Lazy Man and Money

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When Electricity is “Free”

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Last Friday, we signed the paperwork with our intent to get solar power.

Over the last few weeks I’ve been writing about our move to solar power. If you are up-to-date on that you can skip the next few paragraphs. Otherwise, let me bring you up to date. For Earth Day this year, I started to explore whether going with solar power would save me money. Then I forgot about it until the question of leasing solar panels came up on another blog post. That got me motivated to have a company give me a free initial proposal which showed that solar could cover 83% of our energy needs. In meeting with the company, we came up with a revised proposal that would cover 101% of our energy needs.

I wrote about financing our solar panels. That was an adventure in itself as the bank the vendor partners with uses an example loan of 9% interest over 20 years. Fortunately, an alternative is to use home equity to get a loan or line of credit at a rate much closer to Prime (currently 3.25%), which we intend to pay off in 2-3 years. However, a loan with tax-deductible interest at such a low rate is tempting to keep around awhile. I’d still love to get feedback if people would keep a rate like this and use money for investing rather than rushing to pay off the loan.

Finally, I covered the value of “free” electricity. My wife actually used that term. However, it’s a common error. I put “free” in quotes, because buying and installing solar panels is anything but free. In fact, the cost for our 7700 watt system is around $33,110. However, after state grants and federal tax credits, the real cost to us is $16,440.

Excluding the financing of that cost (which you can’t), we’ll have an estimated 8,800 kWH of “free” electricity for many years. It’s not an infinite amount. The way it works with net metering is that extra in months of surplus (April through June) earns us credits that we’ll use in the peak of summer and winter. At the end of the year, we should come up even-steven… or within a few dollars of that.

In the last article there was a question by Andy of Art of Being Cheap of whether we thought about getting an electric car. Before this move to solar I had thought about it and wrote about it here. However, since then our family has grown and we need an SUV which doesn’t really exist as an electric car. Additionally, we have decided that 4-wheel drive is critical for safety on the New England icy roads. The SUVs that are looking to come out don’t seem to 4-wheel drive yet.

In the next few years that’s going to change. Automakers are starting to announce SUVs that just might fit. For example, there’s the 2016 Volvo XC90 plugin that will get 25 miles a trip on pure electricity. After that it will be a gas-based hybrid.

If we have extra solar capacity, my wife could eliminate some of the costs of her commute. Using the solar power from my house to save money on gas is wild! We’d just have to think of how to conserve more electricity at home or pay for new capacity. They say that some of these electric cars get the equivalent of 100mpg. However, our overall cost of electricity is projected to be about half the national average. In some ways, combining the (not so) “free” electricity with the efficiency of these cars would be like getting the equivalent of between 150 and 200 mpg.

Just to get a little “mathy” for minute, I found this comparison of average gas prices per gallon and electric prices per “eGallon” for National and state averages. Nebraska pays 9 cents a kWh and I’ll be paying an estimated 6 cents over the long term. Using that eGallon price of 1.21 in Nebraska and applying the simple ratio, it would be about $0.80 cents per eGallon using solar.

I don’t know about you, but I find that wicked cool. (I’m so excited that my inner Bostonian is coming out.)

Of course it doesn’t stop at charging the car. We have gas heating which is actually priced really low right now. Someone suggested getting a heat pump (more information here). It might be a wise idea, but I’m not sure if it would save us too much money now. If gas gets expensive, it would be worth looking into.

However, we can still use our electricity to save on our heating bills. As part of our move to install central air at the beginning of the year, we got ductless heating and A/C units in the downstairs. These run on electricity and supposedly are very efficient (they earn rebates from the energy company). We could keep the gas heating at a minimum and use the one ductless heating unit in the room that we spend most of our time in.

Finally, there’s one great side effect from all this. I’m now more conscious of electricity than I ever was before. When the system is installed I’ll be able to view the usage. I imagine it will be like having a bathroom scale around all the time. Right now my electricity usage is like having the scale in the basement… I can get to it, but I don’t really think about it and use it. When I have the ability to sign on and see energy use in real time, it could be a game changer. Also, now that I know that saving electricity in one area, lighting for example, can help me save money on gas, it feels more beneficial to conserve our allotment of “free” electricity.

The Value of “Free” Electricity

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Over the last few weeks I’ve been writing about our move to solar power. In case you’ve missed the articles, let me bring you up to date. For Earth Day this year, I started to explore whether going with solar power would save me money. Then I forgot about it until the question of leasing solar panels came up on another blog post. That got me motivated to have a company give me a free initial proposal which showed that solar could cover 83% of our energy needs. In meeting with the company, we came up with a revised proposal that would cover 101% of our energy needs.

