Should You Invest in Solar Power?


In 2020, we saved almost $2000 on our electrical bill because we added solar panels on our home in 2019. But, was it a good financial deal?

As an advocate for addressing climate change I wanted to personally walk my talk, but I am also financially frugal, so I didn’t want to do something that was not financially sound. So, I constructed an elaborate Excel spreadsheet with what I thought were conservative projections of electrical production, credits we would get on our electrical bill, the deterioration of production capacity, likely raises in cost of electricity, etc. The results were that our investment would generate a pre-tax 3.46% internal rate of return in 20 years and a 7.09% IRR in 30 years. Wow, for a fixed income investment comparable to buying a bank certificate of deposit, that looked great.

So, how has it turned out? The first year’s actual production was 95% of that projected. The credit on our electrical bill available through net metering was a bit lower than expected, as I had assumed the total of cost of generation plus the cost of delivering the electricity. Nonetheless, with revised projections the spreadsheet now shows a pre-tax 2.76% IRR in 20 years and 6.28% in 30 years, still not too bad.

Does this mean you should do the same? It depends. We lucked out by having hail damage on our roof just before we had the panels installed, so we had the roof replaced (mostly paid by insurance) before installing the panels. If you would need to replace your roof within a few years, the investment rate of return would be lower. If you have space on your property for a ground mounted system, then that would be a better option to totally avoid this issue.

Is a community solar garden available through Xcel to you? If so, being able to “invest” in solar without any money invested is much better. For many people without investment capital, this may be the only option.

Will you be selling your home soon? Having solar panels on your home definitely adds value to your home, but will the true value be recognized by potential buyers? It should be as more homes in the future have the solar panels, but perhaps not in the near years.

What will the alternative energy tax credit be for your investment? It was 30% in 2019, but has now been extended to be 26% through December 2022, then drop to 22% until December 2023.

We made the decision in 2019 because our roof was not getting any younger and the tax credit was scheduled to drop, so the sooner we made the decision the better. The same may apply to you.



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