Is the electricity really cheaper?

Yep. My typical usage in LADWP area was around 450 kWh per month in the winter and 875 kWh per month in summer. Now my usage is around 620 kWh in the winter and 1,300 kWh in the summer. It's always been strange to me how much more power I use here because everything I own is still the same. Same appliances, same cars, same computers, same televisions, same size central air, etc. The only significant difference is the pool, but I know exactly how much that uses and it's not nearly enough to explain the difference (about 50 kWh per month). When I first moved I had SCE check the meter, but they claim it's accurate. I've often wondered if the LADWP meter was broken in my favor.

 

But a different house? Beware that different houses can have very different building envelope details hidden from view. These differences can have a major impact on energy use.

 

The difference persists in the winter when there is no electricity used for heating/cooling. Even then, the LADWP house had zero shade and had no insulation in the walls. This house has some southerly shade and the walls are insulated. The winter difference is equivalent to a 24x7 275W load.

 

My monthly usage yearround is about 120 kWh plus 30 kWh for EV charging. Last summer, I never turned on my central A/C, but it got very hot one week. LOL My monthly bill is a little over $30.

 

That's only enough power to turn on my computer for 8 hours, run my wireless router all day, and have a refrigerator. No microwave, no lights, no television, no kids and wife with computers ...

 

I agree. This whole payback period time is overblown. Money paid to the power company is just wasted money. With solar, you also get a home improvement that increases the value of the home. Of course if you don't stay in the house long enough there is a risk you won't get your money back when you sell. But, you also don't have to live like a caveman under one of those TOU plan and can charge your car multiple times a day instead of just overnight.

 

About solar panels and long-term ROI. I often wonder what Net-metering payment structure would be in place say 15 years from now. Yeah, if your panel keeps producing enough electricity to cover the annual usage and the utility continues paying for the produced electricity or gives credit equal to or more than the cost of electricity delivered to your house, then it is free electricity after the panel cost is paid off. BUT, will they keep paying that much? What happens when more and more houses and businesses put the solar panels on their roofs, but the grid still has to be maintained. At some point, the utility has to ask for the money to operate the grid regardless of how and where the electricity is being generated.

For me, a grid-tied solar panel with 13+ years of payback period makes no economic sense, even if I continue to live in the same house for the next 25-30 years. Investing $30k+ money in a brokerage account for the next 25-30 years makes more economical sense to me. After doing hard math, for our situation, the community solar makes much more sense. No upfront cost. No installation on my roof. No maintenance. And 15% saving on the electricity cost. If and when the cost of solar comes down to below $1/watt, I will revisit the option again. But I will consider installing solar panels ONLY IF I can do it off-grid, independent from the utility company.

 

I pay a $25 monthly grid charge. There have been changes to NEM in Cali, but I don't think it's going away and the folks that were under the old plan are grandfathered in to that plan. A lot of states don't have NEM, so that has to be considered in whether to get solar power or not. They tried to take away NEM in Nevada, and there was so much of a backlash that they went back to it and PUC board members resigned, if remember correctly.

 

Electricity rates and charges schedule are not the same around the US. For us, the electric bill has several components, Supply, Distribution, Transmission are the major parts. And additional fees and charges are added, all on usage base /kWh. My final cost is ~$0.21/kWh, but the Supply rate is only ~$0.07/kWh. So, in theory, if I produce my own electricity on my roof, but I am still being tied to the grid, I will be still charged for the Distribution, Transmission cost which is more than the Supply cost. You are being charged only $25 monthly for a grid charge currently, but will they keep the charge that low say if more than 50% of houses and businesses install a solar panel on their roof?

 

We have various /kwh costs for distribution and transmission as well. These, in our case, are all based on net kwh delivery per month.

Community solar is a great solution for many people. Personal panels are a great solution for many others.

As for the $ invested vs $ for panels, it is rarely done well.
You need to consider the negative impact of monthly energy bills. This reduces the overall return of the investment.
It may still work out in the favor of the investments, or it may not.
I have never seen such a comparison that does take that into account.

