Your input on my situation is much appreciated!

[Willaby]

I last month use 789 KWH, my bill was over $434 They thought I used more. then Gave me a credit.

Congrats on that! I've got an EV (Volt). On the TOU2 plan here in San Diego, I only need to produce 2/3 of my KW usage to zero my bill in the summer. We have 49c/kw peak here! I'm getting my site inspection tomorrow. I only use 600kw/mo so I'm looking at a 4.5kw system.

[Willaby]

Do you work for Solar City or something?

Net metering rates for SCE customers will not "get worse" until July 1, 2017. The current agreement will be available until then, unless there is a massive increase in the rate of installations, almost an order of magnitude.

Your definition of "return" could use some work.

Take that 13000 and see what it does with a 10% compounded return each year:
y0 = 13000
y10 = 33719

Now, look at the cumulative savings on the electric bill, assuming a 5% increase in rates each year (higher than average), and also assuming that the savings on the bill is invested at the same hypothetical 10% rate each year

y1 = 1320
y10 = 25472

It would take 15 years for the two investments to have been worth the same... 15 years of discipline to avoid the temptation to spend that savings each year instead of invest it. The fact that the 401(k) loan will be getting repaid will help, but another negative consequence of that loan is that no new money can be contributed until the loan is paid off.

I'm not against investing in solar if you think it will save money. I would be very cautious about borrowing money from a retirement account to do it. 10% is clearly a round number and is unlikely to reflect the actual market return over that time, but the point is to do this analysis with whatever numbers best reflect your outlook and not accept the BS that most solar sales people will shovel in your direction.

Haha, not in the solar industry, just a semi-retired CPA/CFO type.

I'm SDGE which is expected to reach net-metering capacity within 12 months. You're correct, seems the other Utils are not as close.

My return calculation is real. If a $13k solar investment eliminates a $1300/year expense, you would need either earned or taxed investment income that is likely 30+% greater to cover that $1300. I would even argue that the solar savings is a near bond equivalent because you will always need electricity and taxes. I would also argue that this aspect is probably equal in benefit to the initial 30% tax credit. I'd agree that the end true depreciated value of the solar should be considered at, say 50% (kills my bond comparison), but at least the solar savings should continue for longer than 20 years.

Also, the discipline you mention is not a factor with the solar savings but I doubt discipline will earn you 10% ann in the market. Your 10% is a little rich, close to historic returns that 90% of investors do not achieve, plus it is taxable as dividends and gains (when taken). I would suggest you use 6% and run the numbers again.

I'd agree to refrain from taking a loan against a 401k. If it was the only way and to beat the clock on net metering, maybe. I would at least look at a monthly lease if the cap rate was reaonable AND it has an early payoff provision with no penalty (it could displace the 401k borrow).

[bronxnua]

Perfect example of leasing that makes sense, since the company is allowed to take the tax credit and pass on the savings. Works the same when leasing an EV. Hopefully the $207/month pays all your electricity use too.

I last month use 789 KWH, my bill was over $434 They thought I used more. then Gave me a credit.


I will produce over 12K KWH yearly that should make me pay nothing if I don't use more than 1K monthly.

I get charged about $30 for gas.. I use $4 and they charge the rest in fees. So my net metering will produce more then I use , that should offset any fees.

[Willaby]

I don't pay much in Federal or State tax. So for me to purchase I can't use the Credits. My system is being leased $207 per month fixed for 20 years. I get some benefit first 4 years on property taxes and state credit. My Con Edison bill is anywhere from $250-$350 monthly and that is only going to increase in the future.

Perfect example of leasing that makes sense, since the company is allowed to take the tax credit and pass on the savings. Works the same when leasing an EV. Hopefully the $207/month pays all your electricity use too.

[bronxnua]

To purchase or lease

The prepaid lease is not that bad but I would still purchase. You'd definitely need to know the final payment though. Is "almost nothing" a dollar or $3k or ?? What ever the final payment is, adding 50% of it to the prepayment will give you a fairly close apples to apples comparison to a purchase deal.

From the investment side and considering your 401k option, you can compare ROI against a tax free investment. If your $13k after tax credit system will eliminate net $110 a month, that is 10% return but equivalent to a ~13% taxed return (depending on your tax situation and ignoring true depreciated value).

Factors to consider if you wait: utility rates will rise and net metering contracts can only get worse.

I don't pay much in Federal or State tax. So for me to purchase I can't use the Credits. My system is being leased $207 per month fixed for 20 years. I get some benefit first 4 years on property taxes and state credit.


My Con Edison bill is anywhere from $250-$350 monthly and that is only going to increase in the future.

[sensij]

Unless this is a feature of your 401K, it's simply not true. I have taken out 401k loans several times while working for different companies, and have continued contributions and payback of loan simultaneously.

Thanks for the correction, it is indeed plan specific. Something for the OP to look into anyway.

As an interesting aside, which many people don't seem to know, the interest you pay on a 401K loan (currently 3.25% in my plan) goes back into your 401k - in effect you pay yourself interest on the loan.

If you are going to point this out, you should also include the fact that the interest (and loan balance) is paid from after-tax income, which will be taxed again at ordinary income rates at the time the money is eventually distributed. Better than paying interest to some financial institution, I guess, but a poor option when compared to taking that interest money, parking it in a brokerage account, and eventually paying long term capital gains on only whatever it yields.

[Spektre]

but another negative consequence of that loan is that no new money can be contributed until the loan is paid off.