Finally, I wrote about financing our solar panels. That was an adventure in itself as the bank the vendor partners with uses an example loan of 9% interest over 20 years. Fortunately, an alternative is to use home equity to get a loan or line of credit at a rate much closer to Prime (currently 3.25%), which we intend to pay off in 2-3 years. However, a loan with tax-deductible interest at such a low rate is tempting to keep around awhile.

Today, I thought I’d cover the value of “free” electricity. I have to put “free” in quotes, because buying and installing solar panels is anything but free. In fact, the cost for our 7700 watt system is around $33,110. However, after state grants and federal tax credits, the real cost to us is $16,440.

This system is expected to produce 8772 kWh of electricity. We used 8625 kWh of electricity, so it would replaced our entire bill which is currently $1522 a year. As I’ve found from readers we should be very grateful that we have equal net-metering… the extra power we produce gets sold back to our electric company for the same price what we pay to buy from them.

So what is the value of saving that $1522 every year? Academics have written papers on how much money people need to retire. For years it looked like that number was 25 times your annual expenses. This was figured out by taking a big sum of money, say 1 million dollars and realizing that investing it over time would produce $40,000 in income that could be withdrawn indefinitely. These rules became known as the rule of 4% and the multiply by 25 rule.

Everyone loved them and there was much rejoicing to have those rules in place. (I imagine it as the financial equivalent to “unicorns, show ponies, ‘where’s the beef?’!”)

Someone forgot to remind people that rules were meant to be broken. Over the last year or two, many academics and media articles have suggested the rule of 4% should be adjusted down to 3.5%. This makes for a less than sexy rule of 28.571428. That only flows off the tongue of Sheldon Cooper.

We can bring back the unicorns and show ponies, because here’s the beef: Either number gives a good estimate. So to not through the baby out with the bath water, I’m going to pick a number in the middle, call it the rule of 27.

My newly coined Rule of 27 says that to have $1522 indefinitely, I’d have to save and invest $41,094. With that number invested, I could (more or less) safely withdraw $1522 a year to pay my electric bill.

So to eliminate that annual electric bill, I could put $16,440 into a solar system or I can put roughly $41,094 into some investments (which will remain undefined as that is a study in itself). The way I see it, I save $24,654 going solar.

One thing that is worth mentioning is that solar isn’t forever. The panels get less efficient over time (around 0.7% per year) and the warranty ends after 25 years. It’s almost impossible to predict 30 years down the line, but it seems reasonable to presume that it is nearly 80% efficient. In that scenario, it would still be producing $1200 worth of electricity at today’s prices. That would still be $32,000+ dollars invested.

This level of analysis has helped me make the decision that under the right circumstances solar can provide substantial value.

How to Waste $55 in Washington D.C. (Hint: Take a Bus Tour)

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I had never been to Washington D.C. Recently my wife had the opportunity to go for work and I figured this was a good opportunity for me to see the sights. She was able to get a couple of days off of work and on her first day she suggested we go on a bus tour. We decided to go with GrayLine DC – and their DC in a Day Tour – at $55 per person. As you can tell from the title it was a big mistake. (Note: In the title, I’m assuming that the person reading this is one person and thus isn’t spending the $110 we did.)

Let me take you through the day in a series of bullet points:

