Lazy Man and Money

18 Lessons and Thoughts about Buying Solar Panels

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Over the last few weeks, I’ve written a lot of articles about our move to solar power. While you can read them all here, I feel like I need some kind of summary.

In each step of the process, I learned something new. Very often I learned it from commenters, who really stepped to the plate. So let’s dig right in.

Is Solar Right for Me?

That’s usually the first question people ask. Writing this to a national audience, there’s no easy answer. I can only break it down into small questions, which may be easier to answer.

1. Does your home have a roof that faces south? There’s a commercial building down the street that faces east-west, but it does have a roof that faces south. And if your front door faces north, the back of your house might have a roof that faces south.

2. Is your roof obscured by trees? Trees are difficult, but you may be able to trim them or take them down. If they are a neighbor’s tree it can’t hurt to ask. If they are environmentalists, point out that by going solar, the CO2 saved is the equivalent of planting 150 each year. The tree trimmed or taken down is going to be a hero. You’ll probably have to pay for the service and maybe even have to give a little extra to neighbor, but it is worth it.

3. Geography isn’t important as you think. If solar is viable in New England it should be viable in almost every part of the United States (maybe not Alaska).

4. What makes solar viable is a combination of many things:

5. Federal tax credits play a big role. Getting a big chunk of money back on your taxes can go directly towards paying down the loan

6. State grants also play a big role. A lot of that is what makes solar viable in places that don’t seem to have the best sun.

7. Solar Renewable Energy Certificates (SRECs) may also play a big role. Simply by producing solar power, you can earn credits. You can sell these credits on the open market and make money. It works a little like carbon credits if you are familiar with that concept.

8. Net Metering plays a huge role as well. We can sell the energy we produce back to the grid at the same price we pay. Thus during the day our meter spins backwards as we sell our solar energy. At night it spins forward as we use it, while we are not producing it.

9. Net Metering isn’t perfect everywhere. Some electric companies only pay a fraction of what you produce. In that scenario you might have to deal with batteries and other expenses that make solar less viable.

10. Mr. Electricity’s solar calculator is spot on…

11. … but it doesn’t replace having a local solar expert come do an assessment for you. You’ll learn the ins and outs of your local market and usually it is free.

12. If possible buy your solar panels don’t lease them. The companies that lease panels are going put you in a contract that my restrict your ability to sell the house. Also, the leasing companies are probably getting a very good rate of return by showing customers that they will still save money. (It’s just that their cut will be bigger than if you bought them yourself.) This is more of an educated hunch than mathematical analysis.

13. Finance the panels with a home equity line of credit if you can. Yes, it is a secured loan, essentially a second mortgage, but the rates are very good right now. Plus, it’s one of the few home improvements that I can thinking of which will actually not only pay you back, but save you money in the long haul.

The Future of Electricity

Thinking about the future of solar and electricity is like Louis Armstrong singing What a Wonderful World in my head. Typically, I try not to think about much what the future will be like. I want to hang onto every moment of the present. Nonetheless, personal finance is very much about thinking in the future, whether it’s getting debt-free, building an emergency, or crafting an annual $200,000 in retirement income.

Part of that is future planning is managing expenses. One of the best ways to manage them is to eliminate them. With that in mind, here are a few thoughts about the future of solar:

14. Technology continues its march and solar panels will get more and more efficient just like computer chips get faster and more energy efficient.

15. Even if your home isn’t suitable for solar now, you’ll be able to buy from a solar farm at a very competitive price.

16. I can imagine a time maybe 30, 50, or 60 years in the future when electricity essentially costs nothing… almost like how my Ooma Telo made my landline cost nothing other than taxes and fees for E911 service.

17. The implications of free electricity will be outstanding. Simple home renovations will mean free heat and hot water.

18. Improvements to plugin hybrids will enable them to go more than 100 miles on a single charge from the nearly free electricity provided by solar panels. If you need to go further, you’ll get well over 80 miles to gallon in gas.

I’m sad to end this series on solar, but I don’t expect to have anything to new to report for more than 6 months. The installation won’t be until next Spring/Summer because they don’t do them in the winter (snow gets in the way).

On the bright side, I’m extremely energized about the next series I am planning. I almost couldn’t tear myself away from the keyboard this past weekend. Look for it Monday of next week. In the meantime, I’ve got a few other articles planned for this week.

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.

Financing Our Solar Panels

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Have you been following our move to solar power? In case you haven’t 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. I got of my Lazy butt, and had a company do an initial proposal that would cover 83% of our energy needs. In meeting with the company, we came up with a revised proposal that could cover 101% of our energy needs.

