NPV and Decision on how to pay for Solar

[BlueHouse]

I live in DC and the solar incentives are pretty great.  So great in fact, that I can get solar for free from most companies, or I can get a pretty fast ROI (if the incentives are as planned)

Deal with solar company: 
30% of price of system — I pay to the solar company in December, but I’m reimbursed with a 30% tax credit in April.
70% of price of system: 
Option A:  SolarCompany will cover the remaining 70% of the cost in exchange for my assigning the rights to my solar credits (SRECs) over to them for 13 years.  (Until 2032 when the current SREC legislation expires)
or
Option B:  I pay the remaining 70% of the price and I retain the solar credits, which I can sell on the open market for about $$1.5-2K per year (variable, based on market rates) for 13 years.   


Credits:
1.  30% of the price (to me) of the system comes as a federal tax credit. 
2. Solar Renewable Energy Tax Credits (SRECs).  States impose fines onenergy companies that don’t meet the goals of receiving x% of their energy from renewable sources.  To pay down these fines, energy companies can buy Solar Renewable Energy Credits (SRECs) on the open market to meet the required % of renewable energy.  The SRECs are traded on the open market by solar farms and individuals with Solar on their roofs.  DC legislates that utilities meet the goal, or pay the fines until Dec 2032. 

Assumptions:
4.9 SRECs @ $290/SREC/year
My SRECs will be somewhere between 4.5 and 5.5.  SREC Price:  currently $290/SREC.  Could go anywhere between $0 and $500(cap). 
I’m estimating I’d make $1406/year in SRECs. 

I’m not factoring energy savings into these calculations at all.  I’m only looking at the return of Fed Tax Credit + the payment of these Solar Credits.   

Using these numbers, I calculate that I’ll pay down my investment :
 Option A.  —  0.5 years.  (I’ll see 100% return as soon as I receive my federal tax credit)

Option B. — 10 years.  after 10 years, I’ll continue to earn money from the SRECs for 4 more years for a total return of $6,671

Net Present Value calculation:
Discount rate of 3% and a cash flow schedule of:

Option A: 
ROI Year 0     (7,440.00)
ROI Year 1    -   
ROI Year 2    -   
ROI Year 3    -   
ROI Year 4    -   
ROI Year 5    -   
ROI Year 6    -   
ROI Year 7    -   
ROI Year 8    -   
ROI Year 9    -   
ROI Year 10    -   
ROI Year 11    -   
ROI Year 12    -   
ROI Year 13    -   
ROI Year 14    -   

Option B
ROI Year 0     (18,600)
ROI Year 1    (11,614)
ROI Year 2    (10,207)
ROI Year 3    (8,801)
ROI Year 4    (7,394)
ROI Year 5    (5,988)
ROI Year 6    (4,581)
ROI Year 7    (3,175)
ROI Year 8    (1,768)
ROI Year 9    (362)
ROI Year 10    1,045
ROI Year 11    2,452
ROI Year 12    3,858
ROI Year 13    5,265
ROI Year 14    6,671


NPV Calculations:        
Discount Rate:   0.03
Net Present Value   
Option A:  ($216.70)
Option B:  $2,705.40

When I look just at the math, then option B is clearly preferable, but the variability of the price of the SRECs is so up in the air.  Some people swear they're going to head back up to $500each when the current glut is over (about 2021).  My solar company thinks they could go down to $180/year due to increased solar availability (of course they say that because they want to buy my SRECs, but in reality they are banking on the SRECs being worth more).  I also don't think 3% discount rate is realistic over 14 years, but I didn't know what else to use. 

The other factor is that I have other things I want to do with that money in the next 13 years. 

Am I making a mistake if I choose Option A?   Should I put the money out up front and wait 10 years to break even?

 

[Goldielocks]

We just installed solar and without any rebates.  Only advantage is the local company willing to net bill, up to our annual usage amount.

Our payback is much greater than 13 years, but better than stock / bonds return, given our regional projected increases in electrical rates.

I would not get into any programme that depends on an on-going government rebate to make your money back, as that can change quickly with newer people in power.  However, if you still have a good underlying profit WITHOUT government rebates after the first year, it is worth considering.

[AMandM]

We considered solar about 3-4 years ago, when SRECs were trading at about $300 in our state. Today their prices are literally in the single digits. So if I were you I would do some more research on how stable the DC SREC market is. If lots of homeowners are going to be installing solar in the next few years, presumably the price will drop.

[Catbert]

Don't do anything that involved "leasing" equipment or anything else financially encumbering your house.  In my area many companies are pitching leasing or loans that you pay as part of your property taxes.  Solar companies will truthfully tell you that if you sell your house the lease or loan can be assumed by the new owner.  But what they don't tell you is that the new owner may not want it.Several friends who are real estate agents say this is the new big thing that is queering real estate deals. 

[BlueHouse]

Thanks all,
AMandM:The SRECs can change drastically!  There isn't enough property in DC to affect the price of the SRECs so quickly, but grandfathered contracts that allow solar farms in MD and one in NC, could have an impact.  It's too much of a wildcard for me to be comfortable. 

Catbert - no worries, I've ruled out the leasing option.

Goldielocks - I'm on the side that I want the most immediate payback.  It appears to me that the worst case scenario for me is that someone else makes money in the future that could have been mine.   But even if all the highest prices are factored in, it's just not that much for me to take the risk.  I'd rather have the money to use now.