### Author Topic: Buy solar panels or take loan - help me with my math  (Read 3634 times)

#### Manguy888

• Bristles
• Posts: 253
• Location: Rhode Island
##### Buy solar panels or take loan - help me with my math
« on: September 01, 2016, 06:11:39 AM »
I'm not too sharp on financial math. We're getting solar panels through a deal with our electric company. After tax credits they are costing \$10,000. The electric comapny will buy our electricity for 15 years at a rate where we expect to make about \$1500 per year.

The question I have is whether it makes sense to just buy the panels or take their loan. My math says the loan is the clear choice, but I fear I'm missing something in my math.

If we pay out of pocket we start \$10k in the hole, here's how the payback would work over the 15 years

2017    \$1,500.00    -\$8,500.00
2018    \$1,500.00    -\$7,000.00
2019    \$1,500.00    -\$5,500.00
2020    \$1,500.00    -\$4,000.00
2021    \$1,500.00    -\$2,500.00
2022    \$1,500.00    -\$1,000.00
2023    \$1,500.00     \$500.00
2024    \$1,500.00     \$2,000.00
2025    \$1,500.00     \$3,500.00
2026    \$1,500.00     \$5,000.00
2027    \$1,500.00     \$6,500.00
2028    \$1,500.00     \$8,000.00
2029    \$1,500.00     \$9,500.00
2030    \$1,500.00     \$11,000.00
2031    \$1,500.00     \$12,500.00

If my math is right, that is a measly 1% annualized. however, the loan is going to cost us 1319 yearly for 10 years. Here's how that breaks down.

2017    \$1,500.00    -\$1,319.00     \$181.00
2018    \$1,500.00    -\$1,319.00     \$362.00
2019    \$1,500.00    -\$1,319.00     \$543.00
2020    \$1,500.00    -\$1,319.00     \$724.00
2021    \$1,500.00    -\$1,319.00     \$905.00
2022    \$1,500.00    -\$1,319.00     \$1,086.00
2023    \$1,500.00    -\$1,319.00     \$1,267.00
2024    \$1,500.00    -\$1,319.00     \$1,448.00
2025    \$1,500.00    -\$1,319.00     \$1,629.00
2026    \$1,500.00    -\$1,319.00     \$1,810.00
2027    \$1,500.00     \$-                       \$3,310.00
2028    \$1,500.00     \$-                       \$4,810.00
2029    \$1,500.00     \$-                       \$6,310.00
2030    \$1,500.00     \$-                       \$7,810.00
2031    \$1,500.00     \$-                       \$9,310.00

So after 15 years I've made almost \$10k with zero of my money tied up, plus the  \$10k that I didn't spend on the panels is still accumulating (would stay in my vanguard account).

Again, this seems like a no brainer, but I wanted to make sure I wasn't missing something. Thanks for the help!

#### plog

• Stubble
• Posts: 244
##### Re: Buy solar panels or take loan - help me with my math
« Reply #1 on: September 01, 2016, 08:03:11 AM »
Quote
The electric comapny will buy our electricity for 15 years at a rate where we expect to make about \$1500 per year

I'm very leery of that assumption.  Lot's of solar incentives are going away (both for the consumer and the utility) and as solar becomes more popular the less the utility will pay you for your kilowatts. I don't think you can assume \$1500 per year for 15 years.

http://www.ecowatch.com/pressured-by-big-utilities-sunshine-state-ends-solar-incentive-1881978446.html

#### Manguy888

• Bristles
• Posts: 253
• Location: Rhode Island
##### Re: Buy solar panels or take loan - help me with my math
« Reply #2 on: September 01, 2016, 12:50:15 PM »
It's a signed contract. 15 year Tarriff program, buying every KWH we generate at a rate of 37cents/KWH. I appreciate your concern, but this is signed into a contract. After that 15 years, I agree all bets are off.

Does anyone have any insight for me with the assumptions I listed?

#### robartsd

• Magnum Stache
• Posts: 3348
• Location: Sacramento, CA
##### Re: Buy solar panels or take loan - help me with my math
« Reply #3 on: September 01, 2016, 02:16:42 PM »
Ignoring taxes on your income from selling power to the electric company, buying the panels for \$10,000 and making \$1,500/year over 15 years is over a 12% annual rate of return. I think the OP may be comparing the \$12,500 to the \$10,000 and seeing a \$2,500 increase, but the \$12,500 is the increase.

The loan may be a good idea too. \$10,000 borrowed now and paid back at \$1,319/year for 10 years is about 5.4% annual rate. Hard to say if borrowing the money or tapping your investments will work out better in the long run. On average, the stock market beats 5.4%, but there is a chance that it would not.