This all puts us in a place where we are looking at a 28 panel, 7700 watt system that cost $33,110. However with state and federal subsidies, our final cost would be $16,440. The federal subsidy of $7000 comes in the form of a tax credit. I have to look, but I’m guessing we’d have to wait close to a full year, because they won’t install the panels until next spring.

The state grant is taken off the top right away, so we are left responsible for footing the $23,485 bill while we wait for the $7000 federal tax credit.

As luck good planning would have it, the local solar vendor has partnered with a bank to provide financing. It was conveniently provided with the rest of the information. Unfortunately, this financing was horrendous. I’m not going to mince words, but Admiral’s Bank isn’t even worthy of being an Ensign.

The solar company’s packet contained a graph that the system would pay for itself in 9 years if electricity has 3% inflation. If it has 5% inflation, it pays for itself in 6 years. This is exciting stuff, when you are looking at 25 years of use. That’s a lot of years of free electricity. The math was something like $40,000 in electricity for $16,440… obviously a big savings. The $40,000 number makes sense because we pay $1522 a year now and in 25 years that’s $38,000 assuming no inflation.

Then you flip to the page and look at Admiral’s Bank’s financing. They outlay a 20-year loan where you’d pay $32,168 to save $41,699. It is considerably less exciting to save $9,000 over 25 years. In fact, it is $360 a year or $30 a month… less than a quick call to my cable company recently saved me. The savings looked even worse when you looked at it on a yearly basis, since the real savings came in the years 20-25 when the loan was paid off. Before that there were a lot of years where the savings were less than $200.

Perhaps most interesting, they ran all these numbers without ever showing what interest rate they were using. In fairness, they didn’t pull my credit to see what I qualified for. No, screw fairness Admiral’s Bank, just print the damn number so I can see what you are using to calculate these numbers that suck up my sweet solar savings. Admiral’s Bank spends so much space saying that you’ll be saving $9,000 that they don’t tell you that you’ll be paying double the cost of the system with this financing. They do point out that the interest on the loan qualifies for a tax deduction which makes it look better.

After talking with the solar vendor, he was able to get me a range of rates that Admiral’s Bank uses based on credit score. On the 20 year loan that was outlined, the best rate is a shade under 7% for the very best credit, and shade under 9% if you are in a 700-724 score range (which isn’t that bad). So while I still don’t know what interest rate was used for this paperwork, it gives me an idea.

We would qualify for that 7% rate, but Admiral’s Bank didn’t pull my credit report to know that. If they presumed a 710 credit score and ran the numbers with a 9% rate, it is easy to see how that loan product would look terrible when extended over 20 years.

On principle alone, I couldn’t deal with Admiral’s Bank. Their 5-year loan, at the best credit is 4.99%, which is much more reasonable, but pushing long-term rates in the 8-9% just upset me. (Can you tell?)

Looking into Home Equity Loans

I booked an appointment with the local bank that serviced my mortgage to ask about their Home Equity Loans. Of course the big difference is that these are loans secured against our home rather what Admiral’s Bank was offering.

Nonetheless, the local bank has a 5-year option home equity loan at 3.875%. That’s much better.

I ran the math through a calculator and realized something that surprised me. It was almost exactly our car payment. This was an easy way to explain it to my wife. We paid roughly the same $23,000 for our Suburu Forrester and financed it over 60 months (hey that’s 5 years!) at 0%. While we wouldn’t be getting the 0% rate here, the numbers are fairly similar. So I explained that we take a little financial burden, $431.19 a month, for now to save on electricity for years. We already pay $125 a month, so the additional cost would be ~$300… and when the $7000 federal tax credit comes through next year, a big chunk of that gets paid off.

However, it gets better.

The bank has potentially a better deal for Home Equity Lines of Credit. There is a choice of the following:

  • For 12 months, they are offering a 2.49% rate. After that it goes to the Prime rate which is currently 3.25%, but can adjust upward.
  • For 24 months, they are offering a 2.99% rate. After that it varies with the Prime rate.

To get the special rates, I’d have to commit as soon as possible as they could disappear at any time. However, this means the clock starts on the special rate, even though we don’t need to make payments for a little bit… and we wouldn’t get savings until next Spring when they can be installed.

In some ways it doesn’t make sense to go with the 2.49% rate since a few months of it would go to waste because I simply don’t have to make payments.

I think I’m looking at the second rate as being best. The Prime rate has stayed pretty steady for a few years now, and while it might go up a quarter percent, I don’t expect it to go up much over the next couple of years.

I plugged this option into BankRate’s Loan Calculator and the amortization table shows that we’d spend about $705 in interest on this loan… and that’s assume that Prime goes up and the average rate is 3.25%.

