Betterman Goes Solar

For a long time I’ve wondered why solar power isn’t more widely used. While we continue to dig, transport, and burn coal and oil, there’s this massive ball of hydrogen fusion up in the sky throwing energy at us that we could very well be using instead. With CO2 levels rising ever higher and global warming becoming a more ominous problem by the day, at what point do we make the tough decision to do something about it? Or is it even a tough decision at all anymore?

Obviously there have been obstacles so far prohibiting us from adopting solar power on a mass scale. If solar were convenient enough, elegant enough, and – perhaps most importantly – cheap enough, surely there’d be no reason to continue burning non-renewable fossil fuels. We’ve had the technology for solar (photovoltaic cells) around for a while, but it hasn’t been widely used for a few reasons:

1. Solar panels were too expensive relative to electricity from fossil-fuel burning
2. Solar panels weren’t efficient enough unless you had a massive field of solar panels in your backyard
3. Solar panels were a rather ugly inconvenience for those who care about aesthetics
4. Probably some others that I either don’t know or haven’t bothered to mention

So for a while, I kinda let the idea of solar energy slip into the back of my subconscious as a nice, environmentally-friendly idea that just wasn’t quite attainable yet. It lay there dormant until Tesla started making headlines with plans to transform electric cars from novel toys into practical, economic transport. And then came the SolarCity merger. And then came this:

https://www.youtube.com/watch?v=dRqSkR4ENAg

And yes, that’s exactly what it sounds like, a roof that also just happens to be a solar panel. As I was watching, it became clear to me that we are on the brink of a tipping point in the energy industry where the barriers to using solar are being systematically dismantled by the technological advances of Tesla and SolarCity (amongst others).

“The goal is to have solar roofs that look better than a normal roof, generate electricity, last longer, have better insulation and actually have an installed cost that is less than that of a normal roof plus electricity. Why would you buy anything else?” – Elon Musk

Oh, and if that wasn’t exciting enough, more recently he made the statement that he actually thinks the solar roofs will be cheaper than the cost of a normal roof alone (at least higher-end terra cotta and slate roofs), not just cheaper than the cost of a roof plus electricity. If that proves to be true, something big is about to start happening.

If all the reasons NOT to get solar energy are suddenly null and void, and we know burning fossil fuels is destroying our environment, it’s inevitable that in the not-so-distant future, almost every house will have switched to solar. We’re looking at a budding revolution that’s poised to be both environmentally-friendly AND an economic windfall for homeowners that will actually SAVE money along the way.

The industry has been steadily working on reducing the cost and improving the efficiency of solar panels (as tends to happen with technology when given attention and resources), and we’ve kind of made it now. Solar is ready for primetime. Someday soon our neighborhoods could very well look like:

This was such a huge “Aha!” moment for me that I immediately began researching the subject and beginning my path towards solar energy.

Cost and Efficiency Improvements

In determining the value proposition of solar energy, it really comes down to a simple cost/benefit analysis: what’s the cost of the system, and how much energy is it expected to produce? The big difference between solar and traditional electricity from the utility company, however, is that rather than a monthly usage cost, solar is all upfront, the cost and installation of the panels. So how much has the cost of these things come down over the years? Quite a bit:

As impressive as the large decline in that chart is, though, it has been the big push from 2008 to current that has put solar in the position of actually being a smart financial investment rather than just an environmentally-friendly novelty. In 1977 solar panels cost about $76.00/watt, in the realm of “we can technically do it” but completely silly for even an early adopter. In 2008, as far as prices had fallen, solar panels still cost around $4.00/watt, much more affordable but not a game-changer. Now current day you can find prices at around $0.30/watt, over a 90% reduction in just the last eight years.

And how about efficiency gains over time? The chart below is admittedly a little busy, but essentially efficiency of photovoltaic cells has gone from around the low single-digit percent range when they were invented towards efficiencies around 30% currently.

I have to say that both charts seem to remind me a lot of the ever-increasing speed/cost ratio of microchips and computer processing power. Once those reached a critical tipping point, suddenly everyone had a computer in their home. As I’ve said, I think we’re on the brink of that tipping point for solar power being used on most every house.

The Perfect Solar Scenario

Some houses are obviously better suited for getting solar power than others, so here’s a quick rundown of considerations. Obviously you need maximum sun exposure on your panels to make it as cost-effective as possible, and there are a number of factors that impact exposure.

Roof Placement: Your most efficient panels, if you live in the northern hemisphere as I do, are going to be on the south roof because the sun favors the south side of the sky during the day given the tilt of the earth. This also allows you to capture some sunlight all day as it rises in the east and sets in the west. If you place them on the north side you won’t get as direct an angle as the south. If you put panels on the east or west side, you’ll be missing some exposure near dusk or dawn. Also the house would ideally be oriented as perfectly north and south as possible rather than at angle in, say, the curve of a cul de sac.

