INVESTING IN SOLAR ELECTRIC POWER
“How long will it take me to get my money back?”
Before we address the answer to that question, we should look at another way of considering the benefits of investing in solar electric power. This analysis is done from a strictly economic or financial perspective that does not take into account the added equity value to your home. Note: Solar systems are exempt from property tax. Investing in a solar electric system could be considered the equivalent of replacing a relatively safe type of investment for another safe type of investment, a CD on the roof compared to a CD in the bank.Let’s explain: Most people would consider a certificate of deposit (CD) that they hold at a local bank or a treasury bond as a relatively safe investment. It could also be classified as a “liquid” investment, meaning that you should be able to sell (redeem) the asset and recover your cash, or you could use the income generated for living expenses (like your current electric bill). If you consider having a CD in the bank paying you interest, to a solar system on your roof paying you interest in the form of the savings you could realize by not having to purchase some or all of your electricity needs from your local utility, how do those investments compare? For example, let’s compare $18,900 invested in a CD versus the same $18,900 (assumed net after expected federal tax credits) invested in a 7,000 watt solar system for your home. A $27,000 solar investment gets a 30% Federal rebate of $8,100. For illustration purposes only, let’s assume your CD is currently earning 3% (at the time of preparing this article, 5 year CD rates could be found for approximately 3.0% per year 1 year CD were under 2%). Your $18,900 CD earning 3% per year should earn you $580 per year before tax. If you assume a 25% tax bracket, then your actual after tax earnings would be $434.70 (translating to the CD’s 2.25% after tax rate of return.
Now let’s look at our 7,000 watt solar system. Let’s assume you are in Florida and we can assume 5 hours of sunlight per day on average. A 7,000 watt system should generate about 35,000 watts per day or 35 Kwh per day. The current cost of electricity per Kwh from a Florida utility is approximately $.14. The $.14 is based on eliminating the top tier of your electric bill. This translates to $4.90 per day of electricity generated that you should not have to purchase (or could sell to the utility depending on your personal usage). When multiplied by 365 days per year, that works out to $1,789 per year of potential electricity you might not have to purchase. This works out to a 9.52% non taxable return on your S18,900 invested in your solar electric system, after the 30% Federal Tax Rebate. All solar income is nontaxable.
A smaller system of 3-4 Kwh, with a lower initial investment, will also provide an excellent rate of return. The best investment depends on your utility company and your average monthly usage.Simple comparison: $490 potential income per year (2.25% after tax) from a CD versus $1,789 (9.52% after tax) in potential savings on your energy bills, the difference is more than triple the amount earned by a CD! This analysis does not take into account that CD rates could go up and/or down, personal income tax rates could go up and/or down and utility costs could go up and/or down. Florida’s Public Service Commission has estimated that Florida’s utility rates have increased 7..4% per year over the last 10 years. You must make your own assumptions about all these rates and where they are likely to be in the future. THE AVERAGE UTILITY RATE INCREASE IN FLORIDA FROM 2012 to 2013 AND FROM 2013 to 2014 WAS 8.6%.