  1. Capitol Building – The bus drops us off at the Capitol building at 9:00 and says he’ll be back to pick us up at 11:00AM. For obvious security reasons the bus can’t park that close to the Capitol. Our group walks around to the building and we find that it closed to the public today for a special ceremony. So we now have 2 hours with no way to contact our bus driver to see something else. (Note to tour guides: If you aren’t going to be with the group, leave your cell phone number behind so that people can reach you. Also get everyone in the tours cell phone so if they are late to the meeting spot they can be reminded). Fortunately the Library of Congress and the Supreme Court are behind the Capitol, so we head there. The Library of Congress had an interesting exhibit about Herb Block. It also had a lot of information on the Declaration of Independence and other notable historical documents. It was somewhat interesting and may have been better than Capitol. I couldn’t tell you since I didn’t see the Capitol. The Supreme Court was pretty boring with not much to see or do.
  2. White House Visitor Center – The next stop was the White House Visitor Center. I thought this was going be the highlight of the tour… after all you don’t get too much bigger than the White House in D.C. Unfortunately after the 9/11 attacks they moved the White House Visitor Center so it’s away from the actual White House. When I visit a “visitor center”, I actually expect to see the place. The White House Visitor Center was mostly pictures and a couple of artifacts. While I thought it would be difficult to be more disappointed, I was wrong. The bus driver mentioned that we could walk from the Visitor Center to the southern part of the White House and see it. The website exclaims “You might even see the President!” We went to the south side, but it was more blocked off than Fort Knox. You could only see specs of whites through some dense trees and part of what may have been a flag poking out. I imagine the specs wouldn’t even be visible if it were summer time when the trees had leaves on them.
  3. Smithsonian (American History version) – This was by far the best stop on the trip. The Star-Spangled Banner alone was amazing. However, seeing everything in the Smithsonian in two hours is like trying to do Europe in 5 days. It’s destined to fail. We also have to eat lunch in this time. The Smithsonian’s cafeteria is overpriced with a roast beef sandwich, a chicken salad wrap and a drink running us over $22.00.
  4. Ford’s Theatre – You might know this landmark from such events as The Place that Lincoln was Assassinated. Continuing on the disappointment track, the theater was actually closed as there was a performance. There was a museum portion of it open. We got to go through that and then across the street to see the 700 square foot place where Lincoln actually died (actually called The House Where Lincoln Died). Looking at blood-stained pillows… kind of morbid. We finish here with 25 minutes left on this stop before the tour continues. My wife and I decide we might as well pick up a glass of wine, but the wine bar is closed as it’s between lunch and dinner.
  5. WWII Memorial – Outside the famous reflecting pool near the Lincoln Memorial is the WWII Memorial. Unlike other memorials with names on them (I think Vietnam Memorial – haven’t been), this is more like a really big fountain. There are 56 pillars for all the US states and territories during WWII (I learned that the Philipines was once part of the United States (my history teachers never covered WWII because they started the year with Columbus). The big disappointment here was that the reflecting pool was drained for cleaning. It resembled a construction zone.

That was the whole tour. I would have liked to visit either the Lincoln Memorial or Washington Monument, but that wasn’t on the list. I probably would have preferred the Jefferson Memorial over the Ford Theatre. I also would have liked to see the Smithsonian (Natural History version) and the Hope Diamond.

Despite all the above, perhaps the worst part is that we were staying in a hotel (Harrington Hotel – good for those on a budget) that was within about a mile of all places. When we weren’t able to get wine after Ford’s Theatre, we decided to walk two blocks back to our hotel just to visit the bathroom. It made the whole bus ride pretty useless (especially with the excellent and cheap Metro system here).

While we were issued tickets for Ford Theatre, I found out that tickets to the museum are free. In fact, each stop on our tour was free. I’ll take some responsibility, we could have researched things better and realized that we could have done them on our own. On the other hand, I think the tour company should take some responsibility and not book places that are closed or under renovations when there are a lot more other things to see and do. Let my experience be a warning to anyone else considering a D.C. tour.

Comments on the State of the Economy

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Since I’ve moved to the west coast, watching CNBC has been a bigger part of my morning routine.  Typically, I find out a few details about companies, but nothing that enormously helps me in making better financial decisions.  Essentially, it’s entertainment for me – yes, I’m a big nerd, but you knew that.

Today, it’s been extremely interesting and here are a few things that I learned:

  • Light Sweet Crude Oil got very close to $50 a barrel.  This impacts gas prices and is coming down to $50 has got to be a multiple year low.  Yesterday it was at $52 and I think that was a 20 month low.  I’m going to use this information and not fill up my gas tank completely until this price makes it through the system.
  • Ben Bernanke’s Senate budget committee meeting – This was great time spent.  I’m the first one to get lost in the terminology of politics, but it seemed that the questions were posed for the general public to understand – and Bernanke answered them that way.
  • One of the questions to Bernanke was from Senator Sanders about the growing wealth inequality in America.  It’s true that the middle class in America is disappearing as the rich get richer and the poor get poorer.  Bernanke acknowledged that is a problem and it seems that Brazil is the biggest company with a similar wealth inequality.
  • One of the senators said that 5% of the people use 50% of the Medicare money.  When they looked into a sample of that 5% (the chronically ill) they found that they were “on average” 16 prescription medications.  When looked at those medications they could have been reduced to just 8 when all the conflicting and unnecessary drugs were eliminated.  The problem cited was that these people had too many specialist doctors and one didn’t know what tests and drugs the other were prescribing.  Both the Senator and Bernanke seemed to agree that increased health care technology could solve this problem and save the economy millions by reducing these inefficiencies.  I could agree more with this and have been saying it for close to 15 years now (since I was a pharmacy technician at 16).
  • It came up a couple of time during that meeting that Americans are just not saving enough. Almost every study seems to dictate that’s the case.  The solution suggested was better education.  One could conclude that no matter what country you are from, if you are reading this today, you are on the right track.  While education is part of it, action is what matters.  So start saving today!