Investing in solar or stocks: A look at long-term returns

Solar is a long-term investment that generates predictable financial and environmental returns. I know, no duh! And, of course, solar does not make sense for everyone. It’s an option — vis-a-vis purchasing electricity from PG&E — much like making an investment in the stock market is an option.

This week we have fielded a surprising (given all that’s going on with COVID-19) number of calls from homeowners in our community. What surprising, too, was their rationale: The financial markets are cratering, there’s great uncertainty, perhaps now is the time to evaluate investing in solar for my home. 

To wit, here’s a comparison of the returns generated via a hypothetical $20,000 investment in the stock market and in solar for your home.

First, if you invested $20,000 in an S&P 500 index fund in January 1995, over 25 years (by December 31, 2019) you would have generated an 8.015% annualized return. Not bad. And, of course, this does not account for the past three weeks of volatility; the S&P (as of March 20) is down 29% since the beginning of February 2020.

Regardless, let’s stick with the 8% annualized return metric for the stock market.

Next, if you invested $20,000 in a solar system for your home, here’s a summary of your 25-year returns:

- Total investment: $20,000

- Less, 26% federal tax credit: $5,200

- Net investment: $14,800

This solar system (standard size for a home in Yolo County) would generate the following returns:

- Year-one PG&E savings: $2,153

- 25-year PG&E savings: $86,394 (assumes 4.5% annual PG&E rate inflation)

Simplified: In the first year, solar will generate a 14.5% annual return. Over its 25-year warrantied life, solar will generate an annualized return of 23%, buoyed by annual PG&E rate increases.

And, homeowners do not pay taxes on their solar investment returns … utility savings are not taxable. But, we do pay capital gains on our stock market investments.

Net-net, if you invest in solar today and if PG&E’s rates increase 4.5%/year, you will generate a 23% annualized return over the next 25 years that is immune to the volatility of the stock market and the macro economy.

Perfunctory caveat: Consult your investment and/or tax advisor for investment advice. Or, of course, feel free to contact us if you would like to evaluate solar.

Most important: Be well, stay well, take care of our community. We will get through this.

Why solar, why now? Homeowners speak out

At times it feels like we are solar psychologists. To effectively help property owners evaluate solar, we ask a lot of questions and — importantly — try out best to listen … two ears, one mouth. 

Our initial consultation with property owners generally begins with a two questions: Why solar? Why now? The sentiment of property owners falls into two camps: Pragmatic/economic, and/or idealistic/environmental.

Over the past month, we have had several dozen conversations with property owners. Here’s a sampling of contemporary reactions to the two Why? questions, shared in no particular order (with a heavy dose of PG&E sentiments):

- I’ve been putting it off; now seems like the right time to go solar.

- I am installing a new roof. Installing solar at the same time seems sensible. (This is common … we are currently orchestrating more than 10 re-roof + solar installations.)

- I looked at solar a while back and it didn’t pencil. Now that the cost of panels has dropped and PG&E’s rates have gone up, I want to learn if it’s feasible.

- PG&E’s rates are going to continue to go up, particularly with their bankruptcy and accrued liabilities for the fires.

- I want to do my part and reduce my carbon footprint.

- I am sick of PG&E and do not trust them.

- I just got an electric vehicle (or, plan to do so soon); now seems like the right time.

- The tax credit is going down at the end of the year (from 30% to 26%) … I do not want to lose out.

- I believe solar is the right way to go from an ecological perspective … we need to produce more clean energy/solar power.

- I just bought my house and it doesn’t have solar.

- I want to improve the value of my home.

- I am installing an electric heat pump, plan to go all-electric powered by solar.

- I believe solar is the right thing to do over the long run, economically and environmentally.

- My bills are really high; I’m tired of paying PG&E.

- PG&E’s problems are only getting worse. With solar, I can lock in my cost of electricity.

- I just retired and will use more electricity in the future.

- Solar is socially responsible, but I’m not sure if it’s financially reasonable.

- I have done everything I can to improve the energy efficiency of my home. Now, it’s time to consider solar.

Our opinions:

- Solar does not make sense for everyone.

- If you intend to own your home for more than five years, solar is worthy of consideration.

- There is no urgency to go solar; do not buy the, “you’ve gotta go solar by this date for this reason.”

- PG&E’s rates will continue to inflate; by what amount and when, nobody knows.

- Solar is the simplest and most effective way to reduce your carbon footprint and mitigate against future PG&E rate increases.

We are happy to engage in a conversation and help you contemplate solar. Feel free to stop by our workspace or contact us today to schedule your no-cost evaluation.

Purchased a home and want to add solar panels? Five considerations to ponder

This week, we have been engaged by three new homeowners to help them evaluate solar. Thereby, we begin with a simple, open-ended question: Why solar, why now? Responses vary, but generally their motive is twofold: Why not, since I just bought my home; and, PG&E’s rates are only going to go up. While we agree with the latter, we believe the former warrants consideration.

Before adding solar to your recently purchased home, here are five considerations:

1. The condition of your roof. Since new homebuyers have recently had their roof inspected, they have an objective evaluation regarding the condition and remaining life of their roof. In simple terms, if your roof has less than 10 years of remaining/warrantied life, you do not want to install solar (on such roof planes); if your roof has 10+ years, you’re in good shape.

