Jeffrey, thanks for replying. I enjoy your columns. I am an engineer and doing a spreadsheet for me is easy. Your analysis is easy to follow and understand. The biggest unknown is always what if the government changes the rules on buying back electricity or other aspects of the regulations ( which you mentioned with permits). Thanks for writing a very good article.
I wish that I had learned how to use Excel etc....I never ever had to really use it my entire career! I graduated college in 1984, never had an occupation where it was essential.
Agree on the unknown! As a matter of fact, NV Energy is petitioning to raise rates because so many people in NV are putting solar on it is hurting their business! They are talking about raising them quite a bit for people that have solar---which makes no sense to me from a public policy perspective but makes sense from a microeconomic perspective.
The Biden admin's Inflation Reduction Act which had zero to do with inflation contains massive green energy inducements to produce and deploy American solar panels, but in the normal political process the reality is nowhere near the plan.
These comments pertain to the "power sector" which is the electric companies that in turn pass some of the credits along to individual consumers. It is complicated.`
1. The plan was to drive production of American solar panels -- wafers and housings -- by offering tax credits of 40%. This was to create American factories and American jobs.
This was to be 30% tax credit for the solar system and a 10% bonus for US content.
Clearly, the US content was driving the credits.
The objective was to onshore/re-shore solar panel manufacturing to the US bringing manufacturing plants and attendant jobs to the US.
In short order more than $13B of US solar manufacturing plants were announced. Info from the Solar Energy Information Association.
2. In the Rules implementing the plan -- the Congress writes laws and then the Deep State writes Rules implementing the laws -- the Treasury Dept/IRS dramatically reduced the amount of "content" that had to be made in America to be considered "American" and thus be eligible for the tax credits.
The Inflation Reduction Act was passed in Aug 2022 and the Rules were promulgated in May 2023.
3. As an aside, if you bought First Solar Inc stock when the IRA passed in August 2022 at $114, it hit an all time price of $231 when the Rules were released in May 2023.
4. In reality, the solar manufacturers got together and lobbied the government and essentially killed the requirement for US content meaning the solar manufacturers can import cheap Chinese wafers and put them in housings in the US and qualify for the credits.
Ha! I enjoyed this piece. The easiest way to get an actual cost build-up for a solar project is to research it using AI. I used Perplexity AI which cites specific sources and then Bard for understanding all of the elements including storage etc. I have some strategic advantages to a project I looked at for solar in FL b/c I have a warehouse in the back of my property so I looked at paneling that up and trenching to the house etc. I have an outrageous cost $60-75k but I want my project to power the house, warehouse, cars etc and have the option to live completely off the grid as well as be a net seller. So buying electric vehicles and powering them for free is also part of my ROI calculation. That is w/o any incentives. You have to also plug in the number of square feet you have and how much power you want to generate so the calculation is a bit different than yours. A separate point I’d make is that not all renewable sources make for the “best” options depending on region. For example, a Florida solar project will likely yield a faster ROI than a MN solar project. If I could do life over again, I would have looked at geothermal here in the Dunes in the midwest before we built a house. FL is most certainly solar. Spain will be 100% on solar shortly. Iceland will be on geothermal...the ROI’s of these projects greatly depends on where you live and what natural advantages you have as well. I haven’t pulled the plug so to speak on this. I’m waiting to be sure that the EV batteries can survive FL heat. I have a lot of doubts about that. I think there is going to be more bad news coming on EV fires. They are already sending entire ships ablaze....
and EV tires. They are heavy. I don't have one. My friend down the street has one and put in solar panels to charge it. There are quite a few EVs in my neighborhood. I like them as an around town commuting car, but not as an over the highway travel car. However, there are a lot of Big Brother things potentially that I don't like about them. You could pen a sci-fi novel where the hero uses a gas powered or diesel powered car to get the bad guys.
I refuse to go solar for the same reason I refuse to buy an electric car. There is no end game for the materials when they are no longer useful. Tons of solar panel and lithium battery waste will be generated, and what is to be done with all this? Nukes and natural gas is the only way to go in the future given current tech. Don't support the madness!
I see your point and understand it. I agree, there is no way to recycle them. Same with a lot of plastic. Same with nuclear waste. There are a lot of negative externalities with any energy source. Even gerbils running on a wheel.