#### Jrr85

• Handlebar Stache
• Posts: 1202
##### Re: Buy solar panels or take loan - help me with my math
« Reply #4 on: September 01, 2016, 02:55:15 PM »
It's a signed contract. 15 year Tarriff program, buying every KWH we generate at a rate of 37cents/KWH. I appreciate your concern, but this is signed into a contract. After that 15 years, I agree all bets are off.

Does anyone have any insight for me with the assumptions I listed?

37 cents/KWH???  Holy shite are you raking the other electricity consumers over the coals.  Is this a california program?  I would guess Hawaii but I thought they put their roof top solar subsidies on hiatus.  Or somewhere outside of the U.S.?

The only thing I would double check is how realistic their assumptions are.  If you are dealing through a regulated utility, they are probably not screwing you with unrealistic production estimates.  Hard to say without knowing what where you are, but you should be able to google and find some estimates of how much energy south facing panels should be able to generate on average per kw of capacity. (are you putting in a 2 kw system?  that would be my ballpark based on \$1500 annual and .37 per kwh, but guessing that's not right and I'm making a dumb mistake somewhere?) You also need to take into account the fact that the panels will degrade by about 1% a year.  So if you get \$1500 the first year, if you were to get the exact same amount of sunlight the next year, you'd get \$1485.  But at 37 cents per kwh, that's not going to make a huge difference provided you don't get screwed on the install cost.

#### Manguy888

• Bristles
• Posts: 253
• Location: Rhode Island
##### Re: Buy solar panels or take loan - help me with my math
« Reply #5 on: September 02, 2016, 09:32:31 AM »
Thanks for the feedback. This is a Rhode Island program. It's a regulated utility, and they are incentivizing home owners to adopt electric. They want to get to 5MW across the state so that they have enough excess capacity to close down an old power plant without having to replace it. I don't understand the math exactly, but my guess is that a new powerplant is \$\$\$\$\$\$ and throwing home owners a bone in the form of solar is \$\$\$

electricity is about 18cents/kwh here, so obviously it's a great deal from that perspective. And no net-metering. They buy everything you make - the only constraint is they won't let you install panels in excess of 125% of your usage. Over time electricity will go up in price, and the panels will degrade, but it's still a good deal I think

robartsd - thanks for your comment. The reason I laid it out that way is because I'm paying out 10k for the panels, starting me at -10k, unlike an investment where I have access to the money even as I'm seeing gains. This takes 10k out of my investment account, so there's an opportunity cost there which is not present when I take the loan and keep my 10k invested.

#### robartsd

• Magnum Stache
• Posts: 3348
• Location: Sacramento, CA
##### Re: Buy solar panels or take loan - help me with my math
« Reply #6 on: September 08, 2016, 04:26:01 PM »
I understand why you did it, but your math was wrong on the return rate: a 125% increase after 15 years is way more than 1% annualized - a 25% increase after 15 years would be about 1% annualized. You certainly should be looking at opportunity costs when making investment decisions.

#### nereo

• Senior Mustachian
• Posts: 14895
• Location: Just south of Canada
##### Re: Buy solar panels or take loan - help me with my math
« Reply #7 on: September 08, 2016, 04:34:26 PM »

Does anyone have any insight for me with the assumptions I listed?

You are not including the money you will save on electricity on an annual basis.  I know it's the same regardless of whether you buy the panels or lease them, but it will make a difference in determining which has the greatest ROI.  In reality the "money made" should be a lot higher than \$1500/yr for both calculations.

#### MoonLiteNite

• Bristles
• Posts: 411
##### Re: Buy solar panels or take loan - help me with my math
« Reply #8 on: September 09, 2016, 03:36:42 AM »
Quote
The electric comapny will buy our electricity for 15 years at a rate where we expect to make about \$1500 per year

I'm very leery of that assumption.  Lot's of solar incentives are going away (both for the consumer and the utility) and as solar becomes more popular the less the utility will pay you for your kilowatts. I don't think you can assume \$1500 per year for 15 years.

I 2nd that
At first my city run monopoly stated they would pay me CASH value 1 for 1 for my power generated.
Then it was turned into CREDITS only
Later turned it credits that reset on the first of every year. Meaning extra power i make in say oct, nov, and dec, are NOT carried over into the next year like june and july. And the city keeps the free power from me.
And later on, the amount of credits i get as been lowered to about 66% of the cost i pay for it. So i pay \$.033/kw/h and they only give me \$.022 in credit
Not  to mention all the fees, 10\$ just flat fee, a 5\$ solar fee, a battery fee (if i have a battery), it is also illegal to disconnect myself from the city, and some other little fees, so my bill every month, using NO power from the city is still around 25\$ after fees and taxes.