Unless this is a feature of your 401K, it's simply not true. I have taken out 401k loans several times while working for different companies, and have continued contributions and payback of loan simultaneously.

As an interesting aside, which many people don't seem to know, the interest you pay on a 401K loan (currently 3.25% in my plan) goes back into your 401k - in effect you pay yourself interest on the loan.

[sensij]

The prepaid lease is not that bad but I would still purchase. You'd definitely need to know the final payment though. Is "almost nothing" a dollar or $3k or ?? What ever the final payment is, adding 50% of it to the prepayment will give you a fairly close apples to apples comparison to a purchase deal.

From the investment side and considering your 401k option, you can compare ROI against a tax free investment. If your $13k after tax credit system will eliminate net $110 a month, that is 10% return but equivalent to a ~13% taxed return (depending on your tax situation and ignoring true depreciated value).

Factors to consider if you wait: utility rates will rise and net metering contracts can only get worse.

Do you work for Solar City or something?

Net metering rates for SCE customers will not "get worse" until July 1, 2017. The current agreement will be available until then, unless there is a massive increase in the rate of installations, almost an order of magnitude.

Your definition of "return" could use some work.

Take that 13000 and see what it does with a 10% compounded return each year:
y0 = 13000
y1 = 14300
y2 = 15730
y3 = 17303
y4 = 19033
y5 = 20937
y6 = 23030
y7 = 25333
y8 = 27867
y9 = 30653
y10 = 33719

Now, look at the cumulative savings on the electric bill, assuming a 5% increase in rates each year (higher than average), and also assuming that the savings on the bill is invested at the same hypothetical 10% rate each year

y1 = 1320
y2 = 2838
y3 = 4577
y4 = 6563
y5 = 8824
y6 = 11391
y7 = 14299
y8 = 17585
y9 = 21295
y10 = 25472

It would take 15 years for the two investments to have been worth the same... 15 years of discipline to avoid the temptation to spend that savings each year instead of invest it. The fact that the 401(k) loan will be getting repaid will help, but another negative consequence of that loan is that no new money can be contributed until the loan is paid off.

I'm not against investing in solar if you think it will save money. I would be very cautious about borrowing money from a retirement account to do it. 10% is clearly a round number and is unlikely to reflect the actual market return over that time, but the point is to do this analysis with whatever numbers best reflect your outlook and not accept the BS that most solar sales people will shovel in your direction.

[J.P.M.]

Just to be clear, there's no escalator on a prepaid lease.

OOPS ! I better invoke my speed reading class money back guarantee clause.

[Willaby]

The prepaid lease is not that bad but I would still purchase. You'd definitely need to know the final payment though. Is "almost nothing" a dollar or $3k or ?? What ever the final payment is, adding 50% of it to the prepayment will give you a fairly close apples to apples comparison to a purchase deal.

From the investment side and considering your 401k option, you can compare ROI against a tax free investment. If your $13k after tax credit system will eliminate net $110 a month, that is 10% return but equivalent to a ~13% taxed return (depending on your tax situation and ignoring true depreciated value).

Factors to consider if you wait: utility rates will rise and net metering contracts can only get worse.

[Ian S]

Not to mention the annual escalator that's usually included.

Just to be clear, there's no escalator on a prepaid lease.

[TD22057]

FYI I put in 18 solar world 275W panels (4.95 kW) w/ a SB5000TL-US exactly 1 year ago in Santa Clarita. 200 deg azimuth roof with no shade and my yearly production was 9200 kWh. No idea how stable that will be but I've been extremely please with the system and it's performance. I used a smaller company which I can't recommend because of some issues w/ their electrician. I definitely think buying is the better option even if it means replacing the inverter in 10 years (I mounted mine in the garage to try and reduce heat load and prolong it's life) - especially if you plan on staying in the house. I'd recommend paying close attention to the roof mounts (I insisted they use the kind that slip under the roof tiles instead of drilling them) and generally staying on top of things and insisting that things get done to plan (true for just about any contractor I've found). The extra backup power system in the SB is a nice feature as well for earth quake emergency power (batteries, radios, etc).

[sensij]

For an electric bill that averages $140 / mo, I don't think I would be taking money out of my 401(k). It would be great if you are timing the market as you hope, but if that is really how you feel about it, you could just go to cash (or some cash-like instrument) within the 401(k) and see what happens. With a loan, if something causes you to change jobs, that amount comes due immediately... not a great position to be in if the job change was already unexpected. The investment return from the system is unknown, but it might take 5 years or more just to break even, and then another 5 years or so before the electric cost avoided starts to be significant enough consider the system an actual investment. A lot can happen between then and now.

If you start saving now (without diminishing your 401(k) contributions), do you think you can set aside enough over the next year or so to buy the system for cash without tapping into a tax-advantaged account? SCE is nowhere near their net metering cap, so as long as you install before the end of 2016, you are not giving up any incentives that I am aware of. Who knows, maybe panels and inverters will continue falling in price and it will be cheaper next year than now.

[J.P.M.]

Some might wonder how the lessor makes its money on a prepaid lease if they are on the hook for inverter replacement sometime in the future. It's because they are entitled to accelerated depreciation on the price of the system over and above all the other incentives. As an individual buyer you don't get that benefit.

Not to mention the annual escalator that's usually included.

[J.P.M.]

Buy it !! You will spend less in the long run, have more options, and not be dragging some P.O.S. lease into the future, probably with a 2.99 annual increase to add insult to injury. Renting solar equipment is a lot like renting furniture and appliances. In the end you simply pay too much and get screwed.