2. Historical/future electricity use. Since new homeowners have limited (or zero) electricity use data, we recommend one of four approaches (to forecast future use and accurately size and model their prospective solar system):

• Live in your home for 12 months and, thereby, quantify how much electricity you will use.

• Wait until you have occupied your home for six months -- particularly 1-2 months of summer use, when electricity demand peaks. (Thereby, we can model 12 months of electricity demand based on your use pattern and comparable homes).

• Employ comparable homes’ electricity use (based on their vintage, neighborhood, size, occupancy, etcetera) to model your home’s future electricity use. Fortunately, we have several hundred data sets — electricity use patterns for homes in all neighborhoods in our community — to approximate future use.

• If it’s not too late, request 12 months of PG&E data from the home seller. Oftentimes, this is a futile effort, but it’s worth trying.

3. Home improvements. Stating the obvious: Many new homeowners improve their homes. Adding a pool and/or hot tub will increase your electricity use, as would replacing your furnace with an electric heat pump (an increasingly common practice for Repower homeowners). Conversely, replacing windows, adding insulation, or installing a variable speed pool pump reduces your electricity use. In all cases, we model the impact vis-a-vis solar system sizing.

4. Electric vehicle. If you own — or intend to purchase, in the next 12-24 months — an eV, you’d  want to factor future charging of your car into the sizing of your solar system. We find that eVs travel 4 miles per kWh of electricity. The math is simple: Take the number of miles/year you anticipate driving and multiply it by the percentage of charging you believe will be done at home (versus your workplace, public chargers, etc.). Then, divide the number by 4 to quantify additional electricity use (in kWh). For example, if you intend to drive 10,000 miles per year and charge your car 80% of the time at home (fueling 8,000 miles), you will consume 2,000 kWh of electricity.

5. Your electrical panel. Though adding solar does not increase your electrical demand, we need to ensure your electrical panel has sufficient capacity (or space) to accommodate the solar inverter. Furthermore, we will evaluate non-solar changes to your electrical demand — car charger, spa, swimming pool, heat pump, etcetera — to determine your panel’s amenability. (We perform load calculations and review your future electricity use with the city or county to ensure solar will work.)

 Net-net, going solar is simple, but there are a few nuances worthy of consideration … particularly if you recently purchased a home. Feel free to contact us to learn more and receive a free solar assessment.

Davis Enterprise: Why don’t more homeowners go solar?

Belated thanks to the Enterprise for sharing, in Sunday's election-packed edition, our perspective r.e. why (and why not) homeowners go solar. You can read the full article here ... below's a synopsis:

Solar energy is booming in our community. More than 20 percent of single-family residences in Davis have solar electric systems churning out clean and inexpensive electricity atop their rooftops.

The confluence of ever-inflating PG&E rates, significant reductions in the cost of solar panels and solar net-metering (whereby solar homeowners are credited at the full retail price for their clean energy) has swelled solar adoption in Davis.

Going solar always has been an idealistic decision — it’s the right thing to do — and now it’s a pragmatic, sage investment decision, too.

However, solar is not a panacea; it does not make sense for everyone. At RepowerYolo, our solar assessment begins with a qualitative and quantitative homeowner interview. One of the first things we do is try to talk homeowners out of going solar. 

... 

But, the No. 1 reason homeowners do not go solar is less obvious: They do not have to. Solar is a choice; nobody has to do it. Paying your PG&E bill is not a choice; you do it or it’s lights out.

...

Candid pessimism to the side, solar is booming in our community for one primary reason: economics. The average cost of PG&E electricity for homes in Davis we have assessed is 24 cents per kilowatt hour. The average amortized cost of solar-generated electricity for Repower homeowners is 9 cents per kilowatt hour. Net-net, if a homeowner in our community intends to live in his house for at least five years, solar pencils out.

You do not have to pay PG&E when you can profit from the sun.

The #1 reason homeowners do not go solar

We’ve had the fortune of helping hundreds of homeowners evaluate solar. One of the first things we do is try to talk them out of it. Taken aback — Wait, I contacted you because I want to go solar; help me figure out how to do it — homeowners are puzzled. We walk through the primary reasons to not go solar, including how long a homeowner intends to reside in their residence (if less than five years, it probably does not make sense) and the condition of their roof (age/shading).

Net-net, if a homeowner in our community intends to live in their house for at least the next five years, solar pencils.

But, the number one reason homeowners do not go solar is not obvious: They do not have to. Solar is a choice; nobody has to do it. Paying your PG&E bill is not a choice; you do it or it’s lights out.

Building on the fact that homeowners do not have to go solar is the reality of time: Solar is not a priority, and many homeowners lack time/interest/energy to evaluate whether it makes sense.

Amplifying this, an increasing number of homeowners are tired of solar solicitations: Daily cold calls, propositions when shopping at Home Depot or Costco, direct mail offerings filling their mailboxes, radio ads airing constantly. The sun is abundant, and so too are companies selling solar.

Candid pessimism to the side, solar is booming in our community for one primary reason: economics. The average cost of electricity for homes in Yolo County is $0.24/kilowatt hour. The average amortized cost of solar-generated electricity (for Repower homeowners who own their solar systems) is $0.09/kilowatt hour. 

You do not have to pay PG&E when you can profit from the sun.