The Real Numbers Behind Home Solar

Solar PowerWe’ve now had solar panels on the roof of our home for over a year.

Which means we finally have twelve months of data on the performance of our home solar energy system to report upon!

The results are definitely mixed.

While our electric bill is much lower than it used to be, our anticipated payback period will likely end up being longer than we initially anticipated.

I hope the information we’re sharing will help readers considering home solar power systems to make the right decisions for their individual situations.

Keep in mind, however, that the rules associated with solar vary considerably from state to state. The potential costs and benefits for you could be dramatically different from what we have experienced, so make sure to conduct your own research and perform your own due diligence before making a decision!

So What Happened to Your Electric Bill?

Solar EnergyOver the course of our first twelve months with a home solar energy system, our total electric bill fell by 84% from the previous twelve months. Given that our energy usage over the same time period declined by just 0.3%, our rooftop solar panels were clearly the primary reason for the improvement.

While our bill did not “go to zero”, this still represents a significant savings for us as we try to move down the path towards financial independence and early retirement.

Given the laws currently in place in our state, it’s impossible for our monthly electric bill to actually be $0, as the daily cost to connect to the power grid and some other fees cannot be offset by solar energy credits.

Going forward, I think the best case scenario for us would probably be an annual reduction of about 90% from what we previously paid for electricity.

Why Do You Think You May Be Able To Save More Money in The Future Than You Did Last Year?

We didn’t install our rooftop solar panels until mid-June last year.

Consequently, we missed out on the opportunity to build up solar credits during the spring of 2017 that could have been used to offset our electric bill last winter, when our energy production was much lower because of shorter days, less direct sunlight, and panels that were sometimes buried under ice and snow!

Retiring On My TermsThe production of our home solar energy system this spring was fantastic, and heading into the summer, we’ve already built up more credits for next winter than we had at the start of last winter.

With several more months of strong solar energy production likely ahead of us, we’re poised to head into next winter with a lot more credits saved up than we had last winter. Which means that all else being equal, our electric bills next January, February, and March are likely to be materially lower than they were this year, when we ran out of credits to keep our bill as low as possible.

Looking closely at the numbers, I think that our full year bill over the next twelve months could be about 88% lower than it was in our pre-solar days, and we might be able to reach 90% lower if everything goes perfectly. We do need to also keep in mind that over time the solar panels on our roof will likely get slightly less efficient, so the next few years while the panels are relatively new are likely to be the best years for our wallet!

What Does Your Potential Payback Period Look Like Based On The Actual Performance of Your Solar Panels?

I wrote last year about some of the possible hidden costs associated with home solar power that should be considered, such as higher insurance premiums, costs to maintain the system, and the potential for rules to change in the future.

In our case, we paid to take down a very large tree about 30 feet from the back of our house to avoid purchasing and installing a couple extra panels to compensate for the shade that would have been provided by that tree. I’ve added that expense to the all-in cost for our home solar energy system.

Positively, when we filed our federal income taxes earlier this year, we received the 30% solar investment tax credit, which lowered the ultimate cost of our system by that amount.

Our annual homeowner’s insurance rates went up by about 7% after we installed solar panels on our roof, so I’ve factored that additional cost into our numbers also.

Fortunately, our rooftop solar panels were completely maintenance free over their first year of existence. We think that we’ll need to purchase a new inverter after about a decade, but so far our home solar energy system has not generated any additional expenses after installation.

The numbers the solar company initially showed me illustrated a payback period of about nine years. Those figures, not surprisingly, assumed that our monthly electric bill would “go to zero” for simplicity’s sake, even though that’s not actually possible in our state!

I’ve been operating under the assumption that our actual payback period would be around a decade, with an additional expense of around $1,500 for a new inverter right about the time our system had finally paid for itself.

In reality, the actual performance of our system over its first twelve months indicates a potential payback period of closer to 13 years, after factoring in the cost to remove the large tree, our higher insurance premiums, and the smaller discount our system provided over its first year, given that we were unable to build up a full bank of solar credits for last winter.

Given that I expect our annual electric bill will be smaller in future years than it was last year, the numbers suggest that our payback period will actually be about 12 years. However, since we’ll almost certainly need to install a new inverter before then, and the performance of our system will probably deteriorate a bit over the next decade, at this point our actual payback period appears likely to be about 13 years.

I’d recommend making sure to factor in all of your potential expenses – both initial and ongoing – when doing the cost/benefit analysis of a home solar energy system!

If You Could Turn Back Time, Would You Do It All Over Again?

When I wrote last year about our thought process around going solar, I indicated that, in my mind, the decision was not clear-cut from a purely financial perspective. The potential payback period in our area of the country was not short enough to be obviously compelling, and there is a lot of uncertainty about what the future terms and conditions with the power company might be after our initial agreement with them expires after a decade.

What ultimately made us decide to install the solar panels was thinking about our quest for financial independence, and the trusty old 4% rule, which tells us that saving 25x our annual utility expense might be enough to support paying that bill for the rest of our lives.

When I multiplied our anticipated yearly pre-solar electric bill by 25, to determine how much we’d need to put away to – theoretically – finance that bill for as long as we expect to own our home, the decision to go solar made more sense. The net cost of our system – including a new inverter in a decade – was only about 40% of the amount we’d have needed to put away in cash to finance our electric bill for the long-term.

Given that the addition of solar panels also likely increased the value of our home, we decided to move forward with the project.

And although the payback period will likely be longer than I originally expected, the fact we’ve significantly reduced one of our largest recurring monthly expenditures for the long-term means that I still view home solar energy as a Smart Financial Decision for our family as we strive for financial independence and early retirement.

So, yes. With an additional year of information, if we had to do it all over again, we still would.

Have you considered solar energy for your home? What drove your decision-making process?




2 Comments

  • Steveark

    July 4, 2018

    From an economic standpoint that payout is longer than I’d accept for a purely financial standpoint. However, I have a generator wired into my house that cost over $1500 and it has zero payout but it is nice to have during power outages so not everything has to pay out to make sense. The main concern I’d have is whether you will stay put long enough to pay it out. I doubt there is a known value to a next owner who might not like the aesthetics even, but if you are like me (40 years in the same house, and counting) that wouldn’t be a problem. Great information!

    Reply
    • ROMT

      July 5, 2018

      I agree that the numbers are not clearly compelling from a purely financial standpoint. Your point about how long we plan on staying in the house is a good one. I thought about this as we were making our decision, but have not written about it. We have been in our home for seven years, and even if we do reach financial independence in the next few years, we are likely to stay here for the next decade until both of our children are college aged. After that, who knows, but we do anticipate being here through the likely payback period. From the research I have done, I think the solar panels did increase the theoretical value of our home, since they have value to a prospective buyer. But to your point, I think the panels have also limited the potential buyer base a bit (higher price and some just won’t want the panels), so the house could take somewhat longer to sell. Thanks for sharing your thoughts Steveark!

      Reply

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