New solar panel installation

Personal Finances Building / Maintaining a Home
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This past week, we had solar panels installed on our home. The system was sized to cover 100% of the house’s electricity usage, plus our two plug-in-hybrid vehicles that get used and charged pretty much daily. As we are still waiting on a final inspection and disconnect switch installation, the system has not yet been activated.

Due to the east-west orientation of the house, it takes about 19.8 kWh of panels and 15.7 kWh of inverters to deliver that power. Also, both because the system does not have batteries and because the house has natural gas appliances, it is not energy independent. That may be a long-term future option, but financial reality must be respected.

From a financial perspective, I expect the system to have a 14 year cash flow break even and a 6% ROI over the 30-year warrantied life of the panels. This assumes 3% annual rate hikes, that the panels degrade no faster than their warranty allows, and that the system qualifies for the 30% federal tax credit.

While not the greatest ROI on the planet, it seems like a reasonable alternative to extending my investment grade bond ladder. Also, this ROI has the advantage of lowering costs rather than raising income. That’s useful for a lot of reasons.

First, this round of inflation feels particularly sticky. Our electric rates jumped by roughly 30% this year, driven by both a local utility rate increase and a reduction in the discount from our community’s electrical aggregation program. While I sincerely hope those trends do not continue, it’s nice to now have a buffer against those costs.

Second, while I hope to work for a long time, my employer is actively laying people off. Should I find myself among the unemployed, it will be nice to not have to ration things like the air conditioner or local driving while still keeping the monthly cash outlay down.

Third, between buying that second plug-in-hybrid this year and putting the panels on the roof, the total net monthly outflow for gas and electricity will be down by about $500 per month. Using a 4% to 5% portfolio withdrawal rate as a guide, that’s a nest egg of $120,000 to $150,000 no longer needed to cover the costs of everyday life. The car (bought used and replacing our use of a 2009 minivan) and the panels together cost well below the lower end of that range.

Fourth, I anticipate making Roth IRA conversions at some point, particularly if I am not laid off early. That $500 per month of money not spent will likely be sufficient to cover the conversion taxes on tens of thousands of dollars of conversions.

Fifth, I typically use the “110% of the prior year’s obligation” safe harbor rule for tax planning purposes. While that does keep me out of trouble with the IRS, it also means that I have extended Uncle Sam an interest free loan for the past several years. The tax credit to 2025 from installing the panels will make it easier for me to be within a safe harbor for 2026 while reducing or eliminating that interest free loan.

Regards,

-Chuck

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Thanks for posting the image.

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IMO, that’s probably what matters most. You can to calculate that number for yourself, and then figure if you’re going to live in your house for that duration. We installed a lot less than you, because our utility limited the size for which we could get a rebate. For us, the break-even was just over 6 years. We’re probably on year 10 (I’d have to look it up). I calculated at the time that it would average about $100 per month savings on our bill. They’ve raised rates since then, but I stuck with the 6 year figure to be conservative. It’s still on our roof, printing ~$100 per month. I charted our usage, generation, and cost for several years, and back-dated to include a year of pre-solar bills as a reference. It was satisfying to see the drop in net usage after the install, and they seasonal cycles became very predictable.

Our utility occasionally wants to do studies or evaluations. The last one I volunteered for got us a NEW inverter (free), which runs a lot more quietly and a lot cooler. Maybe your utility does similar things.

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We were limited by available roof space and a utility limit of 120% of the proven usage. Our installer told us we ran into the available roof space limit first. The side of the roof you see in the picture with no panels on it faces north and is about the only major chunk of roof without panels on it. I wanted to get above 100% to allow for future electric conversion of gas appliances, but it looks like we will have to rely on efficiency gains to free up that capacity.

For instance, the Air Conditioner is a 13 SEER model that is around 20 years old. When it gives up the ghost, it will likely be replaced with a more efficient model that may also be a heat pump for winter months…

The east-west orientation of our house really wrecked the payout time for our project. That said, when we were working with the installer on sizing the system, the payout time got better with larger systems up until we got to 100% usage. I presume that’s because they had fixed costs to cover that are included in all projects…

That’s good to know, thanks. There is a Duke Energy representative on the Red Cross committee I volunteer with. I will plan to ask.

Regards,

-Chuck

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Once you get past the initial financial shock of the panels would be a good time to look at heat pumps. Below is our experience.

We have a 2017 house in Georgia. Single floor, 3300 sq feet, including a floor to ceiling glassed sunroom of 340 square feet with 3 exterior walls. Cooktop is our only non-electric appliance. Our water heater is Rheem builder special. For the 2024 calendar year we spent $850 on electricity which is 7,083 KWH - Georgia has good power rates. I expect because our house is newer construction, it is more energy efficient than yours. But for 10 months of 2024, I drove a Tesla and charged in the garage.

All that data is to support the idea that newer heat pumps are significantly more efficient. In addition to installing a heat pump, we also took two other steps that help lower our bills. First, we did not get the standard two-speed heat pump — On or Off. We have a Carrier unit that has 5 different heating/cooling levels. Most of the time it runs at 50% or less of capacity, which has a significantly better COE than the label. (Label efficiency data must be at maximum output.) In addition we zoned our house. We keep the rooms on the exterior 2ºF above the central living areas in summer and similarly below in winter. Finally we have the blower set at a reduced default level 7/24. This prevents drafty/cold corners.

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That’s how my brother started out. And even though he has a surplus sitting in his account ($3K after 6 years) he petitioned them to allow him to add a few more panels because he plans on getting an EV, perhaps two (the second would be a plug in hybrid for her) and they said no.

He appealed to someone or other, noting that Massachusetts is a heavy energy importing state, and surprise! They are allowing him to do it. Installation (along the garage roof line) starts tomorrow.

(I have noted before that thanks to Federal and Massachusetts incentives, plus the size & efficiency & retail costs his payback was just over 6 years. Also: the utility has changed the payback ratio, so the new panels will not have the same kind of subsidy, but he doesn’t care; he’s in it for the “good” as well as the $)

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