It is a matter of scale for me. Nuclear is much more scalable with much less (but you are right, not zero) waste. We already have the infrastructure for natty gas. The buildout to make solar scale enough to really matter and the waste that would be generated is massive. Orbital collectors beaming down solar energy is something that might work at scale decades from now, with much much less waste. Panels on individual buildings and large solar farms will never make sense, in my opinion. Just my two cents!
No argument, except I think when you put a lot of constraints on solar, it can work assuming the costs of production for materials/installation come down. Solar on a house or a barn can work to a point. Solar on a house/barn/building pumps energy back into the grid; and we need energy for an on demand information economy. Nuclear is the only real way to power that economy. Solar is a mere small sideshow. I also don't buy into the "collectively we can make a difference" crap when it comes to solar. Every house/building/structure in California, Nevada, New Mexico, Colorado, Utah, and Arizona could have solar on it but you'd still need nuclear power.
Energy as it gets more abundant gets cheaper, and people figure out new ways to use it.
Your analysis is excellent and I have passed it on to some friends. However I do not see any indication of how you've incorporated NPV into your calculations. Savings in the out-years are great but surely the time value of money figures into the equation? All the more so if we are headed into a period of higher inflation rates.
Also the recoupment aspect only figures if the estimated cost of the install remains constant over time. Since presumably that cost will continue its secular decline, I wonder if your recoupment figure will still be the same five, ten, twenty years down the road?
I didn't do NPV since I am paying cash for it. NPV makes sense if there are positive cash flows, but there are not positive cash flows here (some months, not all). I also did not figure in the monthly fixed costs the energy company charges you, taxes etc. I could do an opportunity cost calculation, where if I spent $xx on solar vs $xx on (insert) but it doesn't seem to make sense. NV Energy doesn't let you put more than 98% of your energy needs on your roof. There might be positive cash flows if you put say 150% of your energy needs on your roof and then an NPV calculation might be worth it.
Cost to install won't go down, but the cost of equipment might. Emphasis on might. My gut is that Tesla is deep discounting systems to grab market share.
Solar is a net negative without the tax credit. It's a 30% tax credit. I have never seen any solar startup, nor any solar installation that pays for itself without subsidies or tax credits. The one I am installing will cover 98% of my electricity needs (but the system doesn't match them month for month-it's more like accrual accounting where you bank a lot of energy in the summer and run deficits in the winter)
Great post! The payback period makes a lot of sense for residential customers and more straight forward. For kicks, try calculating the Levelized Cost of Energy (LCOE) to compare against NVE's rates. For the 25 year life, take the NPV of Capital & Maintenance costs ($) divided by NPV of Generation (kWh). Result will be $/kWh, that's the breakeven of the panels. Now just what discount rate to use....
Surely the time value of money applies even so, no? If I pay $100 today to save $100 five years from now, that's the equivalent of buying a zero-coupon bond for $100 and then redeeming it for $100 five years from now, an obviously money-losing proposition.
Or if you prefer, you pay $100 today for some amount of savings in the out-years. Those savings are implicit revenues--money you don't spend, which are thus available for other purposes. How much are the savings you get versus how much you would have gotten by investing that same amount in a revenue-bearing instrument?
Correct, but then you should also figure in the value of your home. Is a home with solar worth more or less, and if it is worth more is the multiple 1x, 2x, 3x? Does it make your home sell faster or slower when you want to move?
You could apply the NPV analysis to everything you buy if you wanted. Should I buy a regular dial thermostat or a MYSA? Should I put a pool in, or not?
As I will say here, and I said in the post, solar is a money loser without subsidies and tax credits. If you ran an NPV analysis and your alternative was a revenue bearing instrument, you'd have to estimate inflation/interest rates etc and you would probably be incorrect about that. An NPV analysis helps you make a decision, but the odds are pretty good that the actual analysis will not play out as its calculated.
It's an interesting thing with startups. They put together financial projections. None of them ever are correct. They key is to understand how founders are thinking about growth, and allocation of resources, not if they get the numbers correct.
What if electrical rates quadruple? They might. They are up 45% already this year with a plea by the company to add another 30%. What if the company decides to engage in rolling brown outs like California and Texas have had? Then solar becomes a pretty viable system you need for your house.