Alternatively the 5-year loan at 3.875% would have us paying nearly $1300 in total interest throughout the loan.

We could aggressively pay it off, maybe as soon as in two years. However, if Prime stays low and the interest is tax deductible, should we really be in any rush to pay it off? I think about it, and it is almost like paying off a mortgage with a 3.25% rate early, can’t we find a better opportunity than a less than 3.25% return (when accounting for the tax deduction.)?

For example, I’ve been earning over 7% interest in Lending Club amongst hundreds of diversified loans. That’s just one quick option that came to my mind.

Allow me to flip this question back on the readers. Which financing option would you take? If it’s the 2-year at 2.99% HELOC that adjusts to Prime, would you be in a rush to pay it back? Or would you trust that you’d have ample warning before that rate got out of control?

Moving Forward With Solar Energy (Part 2)

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Earlier this week, I wrote about how I am investigating a move to solar energy. I highly recommend reading that article first. There’s a lot to learn about solar energy in general and this article builds on the information in that article. In addition, the decision to go with solar is highly dependent on one’s specific situation and a lot of that information on my situation is there.

When I left you on Monday, I had just received a packet of information from a local solar vendor. The estimate was to put 24 panels on my garage, which would supply 83% of electricity we use each year (assuming that the last year was “typical”). Our electric bill would go from $1,522 to $309 in the first year. According to the company, we will keep 4.82 tons of CO2 out of the air each year, equal to 144 trees processing CO2 or avoiding burning 497 gallons of gas.

In short, we’ll save a lot of money and do a lot of good for the environment. If I can’t plant 3600 trees over 25 years, this seems like the next best thing, right?

The vendor wanted to meet and talk over the proposal. I was eager to the same. We met for an hour and a half and I got every question I had answered.

My biggest question was, why put the panels on the garage and not the main part of the house?

The answer came from measuring the solar efficiency of the roof. In order to measure a roof’s potential they take four measurements from all the corners with a sophisticated device and average them together. In order to receive state grants the roof must be 80% efficient. In looking at the numbers from my house, I have two corners that were north of 95% efficient and one that was 79% efficient. The last corner was 47% efficient… a killer.

I had known that I had a tree potentially blocking part of the roof, but I didn’t think it would be a big deal. I was wrong. As the sun gets lower in the horizon, it blocks more and more of the roof. The vendor and I went out to look at the tree and it actually looks a little dangerous, leaning towards the house. In a storm, the could hit our house and do some damage. Even if I didn’t go with solar, it would be wise to have some tree people check out the situation.

I asked the vendor if I cut that down, would we be able to use the main roof for additional capacity? He said we definitely could and that it would probably be more efficient than the garage we were planning on.

We went from putting 24 panels on the garage (in a 6×4 arrangement) producing 83% of our energy needs to putting 28 total panels on both roofs producing 101% of our projected energy needs. The plan would be to put 16 panels (8×2 arrangement) on our more efficient main roof and an additional 12 (6×2 arrangement) on the garage. This would reduce our bill to $44 a year. It would be the equivalent of 175 trees processing CO2 and not burning 606 gallons of gas.

The solar panels get less efficient every year… on average 0.7% less efficient. After 25 years, the panels will be “only” 82.5% effective. That’s still very good. Considering that projections are for 25 years, everything after that is gravy. It’s kind of hard to think 15 or 20 years in the future, but we’ll have half the space on the garage to build further capacity. Who knows what they’ll sell then, but hopefully they are a standard size. Then I could buy 6 more and put them in the most efficient part of the main house and shift the older ones to the space on the garage. That kind of boost could extend the life of the whole system producing 100% of our power to 35-40 years.

The Cost of the Panels/Installation

As previously mentioned, there are two vastly different prices when it comes to solar: the actual price and the price after state and federal subsidies. In the case of the 24 panels, my original cost would be $28,380, but after state grants it would be $20,130. The solar company applies for the grants in our name and takes that money off the cost right away. (Let’s pause to celebrate a big Lazy win!) That $20,130 is eligible for a 30% federal tax credit making the final price $14,091. The price is inclusive of labor, permits, wiring, etc.

The 28 panel that we are looking to go with would cost $33,110, but state grants bring it down to $23,485. The federal tax credit brings it to $16,440. The timing of the federal tax credit, is of course after filing taxes, so there’s an area in there where about $7,000 is due to come back to us, but we have to foot the initial money. It’s not ideal, but these credits come amazingly close to cutting the price exactly in half for us.

This all begs the question of “how do finance this move to solar?” It is far from a trivial question and is worth it’s own article. So stay tuned for that.