $0.1076 for the Tier 1. I have to go find my data for the Tier 2 rates. Either way the Florida rate is way below Southern CA and are actually supposed to go down once they eliminate a fee which we are being charged to be used for a future nuclear generating plant that probably will never be built.

Are those 10 cent rates inclusive of both supply and delivery charge? That's so much less than it is in NY.

[Noob]

You are losing me. I have no idea which 13k you're referring to. I am referring to the 13k federal tax credit. Is there another 13k altogether?

I was referring to a rough average of the two posters' (System Cost - Net Cost) for their two similarly priced systems.

I explained that in an answer at http://www.solarpaneltalk.com/showth...ll=1#post73796

No harm no foul...

[SunEagle]

The rates are already scheduled for increases this year and next at 5%. That's not to say they aren't shifting the tiers. The 7.5% is real for this year since I've run projected usage on a spreadsheet with the old tiers and new tiers. I did the same analysis fora friend, and their costs are increasing 12% from last year. Those that actually save money from previous years are the ones that maintain usage below Tier 3.

I guess I should consider myself lucky that my electric rates have been pretty stable over the last 6 years. Right now I have a 2 tier rate. Tier 1 < 1000kwh @ $0.1076 and Tier 2 > 1000kwh @ $0.1285.

Although now that I am looking at it ours went up about 6.5% from $0.101 to $0.1076 for the Tier 1. I have to go find my data for the Tier 2 rates. Either way the Florida rate is way below Southern CA and are actually supposed to go down once they eliminate a fee which we are being charged to be used for a future nuclear generating plant that probably will never be built.

[cyph]

cyph I think I'm losing you here. You wrote "Break even is 6-7 years to recoup the cost minus the tax rebate. The 13k was not part of the calculation because it will be returned by the fed."

You are losing me. I have no idea which 13k you're referring to. I am referring to the 13k federal tax credit. Is there another 13k altogether?

[Noob]

I think Sunking makes it more complicated than it needs to be. You have $50,000. Put half into a mutual fund for 25 years and half into a solar system for 25 years. Each month, determine your electricity savings with solar and put that amount in the bank. After 25 years, compare what you have in each account. Keep in mind that the solar will provide a tax free return as well as extremely low risk while the mutual fund will gyrate with the market and may or may not be tax-free. Now the mutual fund may in many cases wind up giving the better return but in many cases at the cost of higher risk. By considering the solar investment as a loan with payback guaranteed with interest that is tax free, you can compare it directly to other investments without having to deal with complications such as opportunity cost, etc.

When I do the calculation with my prepaid lease over 20 years, the effective annual interest rate works out to 17% tax free. Not many mutual funds will do that over 20 years.

Thanks Ian. Your "view solar as a loan which pays back in cost savings" seemed weird or contorted at first but it does make sense I think. And you're explicitly taking into account what frizzlefry said about "We can take it a step further and take the extra $300+/mo saved and invest that a the same 7% assumptions".

The fact that you're applying this loan concept in reverse to what in your case is an actual prepaid lease the other way is pretty impressive.

[Ian S]

Do you think Sunking was simply wrong to insist we take into account what the outlay money might otherwise earn?

I think Sunking makes it more complicated than it needs to be. You have $50,000. Put half into a mutual fund for 25 years and half into a solar system for 25 years. Each month, determine your electricity savings with solar and put that amount in the bank. After 25 years, compare what you have in each account. Keep in mind that the solar will provide a tax free return as well as extremely low risk while the mutual fund will gyrate with the market and may or may not be tax-free. Now the mutual fund may in many cases wind up giving the better return but in many cases at the cost of higher risk. By considering the solar investment as a loan with payback guaranteed with interest that is tax free, you can compare it directly to other investments without having to deal with complications such as opportunity cost, etc.

When I do the calculation with my prepaid lease over 20 years, the effective annual interest rate works out to 17% tax free. Not many mutual funds will do that over 20 years.

[frizzlefry]

Well I think a $3/watt on the net cost is a pretty good deal. I am surprised that you expect your rates to climb 7.5% in such a short time but then you live in CA where anything is possible. Glad your PV system will work out for you.

The rates are already scheduled for increases this year and next at 5%. That's not to say they aren't shifting the tiers. The 7.5% is real for this year since I've run projected usage on a spreadsheet with the old tiers and new tiers. I did the same analysis fora friend, and their costs are increasing 12% from last year. Those that actually save money from previous years are the ones that maintain usage below Tier 3.

[SunEagle]

I don't know if you're referring to me, but my ROI is 7yrs based on 3% increase in SCE bill. Unfortunately, that's not the case since from last year, the tiers have adjusted down and we hit tier 3 and 4 earlier. I calculated a 7.5% increase in our rates if we used the same amount of power as last year. Given that change, ROI becomes 6yrs. We're due for another 5% increase next year in rates as well.

