Does Solar Power Make Sense?

This is the question I have been getting recently.  It is usually asked of me by a potential customer after I’ve laid out the potential for the solar energy system to cut a good chunk of their electrical bill.  My short answer is the same every time: “It always make sense.”

In New York, New Jersey and Pennsylvania where I work, the incentives are very attractive.  Not only is there the 30 percent federal tax credit, but New York also has a rebate and state tax credit and New Jersey and Pennsylvania have state rebates as well as the often coveted renewable energy credits.  More on these specific incentives in future posts.  What I want to focus on today is the long answer to the question: Does solar make sense?

Solar always make sense.  The reason is that it is a great and safe place to put your money.  The last few times that my wife and I went to the bank to update our certificates of deposit, the percentage return has plummeted over the last five years.  From three or four percent a few years ago, down to two percent down to less than one percent in our most recent visit.  One percent, can you believe that?

Then there is the stock market, which has gained back about half of the value it lost over the last couple years but is still fragile at best.  Your 401(k) portfolio is testament to that.  Gold has gone through the roof. I’m not a professional investor, so I don’t want to pretend I know it all. That said, I wish I had bought gold a few years ago, but I’m way too conservative (see wimpy) to buy it now even though it probably will continually go up.

With solar on the other hand, the numbers are all laid out for you.  Last week I crunched the numbers. Over the last 20 years, electricity rates have increased an average of 2.8 percent for residential customers in New York state and 3.9 percent over all sectors (including commercial and industrial).   The population is set to increase, the demand in our daily lives for electricity is set to rise (such as with the rise of high-definition televisions and the potential for electric cars). Such factors have forecasters projecting electrical rate increases of six to eight percent per year for the next 30 years.

If we assume that it continues to increase at the 2.8 percent annual return and you bought a system in New York today, you are looking at a internal rate of return on your investment of over 10 percent per year for 30 years.  Ten percent a year — we are talking numbers that Warren Buffet would even consider.  Now if electricity goes up 8 percent per year, you are looking at an internal rate of return of 15 percent. Wow. Hey, when oil goes up in price, your rate of return increases. Sweet.

So whether you are a big-timer looking to shelter some money from taxes or a small-timer looking to invest in something that promises returns that will give you peace of mind for years to come, solar always makes sense.  Oh, and there is the side benefits of helping the environment, declaring independence from your utility and doing your part to push America toward energy independence from other countries and regimes that do not love the “ol’ red white and blue.”

photo: Duke Energy