This all happened in a 3 year time span.
Solar panels turned out to be a huge bust, i am very temped to sell them, but i know in the long run they will pay for themselves, just not in the 7-10 years that i had thought they would.... and one of the pleasures i have in life is keeping my house at 74f in the summer :/

edit:
And do not foget even the top notch quality PV degrade over time, about 1% a year for GOOD cellls. you start getting the cheaper lower end ones, and you can easily lose 3% a year.
« Last Edit: September 09, 2016, 03:38:48 AM by MoonLiteNite »

#### Fishindude

• Magnum Stache
• Posts: 2807
##### Re: Buy solar panels or take loan - help me with my math
« Reply #9 on: September 09, 2016, 05:30:24 AM »
In most cases that I have seen, the utility company buys your "excess" power that you do not consume, not all of the power the panels generate.
You won't have excess power every day, and certainly not when it's dark out, so you are still going to be buying some power off the grid.

A \$10,000 purchase is not a real big system.
I've looked into this, and in order to generate enough electricity equal to my home and outbuildings annual needs(200 amps total service), it was going to require a bank of panels 10' x 70' at an install cost of near \$70,000.

Your deal sounds too good to be true.

#### Manguy888

• Bristles
• Posts: 253
• Location: Rhode Island
##### Re: Buy solar panels or take loan - help me with my math
« Reply #10 on: September 09, 2016, 05:56:48 AM »
In most cases that I have seen, the utility company buys your "excess" power that you do not consume, not all of the power the panels generate.

This is not the case with me. They buy all of the power I generate at 37cents/KWH. I pay my electric bill separately. The size of the system was where they had their say - you couldn't build out panels that would provide more than 125% of your usage the past 12 months. I don't use much electricity, hence the 10k system. Also, this goes back to the grid, so that low price doesn't include a battery or tie into my electrical system.

I have a friend who is a national grid employee one state over and I had him look over the program to see if it was a scam. He said it was legit.

I've decided to take the plunge on this, and I'll start a running thread documenting how it all goes once the panels are in. The paperwork I'm going to sign supports what they said: they will buy everything I generate at 37cents/KWH for 15 years. If there is some catch, I will let you all know about it.

I really appreciate all the skepticism - it means people are looking out for me.

#### Jrr85

• Handlebar Stache
• Posts: 1202
##### Re: Buy solar panels or take loan - help me with my math
« Reply #11 on: September 09, 2016, 11:10:50 AM »
In most cases that I have seen, the utility company buys your "excess" power that you do not consume, not all of the power the panels generate.

This is not the case with me. They buy all of the power I generate at 37cents/KWH. I pay my electric bill separately. The size of the system was where they had their say - you couldn't build out panels that would provide more than 125% of your usage the past 12 months. I don't use much electricity, hence the 10k system. Also, this goes back to the grid, so that low price doesn't include a battery or tie into my electrical system.

I have a friend who is a national grid employee one state over and I had him look over the program to see if it was a scam. He said it was legit.

I've decided to take the plunge on this, and I'll start a running thread documenting how it all goes once the panels are in. The paperwork I'm going to sign supports what they said: they will buy everything I generate at 37cents/KWH for 15 years. If there is some catch, I will let you all know about it.

I really appreciate all the skepticism - it means people are looking out for me.

One more suggestion is that I'd also just ask the utility representative point blank why in the hell they are paying you 37 cents.  That's such a crazy high price for non-dispatchable energy, somebody is getting screwed pretty good.  I am guessing they will tell you that they are subject to a binding renewable portfolio standard or something similar that is so strict, they expect to spend so much to satisfy it that 37 cents per kwh of renewable locked in for 15 years makes economic sense.  But if they can't tell you a good reason why they are paying 37 cents, I'd really, really, scrutinize every bit of the contract to make sure you're not teh one being screwed.

#### Fishindude

• Magnum Stache
• Posts: 2807
##### Re: Buy solar panels or take loan - help me with my math
« Reply #12 on: September 09, 2016, 11:21:24 AM »
The majority of the utility company's energy is probably coming from coal fired plants and they probably need to do this to satisfy a government mandated of "X" percent green energy.
So they overpay for the solar, just to get it and allow them to keep their coal plants running.   You can bet the customers are picking up the tab somewhere along the line.

#### Jon Bon

• Handlebar Stache
• Posts: 1313
• Location: Midwest
##### Re: Buy solar panels or take loan - help me with my math
« Reply #13 on: September 10, 2016, 08:05:14 PM »
You are missing the time value of money on your calculations.

So the \$1500 you make in 2031 is not going to be able to buy the same 1500 worth of goods you could buy today. So at 3% inflation you get 1500/ 1.03^17 = \$991.

But beyond all of this .37 cents per kilowatt hour? I have some magic beans to sell your utility!

#### Manguy888

• Bristles
• Posts: 253
• Location: Rhode Island
##### Re: Buy solar panels or take loan - help me with my math
« Reply #14 on: September 13, 2016, 10:08:50 AM »
Here's a quick one-sheet for the program, in case any Rhode Islanders are following

https://www9.nationalgridus.com/narragansett/non_html/CM6021Solar7_16.pdf