 

Yeah, our state NEM is done that way at least for now, that is the full retail price including supply, transmission, and distribution paid to the solar NEM customer as a credit that can be accumulated up to 12 month period on a rolling base. Thus the system is only good to pay for what was used for the past 12 mo. If the annual production exceeds the annual consumption, then NEM customers do not get the money. But a new rule was implemented a few years back under then (R) governor to phase out NEM. Fortunately, it was short-lived and the new (D) legislature passed emergency legislation to reinstate net metering and repealed the rule changes.

But if the change had been made, then the NEM rate would have been reduced gradually over the next 10 years and disappeared well before the end of service life of the solar panel of 25-30 years. The point is, I don't know what I can reasonably expect to pay for the electricity 15 years down the road that is either with or without solar panels on my roof. As long as the house is tied to the grid, we are at the mercy of PUC and policymakers for what I may have to pay to have the solar panel tied to the grid.

Yeah, there are way too many variables to make accurate projections. But for my case, a $30K grid-tied solar installation has a 12.5 years payback period ($200/mo electricity bill if 100% of used electricity is produced by the solar). And after the cost is paid off, as long as the policy does not change which I highly doubt, I may get to enjoy "FREE" electricity for the next 12.5-17.5yrs. If so, I may be able to "save" $200/mo to accumulate over $60K in 18 years following the payback, assuming a modest 4% return rate. The amount will be over $96K with an 8% annual return before tax. But again, this all assumes NEM is intact and keeps paying the full retail price (supply, transmission, and distribution costs) kWh to kWh and the solar panel keeps producing the entire annual consumption of electricity in our house.

Compare to the above scenario, investing $30K in an investment account is much simpler. Of course, with the low (or no) interest rate of a saving account, if paying $200/mo for the electricity bill from this account every month, then it will run dry after 12.5 years which is the same amount of time to pay back period if the solar panel was purchased and installed. But, if it earns a modest 4%, then it will last 17 years and 3 mo. And if it manages to earn a respectable 8% year after year, the account will have an ending balance of $28,013.23 after 30 years. The numbers do not include a tax on the investment return and assume no change in the withdrawal amount or the annual return rate, so it is not very realistic, and hardly guaranteed.

The question is, will I put the $30K on top of my roof hoping that after 15 years, it will keep producing "FREE" electricity barring any political changes, and accumulate $90K at the end of 30 yrs to leave the money for my kids, or should I save the $30K in an investment account now in case I really need it for something more than $200/mo electricity bill. At my age, and not knowing if we will be living in this house that long, having cash in my account is much preferred over counting on ROI 15 years down the road.


You can do the calculation yourself using this calculator: Investment Calculator


You can do the calculation yourself using this calculator: Savings Withdrawal Calculator

 

That's a neat calculator, but it does not match reality. It's very similar to what our financial planner used to convince us to set up a 72T plan in 1997 when my wife retired. The planners figures showed that investing her pension payout in a 401K account would have $1,000,000 in it by 2010.

The chart does not reflect downturns in the market. If you invest 30K and there's a 50% drop in the market, then you start over with only 15K to compound at that 8%.

The chart also fails to take into account rising Electricity costs. It's not likely to remain at current rates.

Due to a couple of market recessions and required withdrawals under the 72T plan the account was empty before I retired.

I'd go with the Solar.

 

As I said, "it is not very realistic, and hardly guaranteed". But neither is the ROI on the solar panel. Nothing is guaranteed. But $30K spent on the solar has to be paid. That is a hard fact. I would rather keep the $30K in the bank or in a safe liquid investment and get a subscription on community solar to get a guaranteed 15% discount on my electricity bill than spending it on a solar panel without knowing if I can recoup it.

