Should I Put Solar Panels on My Roof?

by David@MoneyNing.com · 2 comments


I’ve always wanted to install solar panels to generate our electricity needs. It just never made sense for us because we’ve been talking on and off about moving for the past few years. Still, the fact that you can pay a one-time fee to avoid paying the monthly electricity bill forever kept me interested.

After we moved last year, we decided to shop around for solar panels. The salesperson made us think that we can recoup our costs in three to five years or less, but those numbers are filled with assumptions that just weren’t true in our case. I read a bunch of expert advice (opinion) online before I decided to pull the trigger too, but all I did at the end was compare my monthly utility bill to the cost of the proposed system. At my current assumption, it would take at least ten years for what I will have to pay to equal the cost of the system that they proposed. And that’s including the federal tax credit that we are supposed to get too.

Add in the fact that the money I pay now can probably earn a decent return, and the economics of the system doesn’t seem that attractive anymore.

You probably think that we decided not to install solar panels at this point, but we moved forward with the project. A month into having the system up and running, and I’m happy to report that we have absolutely no regrets either. Here are a few reasons why:

Returns still seem solid if you think about it in a different way. Getting your money back in ten years doesn’t sound good at all, does it? But if I were to tell you that you could make an investment and then get 10% of your investment returned to you tax-free every year, then you’ll jump at the opportunity.

In fact, I wish there were more opportunities for me to reduce my yearly expenses like this. I bet you would too. Let’s say you spend $40,000 a year. If you are about to retire and you could pay $400,000 to never worry about running out of money ever again, wouldn’t that be a good deal? After all, the safe withdrawal rate is 4%. If you use that to calculate how much money you need to retire, that amount to support the same yearly spend is $1,000,000.

Utility costs are likely to rise over time. The solar panel’s efficiency will slowly degrade through time but it’s expected to be slower than the rise in electricity costs. That means I’ll be saving more and more as the years go by. If I treat it like the investment that I talked about earlier, it’s like buying in a stock that won’t go bankrupt, pays a dividend that is tax-free, and the dividend will grow as well.

There’s a certain comfort that comes from not caring about minimizing the electricity bill in all ways at all times. Some people get a solar panel to replace less than 100% of their energy needs, but that’s not true for everybody. The system we got covers everything we use and then some. This is actually the main reason why we decided to install the panels. I’m the dad that runs around the house turning the lights off at everybody’s bedroom when they aren’t there, and I’m the dad that tries to save energy at every turn. I no longer want to do this because it’s tiring. It’s not so much the physical part of running around the house. What’s tiring is the mental part of always wanting to max out our efficiency in order to spend less money.

Now that we have a solar panel, excess energy that our system generates is saved at the electric company as credit. The arrangement works this way because solar panels only generate energy in the daytime and the energy we don’t use can help lighten the load on the whole grid. Then at night, when the general usage is lower, the electricity company can supply energy to us and use our saved energy credit to pay for the cost of electricity.

Any excess energy credit we get is only valid for up to twelve months though. If we can’t use up that excess, then we lose the credit. As a result, I no longer feel the need to constantly remind my family to turn off the lights or turn off the TV because there’s no financial benefit of doing so anymore. I still ask my family to turn things off when they no longer need them because it is the right thing to do, but I’m no longer an annoying pest that won’t leave the other family members alone.

I imagine this added peace of mind is similar for people who buy a single premium immediate annuity (SPIA). You give up a set amount of your cash to know that you will always have money coming in. It may or may not make sense financially, but having guaranteed income offers peace of mind like no other. I will need to remind myself of this benefit when I retire and it’s time to decide on buying an SPIA.

There are potentially some ways to squeeze a bit more savings out of the system. Now that I can track how much excess we are putting back into the grid, I can estimate how much more electricity we can use without paying more. Lately, I’ve turned on the central heater at home less frequently and used our portable heaters instead. This small change doesn’t sound that significant, but the amount of natural gas cost we’ve saved last month equals roughly 30% of our electricity bill before we installed the solar panels. This just increases our return on the solar panel investment.