Ground Placement: You can put panels on the ground if you wish too, but this may not be an option if you don’t want to cover your yard. This is a more widely used option for ranches and farm operations that have the space and may use the system to power things like livestock barns. Again, though, you’d want them facing and tilted straight south and away from shade.

Climate and Shade: Obviously the more clear days the better, so a panel in Arizona is likely to be more efficient that one in Seattle, both because of cloud cover and the number of sunlight hours. That said, though, just because it’s cloudy doesn’t mean you’re not getting any energy from the panels. Clearly a cloudy day is still brighter than nighttime; clouds only reduce the efficiency, they don’t eliminate it entirely. Shade trees also have an impact, so the less shade the better.

Seasonal Considerations: Summer is clearly better than winter, but not as different as you might think. All things being equal, cold temperatures actually IMPROVE energy conduction, so a bright sunny day at colder temperatures is a good thing. The problem with winter lies more in the fact that the sun is lower in the sky and days are shorter, so there just isn’t as much energy to harvest. Also, snow clearly creates a problem; if the panels are covered, they won’t produce electricity.

Electricity vs Gas: Solar panels produce electricity only, so if you have utilities powered by natural gas (perhaps your stove or your furnace), those bills aren’t going to be reduced by going solar. In order to maximize the benefit, you could switch to electric stoves and electric heating. That said, I have both a gas stove and furnace, but the vast majority of my energy bill is still electric, probably 80-90%, so I wasn’t deterred here at all.

Age of the Roof: Ideally you want to put up solar panels soon after you’ve purchased a new roof. It doesn’t change the performance necessarily, but you have to temporarily remove the panels to replace shingles, and the labor charge could cost a few thousand dollars which obviously eats into your investment over time.

Tax Breaks

The cost of solar is cheap enough now that one could still reduce their long-term cost of energy without tax breaks, but it would take more time to make it pay. Thankfully, however, there are currently tax credits available for purchasing (not renting or leasing) a solar system. You can claim a 30% credit on your federal taxes, a credit that is available in full through 2019 and will be phased out thereafter. Additionally, most states offer credits as well, and my state of Iowa gives me another 15% tax credit.

While the two credits offset each other to a degree by reducing income taxes paid as a deduction, it still winds up being a savings of a little more than 41% total (assuming you’re in the 25% federal tax bracket).

One important thing to note, however, is that you have to live in the house for five years or you wind up having to repay the tax credits on a prorated basis. For example, if you saved $8,000 in tax credits for a system, and you moved after three years, you’d have to repay $3,200 back to the government. You have to remain in the house for a while to make the cost savings pay off anyway, though, so you’re going to want to make sure you plan on living there for five years or more if you’re going to make the switch.

The Betterman Solar Plan

Now that we’ve covered a little background on the evolution of the solar industry, how about some actual, real-life numbers? I recently pulled the trigger on a system of my own after a good two months of research and shopping, so I’ll give you all the details of my installation-in-progress as a reference point.

Obviously each house is different, both in terms of location considerations as discussed earlier and in terms of energy usage, so every setup is customized with a different size and price tag. My house happens to be a rather typical, single-family residence, and I use approximately 10,000 kWh of electricity on an annual basis. My proposed system is estimated to produce about 7,600 kWh of electricity with the eighteen panels I can fit on my south roof. I could get higher coverage by placing panels on other roof locations, but they wouldn’t be as efficient, so I’ve opted to not consider the additional investment.

The all-in cost of my system (parts, labor, sales tax, and applications with the city and utility) is $15,000. I’ll get about $6,200 back in tax credits, so I’m looking at an out-of-pocket cost around $8,800. Standard energy costs in my area are in the range of $0.10/kWh, so when multiplied by my annual usage of 10,000 kWh, that costs me about $1,000/year for electricity.

My solar system, in a very basic and simplistic calculation, is going to save me $760/year ongoing for an upfront cost of $8,800 (probably more if energy costs rise in the future…we’ll get to that shortly). It’s essentially like buying a bond for $8,800 that pays me (in cost savings) $760/year for the life of the system which is guaranteed out to 25 years but can last as long as 40.

Here are some graphs to break it down:

Again, as you can see above, the entire system will cost me only $8,812.50 after tax credit savings from the government.

I’ll be able to produce 7,600 kWh of energy per year or about 76% of my average usage. Since that energy would have cost me about $0.10/kWh, I’ll be saving $760/year with the solar panels.

MidAmerican Energy offers what is called “net metering,” which means that for days where the panels produce more energy than I use, I get energy credits back at that same $0.10/kWh rate so that when days come where I need to pull from their grid to supplement my panels, I can go through those banked credits first before getting charged for extra usage. I still have to pay their $15/month meter charge and for electricity I draw from them, but since I’m drawing much less, I’m saving quite a bit of money.