 

It will no doubt be raised, but I believe I will be grandfathered in at the $25 rate, just as they did to people on NEM1 that don't even have to pay the $25. If I move, I'd be subject to the new rules, as would someone that buys my house, so it sorta works out anyway. I'm not worried about it. I don't know what rules businesses are under; this is for residential users. In 2019, solar accounted to only 12.3% of electricity generated in California, according to Wikipedia. That's a long way from 50%.

 

There's no such thing as a safe liquid investment that even keeps up with inflation these days with such low interest rates.

You are not considering solar as a home improvement. It increases the value of the home and you will recoup some significant amount back when you sell. Do you do an ROI analysis when you update your kitchen, bathroom, floors, landscaping, etc.?

 

Agreed. It is always risk analysis. In my case, the risk of spending $30K on the rooftop solar panel and not getting money's worth is conceived higher than keeping the $30K in a saving account and not earning enough to offset the inflation. Now, if I really want to take a risk to get a top gain, I might buy Dogecoin instead. LOL

I don't know about the solar panel increasing the value of the home much in our area. In our region, having glass panels on the rooftop that can break may be considered more of negative value, similar to having an in-ground swimming pool in our area. It certainly loses considerable value if NEM is eliminated by the next governor.

 

Thanks for that calculator, it is one of the better ones I have seen

If you are comparing the investment vs PV panels, don't you need to subtract the cost of electricity from the investment funds?

For example, you have $30,000 and can invest it, or use it to buy panels.
To figure out the ROI, you want to figure out the balance of each alternative.
If the 30k in panels zero's out your $200 bill we then have:

Case A: Investment of 30K

30K + Interest - 2400(annual electric costs)

It seems that the interest gains on the 30k have to be 8% just to break even (ok 8%+Inflation).
I have seen an average price increase of electricity at 3% a year, so that 2400 increases each year, while the principal will not.

Case B: PV panels
0 + 200/month invested or 2400 a year + interest. Again, that $2400 should go up an average of 3% annually. That money saved on your electric bill adds up fast. Rough, in my head calcs say Case A & B would be equal in 8-9 years.

One important caveat, this is assuming you have the 30k. If you were financing, that changes the calculations. But if you don't have the 30k to start with, you aren't investing it either ;-)

Community solar is a great route to go. If you are more comfortable with it, it is definitely the route to go for you.
The numbers don't have to work out for that route to be a better choice.

 

Every state and even municipality has different rules for solar energy. We got solar on our roof, partly because we could, and partly because I wanted the savings down the road. Initially, I calculated that the system would pay for itself in 17 years.

Some years ago, our electric company changed the way they bill for power. They lowered the kWh rate they charge, but raised rates on "Grid Connection," "Customer Service Charge," added a "State Low-Income Asst Fee," and "Distribution Service" (how is that different from "Grid Connection"? "Grid Connection," "Customer Service Charge" and "State Low-Income Asst Fee" are billed by days, so even if you use zero power in a month, you still pay. "Distribution Service" and "Electricity Service" are based on kWh, currently charged at .03378/kWh and .09348/kWh for a sum of $0.12718/kWh).

The credit for the net energy exported by our solar array is a "Variable Rate." Up until this month's billing, that credit rate was the same as the charge for buying power from them, around $0.13/kWh. But this month's bill shows the Variable Rate for exported power at only $0.08447/kWh. So our exported credit has suddenly been reduced by 33.5%. The 17 year break even point has suddenly changed.

We also have the "opportunity" to sign up for Community shared solar energy from the solar farms our power company is building. For the "privilege" of using Community shared solar energy, our energy company sells "shares" for $47.25 per share, and charges 17% more per kWh! The only real advantage is they promise that this rate is locked in for the next 25 years. The number of "shares" you buy upfront is the percentage of power on your bill from solar, up to 50% of your total use bill.

Oh, and regarding hybrid cars, our state decided that since we hybrid drivers are "not paying enough fuel tax" to drive our cars because we use so much less gasoline, they imposed an annual $75 hybrid tax - so now in addition to having paid more tax to buy the car in the first place (because a hybrid costs more), we now pay a yearly $75 hybrid tax on top of the annual registration fees to own the car!