Not everything is sunshine and roses though. The whole process was nothing but delays and frustration.

The project took months, even though the installation took roughly three hours and the city inspector (who the installers always use as an excuse for why the whole process could take months) came out to approve the work after only a few days following our application submission. That’s with me pushing every step of the way too. If I just let everyone take their time, the project would still be pending after almost six months since we put down the initial deposit.

Overall, the timeline turned out roughly like this.

  • Contacting the salesperson to making the deposit to start work – 5 days
  • Having the installer come up with the plans for our homeowner’s association to approve – 7 days
  • Submitting our plans to the Homeowner’s Association to get them to approve our plans to install the solar panel – 52 days
  • Getting on the installer’s schedule to come out to initially install the panels – 39 days
  • Rain delay – 7 days
  • Getting the installer’s inspection technician to be available to do the finishing touches before the city inspector comes – 28 days
  • City inspection and utility company approving the application to operate – 2 days
  • Total days the whole process took – 140 days

To be fair to the installer, 52 days were spent because my homeowner’s association took a long time to approve the plans. My friend went with the same installer and their plan was approved by their association in four hours. Still, the installer needed almost 90 days (3 months) to get their guys to come to perform a three-hour job. Their latest reasoning was because everyone was trying to get the system installation to get the 26% tax credit, as the credit was slated to be reduced to 22% at the end of the year.

Oh and speaking of the tax credit, my original installation date was December 28th. After months of waiting, California decided to rain that day and the installer had to reschedule. My installation date moved back a week to January 6th. Luckily, Congress’s last minute of the year spending bill extended the 26% tax credit for another two years. Otherwise, that rain would have cost hundreds of dollars.

Bottom Line

It wasn’t until the middle of February before everything was finally settled and running smoothly. All in all, the project took over four months to complete. Still, I’m happy we had the panels installed. I highly recommend anybody who’s thinking about getting one to get one. Aside from the projected financial savings, not needing to pinch the pennies on the electricity front is even better than I imagined. I think it would be a good decision for our family even if we don’t qualify for a tax credit. But money is money. The 26% tax credit when I file my taxes next April will be sweet too.

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  • Steveark says:

    One thing to consider is that the way electricity is credited back to you at night is a matter of controversy in many jurisdictions. The fact is that if you get one kilowatt hour at night back for each kilowatt hour you send into the grid during the day you may not be paying your fair share for your electric service. Because the electric company still has an obligation to back up your total usage on cloudy days you create costs that they can no longer fully recover from your reduced usage bills. They also have to maintain resources to cover billing costs, maintenance costs for the wires and transformers leading to your house and a whole lot of other costs that are more related to your maximum use (on a cloudy day) than it is to your average use. All that is to say the value of solar generation is not nailed down in the future and the economics of a project could change if the utility is allowed to charge some kind of extra fee to solar customers to allow them to recoup costs solar customers are no longer fully covering. It is likely you would be “grandfathered” in because you already have your project in place but that isn’t always the case. Needless to say it is very complicated.

    • David@MoneyNing.com says:

      You are right Steveark. I actually left out the fact that my utility company charges me about $10 a month for basic maintenance. This used to be $1 for customers on what they call the 1.0 plan and I’m on the 2.0 plan.

      There’s a second wrinkle with the 2.0 plan. My utility company charges different rates for electricity depending on the time of day. They charge different rates depending on season of the year too but let’s say for example that they charge $0.40 a KW during peak time from 4 pm – 9 pm and $0.25 a KW for other times. When I generate electricity, it’s credited at the lower rate and then that money is then used to deduct the electricity cost that I use during times when my solar panel isn’t generating any electricity (night time).

      The math gets complicated so I left it out of the original article but this system, while not as advantageous for me as a one-to-one swap no matter how or at what time I generate the electricity, addresses the point you made about utility companies covering their cost.

      They are also guaranteeing that I’ll be grandfathered into this arrangement for 20 years, implying that future plans will be more and more costly for consumers.

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