Sidebar: Tesla has also come out with a battery product called the Tesla Powerwall that you could buy and theoretically get off the grid entirely if you had solar panels that produced enough total electricity. This means you can store your overproduction and draw from it at night when the sun isn’t shining. It’s something I’ll look into down the road, but I’m easing into this one step at a time.

So how long does it take me to recoup my upfront costs and start banking a net gain on this solar investment? If we just do a simple back-of-the-envelope calculation, without figuring in system degradation or changing energy costs, it would be about eleven and a half years:

As we know, however, things do change over time. Energy costs generally rise, likely at least equal to the general rate of inflation, and the solar panel efficiency degrades at a rate of about 0.5% per year. If we factor in that reduced efficiency and an inflation rate of 3.5% (a net effect of about 3.0% per year), then the payback period is a little better yet:

So if you don’t have any future costs like panel repairs – which I understand are quite rare as they’re actually more durable than shingles (and they should be covered by most homeowners insurance policies anyway) – or having to remove and reinstall for roof repairs, then after about ten years everything has paid for itself, and you begin to produce “free energy” for the rest of the life of the panels, which again is guaranteed for 25 years by the company and could last as long as 40. Here’s how the total cost savings break down over time:

So if I remain in the house for 3o years, I estimate that I’ll wind up netting about $27,000 in electricity cost savings, not a bad deal at all. Even if I do sell the house, though, there’s still some residual value of the panels and the cost savings to the future owner, so it would certainly boost the sales price of the hoe. I want to stay at least five years to keep all the tax credits, and I figure that the five-year mark is really about the true economic breakeven point where my actual cost savings and the increased home value will roughly offset the out-of-pocket cost of the system.

As you can see, the value proposition of solar power is just impossible to ignore at this point, not to mention the energy independence it provides and the environmental benefit by burning far less (or zero) fossil fuels. And the economics of it are only going to get better as companies continue boosting efficiency and reducing cost. It’s reached the point where it’s almost a no-brainer to go solar. We have justified “dirty” electricity (burning fossil fuels) and environmental damage for years simply because the economics made sense, but now the economics are also on the side of solar.

Solar Panels or Solar Roof?

Some of you at this point are probably thinking, “Hey, weren’t you talking about a solar roof rather than solar panels earlier? What happened to that idea?” I really want the solar roof…bad. Badly? I digress…but here’s the deal…it’s just too far off yet, especially for Iowa. My understanding is that SolarCity/Tesla is having a limited release later in 2017, probably some sort of pilot/trial thing, and then will roll it out on a wider basis thereafter, still just in California.

They don’t have a location in Iowa yet. As close as they’ve come so far is Colorado. By the time they get here – if they get here – and the product is more commercially viable it could be maybe five years away? Also, despite their bold goals of creating solar roofs that actually cost less than traditional roofs today, it’s likely to take some time for those cost savings to be realized. The first generation solar roof probably won’t be there cheap enough to create the same cost savings…but the second or third generation likely will.

I think the solar roof is the true game changer, especially if it winds up being the same cost, or cheaper, than a normal roof and looks similar or better aesthetically. At that point, why would you not buy the roof that also happens to provide solar power as part of the deal? For now, though, I want to get myself in the solar game, help protect the environment, and start reaping cost savings. And since I figure that five years is the amount of time I need to break even economically including the value of the future home sale, I can get the roof for the next house if and when the time comes. For now, though, the solar panels already make too much sense not to buy now.

Want More Information on Going Solar?

While the solar industry is definitely growing, I know the concept is not nearly mainstream yet, especially in Iowa. For example, the company I signed with only has one installation so far in my city, and a neighbor of mine who works for a commercial installer is doing his own project just down the street. Most systems so far are commercial or agricultural, and they’re becoming much more common with farmers, especially since you can also write off the depreciation on your taxes as a business.

It took a while to get up to speed on the logistics, shop around for a good installer, and figure the economics in order to make a good decision for my own home. I’m extremely passionate about the wellbeing of the environment and good economics for my home, and the solar energy thing hit two proverbial nails on the head (with a nice pun to go along with it). I figured if I could pass on this information and get more folks comfortable with what’s sure to be a game-changer for residential energy production, perhaps I could be a strong advocate to help accelerate the process and save some people money along the way.

If any readers are interested in going solar in their own homes, I’d be more than happy to give you any other information I can and answer some questions about my experience. I could also introduce you to the company I selected to see if it’s a good fit. Full disclosure, yes, they have a referral program, and I would get $250 for anyone I sent their way who signed on for an installation, but that doesn’t change the cost of your system at all. I certainly didn’t spend all the time and money to purchase a system and write a blog post just to try to get a few referral checks, but if you are interested, it would be a nice bonus!

Just shoot me a message on my contact page or email me directly at brett@bertbetterman.com. And if you have any other comments or questions, please leave them below!