There are some other considerations for purchase. I get the tax credit which can offset additional tax liabilities. We're researching whether or not depreciation of the system can be taken into account. I work from home but there's an exemption in CA where there is a property tax exclusion for solar systems. Strange how some of the sellers out there (SunRun and several others) were anti-purchase because it would increase property taxes. FYI, that exclusion ends in 2016.

Once the sytem is in, we no longer have to worry about our AC usage during the hotter months. We have 6 zones with each thermostat programmed accordingly. Even with that, hit $475 in Aug last year.

Well I think a $3/watt on the net cost is a pretty good deal. I am surprised that you expect your rates to climb 7.5% in such a short time but then you live in CA where anything is possible. Glad your PV system will work out for you.

[Noob]

I understand where you're going with it. It's not wrong to look at what that money would earn you, but I suggest a more conservative approach and look at the downside as well as the upside. Every person has their own risk tolerance, so someone who would rather do CD laddering would not get the same 7% return. Whereas someone willing to take greater risks can see 7%+ but has a downside of -3%. But what if you just lost to inflation over the term... probably doesn't get more conservative than that.

Yup, thanks. Lots to decide. Luckily I have very little money to worry about.

[Noob]

No he is accounting for the net present value of money. I think sometimes the yield he uses is a bit high most accountants use long term treasury bonds as the benchmark due to lower risk.
There are two things that generally don't come up
1 n investment in a mutual fund for the most part the gain will be taxable at some point. (roth Ira's excluded)
2 any money you save will be tax free. So if say a system saves you $200 a month and you are in the 33% tax bracket including state and SS you would have to earn $300 a month to equal the amount you saved.
If you invest a sum and get $200 a month as a return or interest you will only net ~ $150. ( SS would not apply to this scenario)

So now I have to factor in the costs of hiring an accountant and a tax attorney to help me make sense of the analysis?

Seriously, thanks for the additional food for thought. There's a lot to consider, not the least of which is my traditionally non-existent investment style and rigor. That is, would I REALLY invest the money carefully...

[frizzlefry]

cyph I think I'm losing you here. You wrote "Break even is 6-7 years to recoup the cost minus the tax rebate. The 13k was not part of the calculation because it will be returned by the fed."

But the 13K won't be returned by the fed because the 13K I was talking about was AFTER federal incentive had already been factored in. As far as I can tell (and I am quite likely wrong) the 13K is very much their 1st year net outlay (before any electric charges).

To frizz and Ian, I think I understand you and you make good points, but I am trying to map two different futures, one in which I invest in solar and one in which I do not. Using "opportunity cost" for interest on the outlay expense is just a shorthand way to try to simulate that. Maybe there's no one right way to do it. Honestly I would have probably been oblivious to the factor until reading Sunking's posts about it, and am not predisposed to any particular conclusion. Just trying to make sense of this.

Do you think Sunking was simply wrong to insist we take into account what the outlay money might otherwise earn?

I understand where you're going with it. It's not wrong to look at what that money would earn you, but I suggest a more conservative approach and look at the downside as well as the upside. Every person has their own risk tolerance, so someone who would rather do CD laddering would not get the same 7% return. Whereas someone willing to take greater risks can see 7%+ but has a downside of -3%. But what if you just lost to inflation over the term... probably doesn't get more conservative than that.

[Naptown]

No he is accounting for the net present value of money. I think sometimes the yield he uses is a bit high most accountants use long term treasury bonds as the benchmark due to lower risk.
There are two things that generally don't come up
1 n investment in a mutual fund for the most part the gain will be taxable at some point. (roth Ira's excluded)
2 any money you save will be tax free. So if say a system saves you $200 a month and you are in the 33% tax bracket including state and SS you would have to earn $300 a month to equal the amount you saved.
If you invest a sum and get $200 a month as a return or interest you will only net ~ $150. ( SS would not apply to this scenario)

[Noob]

I never said 13k is their net outlay. I said it wasn't factored into their pay back period. The payback was cost - federal rebate = net cost. 35 - 13 = 25 or so net cost which is then factored into payback over 6-7 years.

cyph I think I'm losing you here. You wrote "Break even is 6-7 years to recoup the cost minus the tax rebate. The 13k was not part of the calculation because it will be returned by the fed."

But the 13K won't be returned by the fed because the 13K I was talking about was AFTER federal incentive had already been factored in. As far as I can tell (and I am quite likely wrong) the 13K is very much their 1st year net outlay (before any electric charges).

To frizz and Ian, I think I understand you and you make good points, but I am trying to map two different futures, one in which I invest in solar and one in which I do not. Using "opportunity cost" for interest on the outlay expense is just a shorthand way to try to simulate that. Maybe there's no one right way to do it. Honestly I would have probably been oblivious to the factor until reading Sunking's posts about it, and am not predisposed to any particular conclusion. Just trying to make sense of this.

Do you think Sunking was simply wrong to insist we take into account what the outlay money might otherwise earn?