So as they say: "YMMV" (Your mileage may vary.)

 

The illustration I posted is to compare the scenarios of using the $30K on hand to install PV that is otherwise invested but used for the monthly payment of $200/mo from the same pot of $30K. For that scenario, if the invested $30K is making an annual return of more than 8%, then earning from the $30K will pay for the $200/mo electricity bill. On the other hand, if the $30K is spent on the PV, then the during payback period of 12.5yrs, there is no net saving. Real saving starts after 12.5yrs, at $200/mo. This will be a larger accumulation at the end of 30 yrs period than the scenario of keep paying $200/mo from the invested $30k, but that happens 8 years into the saving which is roughly 20 years from the start. For my situation, having ~$30K cash not spent all now or in the foreseeable future, say in less than 15 years, is better financial planning than spending it all and trying to recoup the money in 20 years down the road.

If $30K capital is separate from the monthly budget of $200/mo spent on the electricity bill, then the projection becomes even simpler. In this case,

Case 1. $30K spent on PV now. The saving of $200/mo, which is otherwise spent on the electricity bill, could be put into an investment account at the start. If it enjoys an 8% return, then this investment would accumulate ~$30k in 8.5 years (no tax is taken off) to pay back the initial cost, which is 4 years earlier than the initial projection of 12.5 years payback without investing this $200/mo budgeted money. And from that point on, $200/mo additional investment will keep growing to $96K at 18 years from the start or $300,058.72 at the end of 30 years.

See the illustration presented above from the "save" $200/mo case, but think this saving starting at the start.

You can do the calculation yourself using this calculator: Compound Interest Calculator - Daily, Monthly, or Yearly Compounding

Case 2. If $30K is kept in an investment account and no money is taken out or no additional contribution is made into it and earns 8% return while $200/mo electricity bill is paid from separate funding, then at 8.5 years when under case 1 scenario the PV cost is paid back, the investment would have grown to ~$60K already. After 30 years, it would be $328,071 slightly more but a very similar accumulation as the Case 1 scenario. Again, for my situation, having more than $30K cash up to a potential ~$60 in the first 8.5 years even if I have to spend $200/mo on utility bills year after year is much better financial planning than spending the initial $30K on PV and accumulating roughly the same amount of ~$300K 30 years later.

You can do the calculation yourself using this calculator: Compound Interest Calculator - Daily, Monthly, or Yearly Compounding

Yeah, all of this assumes a constant return rate and static electric bill which may not be realistic, but the illusiveness of the illustration applies just as well on assuming that PV will result in 100% electricity cost saving for 30 years. BTW, over 10 years, our electric rate has not changed substantially. It does fluctuate month to month and year to year, but there are no overall annual increase trends. Our electricity rates have not shown an annual 3% increase you have indicated in your comment.

And my strongest argument against using $30K on the solar panels is that there is no guarantee that PV will offset 100% of electricity cost for 30 years as I pointed out in my previous comment that the law can change in the very short term as it did just in the last 3-4 years in our state. The experience commented by @Terrell above further strengthens this point. The only way I would consider spending my money on the solar panel is to design and build a tiny house run by off-grid solar that is independent of the Utility company most likely at my retirement.

 

Hmmm. Did I screw up? I'm pretty sure I didn't. I financed my installation at 0.99% interest. Basically interest free. Payments are a little less than my present average electric bill. Loan is for 20 years and, if I live past 88 and still live in this house (what are the odds of that?!?!), all I'll have to pay is the connection fee.

So, no need to reduce my savings. I keep it in the account that's been making over 11% per year over the past 10 years. And I don't have to worry about my electric bill going up like it has been doing.

Oh! And the new shingles were part of the installation so I get the 26% federal income tax break on 25-year shingles, too.

Now, if Duke Energy would get off the dime and get my new meter installed, I could make ALL my electricity instead of just 3/4 of it.