Is solar power worth it? Putting aside the environmental benefits and all the feel good green stuff, many homeowners in California are on the fence about this from a financial perspective. Actually, a lot of homeowners don't even know how effective solar power is for offsetting costs of living.
So is solar power worth it? Yes it is! For those who have the capital to invest, solar power is the most low risk-highest return on investment you can make in California today. By simply looking at the finances and comparing what is currently being offered by banks and other traditional forms of making money, solar power is extremely attractive. We hope the following helps you better understand why people are making the switch to solar.
First, solar only benefits you financially if you own your home or business. Second, roof space and sun exposure is the most important factor. If your roof is covered in shade you'll either need to cut down some trees or have enough land where you could install a ground mount. Solar systems only work if they have direct sun exposure. The azimuth of your available roof space is also important determining how much energy a solar power system can produce for you.
So if your roof is clear of shade and you have enough available roof space, let's take a look at these numbers. The video below is a brief explanation of financial benefits a solar power system can provide you.
Financial benefits of solar compared to other investments
To put the massive amount of money saved by going solar, lets put other forms of investing into perspective. The poorest return you could get is probably one out of a certificate of deposit(CDs). These on average right now are around 1%. Make fun of those who keep their money under their mattress but the returns on CDs do not even keep up with inflation rates, neither do most savings accounts. If you're looking at the rising costs of transportation and health care, then it really doesn't make sense at all for those who are considering investing a lot of money here. Or any at all.
A more attractive form of low risk investing is putting your money into S&P 500 companies. The S&P 500 on average over the last 50 years has had a 9.9% compounded annual growth rate. For every $1,000 invested you make $99 a year, statistically speaking. However, for all earnings on these investments you have to pay a capital gains tax which reduces the internal rate of return. These companies are great low risk investments but always keep in mind gross earnings on investments are 30% less after taxes.
Now when considering investing in a solar power system in California lets take a look at the alternative of doing nothing which is sticking with the utility. Depending on what you are currently paying now for electricity you could expect to spend hundreds of thousands over the next three decades. To figure this out, take what you're spending annually to the utility for electricity and multiply that by 25 years. Take that number and multiply it by 2 and you have a conservative ballpark electricity cost with compounded inflation over the next 25 years. Wow!
Solar power system internal rate of return
So what is the internal rate of return for a solar power system. It all depends on the total cost of the initial investment, the size of the system and how much energy costs it offsets with the power it produces(quality of equipment). In states like North Dakota where electricity from the utility is cheap, solar is a terrible investment. But check this out, the state average in California for an internal rate of return is 12% for solar power systems. That's better than investing the same amount of money into the S&P 500! Not only that but the money you save/make off those kind of returns is tax free! You do not pay capital gains on offsetting your energy costs with a solar power system.
In the video above we claim we can give you a return of 18% or more in California. This is because we use top quality equipment at a lesser installation cost compared to average installers in California, many who charge top dollar for cheap imported solar modules and equipment.
Solar power investment incentives
The biggest solar power incentive is the 30% federal tax credit which expires in 2016. These kind of stellar returns on investment are not possible without it. As explained in the video, if you install a $25,000 solar power system your initial investment of going solar is $17,500 after the tax credit, increasing your returns.
You also have to take into consideration the current net metering program with PG&E, which is 1-1, kWh for kWh, dollar for dollar with no extra charge. As demand grows for solar energy these programs will change whether it's a higher connection fee to the grid for solar energy producers or a wholesale price they determine for selling you energy back. You never know. You want to get grandfathered into the current net metering program asap! As any changes with how net metering works for new solar customers can decrease your maximum savings compared to going solar right now.
Is solar power worth it for you?
We think the above should have convinced you that you should at least find out more about your situation. Every home is different. There are a lot of things that actually come into account when evaluating the worth of solar for an individual situation, such as:
- Increasing your home or property value
- Ability to charge an electric car for free(even more savings)
- Reducing your carbon footprint
- In complete control of your cash flow(unlike unstable financial assets)
- Ability to add onto the solar system when needed(saving you more money)