Show Me The Numbers

Since I posted that we were having solar panels installed on our home, (We’re Going Solar) I’ve had several discussions with people wanting to know more about what led us to this decision.  In addition to how everything works, I’ve repeatedly heard the statement, “Well, that sounds interesting, but I need to see the numbers before I could consider installing solar panels on our home.” 

The ”numbers” here refer to: “what does it cost to install solar panels and how much money will I save in my electric bills” – in other words, “what’s the payoff; what’s my return on investment?”

So, here are the “numbers”:

• The solar panels we’re purchasing will cost us $16,934.  But we will receive a 26% tax credit ($4,403) when we file our taxes so, our net out-of-pocket cost will be $12,531. The credit is a dollar-for-dollar reduction of the cost. (Read more about the solar credit here: https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics)
• These solar panels will produce 5,879 kWh of electricity per year – approximately the same amount of electricity will expect to use during a year.  That is, our solar panel system was sized to generate a “zero” net bill over a year. 
• While our monthly electrical usage will vary by month, we’ve estimated our monthly electric bills will be, on average, $63.  $63 per month times 12 months per year = $756 in electric bills per year.  This is the amount we expect to save every year (not counting inflation).  So, let’s do some math.
• We spent $12,531 to save $756 per year, so our investment will pay for itself in about 16.57 years (during 2037). That’s the “Payback Period” (i.e., how long before we recoup our investment), calculated as $12,531 (cost of the solar panels) divided by $756 savings per year = about 16.57 years. The panels are warrantied for 25 years, so the last eight years of the warranty is pure profit.
• If we add 3% inflation to our utility costs each year, our investment will pay for itself during 2034 (a few years earlier).
• Now let’s look at the Return on Investment… The ROI. Over 25 years (the warranty period), we’ll save between $18,900 and $27,563 in electric bills (ranging from 0% to 3% inflation). If we subtract our initial costs from that savings, the total benefit (over 25 years) ranges from $6,369 to $15,032. That’s an ROI (net benefit divided by cost) of between 50.8% to 120.0% over 25 years. That’s not too bad. It’s a long time. But we’re playing a long game.
• Finally, let’s think of this investment as if we were buying a stock like IBM or AT&T. If we invested $12,531 in a stock and received an annual dividend of $756, that would be a 6% dividend. Not bad. But a stock dividend would be taxable. The cost savings from these solar panels are not “taxed” since they are not actually “dividends”. Further, they would likely grow every year.

So, is this a good investment? It depends. We thought so, especially since our savings are likely to grow as energy prices increase and the solar tax credit won’t last forever.

But there’s another aspect of why we made the decision to purchase solar panels.  By generating energy from the sun, we are reducing the amount of energy generated by our power company, which generates electricity by, among other things, burning fossil fuels.  And besides the numbers, reducing the amount of fossil fuels burned is very important to me.  Last month, the United Nations released an updated assessment on Climate Change. The conclusions are alarming.  The New York Times published an assessment of this report entitled: A Hotter Future Is Certain, Climate Panel Warns. But How Hot Is Up to Us. Here are some excerpts from that story:

Nations have delayed curbing their fossil-fuel emissions for so long that they can no longer stop global warming from intensifying over the next 30 years, though there is still a short window to prevent the most harrowing future.

Humans have already heated the planet by roughly 1.1 degrees Celsius, or 2 degrees Fahrenheit, since the 19th century, largely by burning coal, oil and gas for energy.

Even if nations started sharply cutting emissions today, total global warming is likely to rise around 1.5 degrees Celsius within the next two decades, a hotter future that is now essentially locked in.

At 1.5 degrees of warming, scientists have found, the dangers grow considerably. Nearly 1 billion people worldwide could swelter in more frequent life-threatening heat waves. Hundreds of millions more would struggle for water because of severe droughts. Some animal and plant species alive today will be gone. Coral reefs, which sustain fisheries for large swaths of the globe, will suffer more frequent mass die-offs.

Humanity can still prevent the planet from getting even hotter. Doing so would require a coordinated effort among countries to stop adding carbon dioxide to the atmosphere by around 2050, which would entail a rapid shift away from fossil fuels starting immediately, as well as potentially removing vast amounts of carbon from the air.

But if nations fail in that effort, global average temperatures will keep rising — potentially passing 2 degrees, 3 degrees or even 4 degree Celsius. Every additional degree of warming brings far greater perils, such as ever more vicious floods and heat waves, worsening droughts and accelerating sea-level rise that could threaten the existence of some island nations. The hotter the planet gets, the greater the risks of crossing dangerous “tipping points,” like the irreversible collapse of the immense ice sheets in Greenland and West Antarctica.

To me, these conclusions regarding the state of our planet, are alarming and much more significant than the “numbers”.  Consider, if your home was burning down, would you want to know how much the water would cost to put it out?  Of course not.  You’d do anything you could to save your home.  It seems we need to think of Earth as our home, and recognize it is on fire now and we must do everything we can to put out the fire.