I forgot to say, regarding the value of your home and whether solar will signify in its resale value, the received wisdom among the real-estate agents I've talked to is that you never recoup the value of any home improvement. And as I mentioned, if solar installations become commonplace, they will perforce have had to become cheaper, which presumably will diminish their value-enhancing properties.
I'm old enough to remember when my parents put in window AC in the apartment I grew up in in New York. I daresay if my parents had sold it within a few years, they might--might--have recouped that cost, given that AC was then both rare and desirable. But by the time they'd gone to their reward and I was selling the place, window AC had become omnipresent even in quite modest apartments so it didn't figure into the equation.
Fair enough. Part of my job when I was working for a living was economic analysis: so possibly I am succumbing to professional deformation here. But I honestly think it's a little weird to make estimates of future savings without incorporating TMV into the mix.
BTW I started responding to your previous comment before you talked about the money-loser aspects. When I submitted it and the page refreshed, your response updated with the additional paragraph. That's weird too! :-)
I didn't see a link to a spreadsheet or calculator. I suppose we do that ourselves. I see quite a few links to Tesla. Are you getting paid by them for the advertising?
No, not getting paid. But, thank you for asking. I don't charge for this blog, and don't accept paid advertising or anything like that. Sometimes people do "pledge", and that's cool. I do get paid a very minimal fee to write for a national publication. I publish things there very occasionally. This blog is not a money maker for me, and you will never see me ask to "hit a tip jar". As a matter of fact, if you use the last link and actually buy a Tesla system, you save $500 and I get zip.
There is no link to a spreadsheet calculator because you can't find one online---so I wrote about how I built mine. I guess I could try and put that spreadsheet online, but my technical capabilities to accomplish that task are woefully under par....
Many years ago I put solar systems on the roofs of warehouses in Bakersfield, California. I was working for Mobil at the time.
The systems were bespoke as there was no standardization, but the panels were standard.
We had meaningful maintenance costs with the impact of the heat/cold cycle. Fittings would fail simply from the heating and cooling cycle and the attendant differential movement. Not surprising being on a sunny roof in direct Bakersfield sun.
We are currently swapping a dependence on OPEC+ in the fossil fuels business for China in the solar business. 98% of electric wafers are made in China.
Solar has come a long way from those days amigo. I don't disagree on the swap. We enable China in a lot of ways via labor and tax policy as well. American labor is more expensive. Why? It's not just because workers here demand more pay. The regs/labor laws in place raise the costs as well. Many are unnecessary.
FWIW, unions don't increase employment, they increase unemployment which is why they are continuing to lose momentum in private industry and only have a solid hold on government industry.
Jeffrey, thanks for replying. I enjoy your columns. I am an engineer and doing a spreadsheet for me is easy. Your analysis is easy to follow and understand. The biggest unknown is always what if the government changes the rules on buying back electricity or other aspects of the regulations ( which you mentioned with permits). Thanks for writing a very good article.
I wish that I had learned how to use Excel etc....I never ever had to really use it my entire career! I graduated college in 1984, never had an occupation where it was essential.
Agree on the unknown! As a matter of fact, NV Energy is petitioning to raise rates because so many people in NV are putting solar on it is hurting their business! They are talking about raising them quite a bit for people that have solar---which makes no sense to me from a public policy perspective but makes sense from a microeconomic perspective.
The Biden admin's Inflation Reduction Act which had zero to do with inflation contains massive green energy inducements to produce and deploy American solar panels, but in the normal political process the reality is nowhere near the plan.
These comments pertain to the "power sector" which is the electric companies that in turn pass some of the credits along to individual consumers. It is complicated.`
1. The plan was to drive production of American solar panels -- wafers and housings -- by offering tax credits of 40%. This was to create American factories and American jobs.
This was to be 30% tax credit for the solar system and a 10% bonus for US content.
Clearly, the US content was driving the credits.
The objective was to onshore/re-shore solar panel manufacturing to the US bringing manufacturing plants and attendant jobs to the US.
In short order more than $13B of US solar manufacturing plants were announced. Info from the Solar Energy Information Association.
2. In the Rules implementing the plan -- the Congress writes laws and then the Deep State writes Rules implementing the laws -- the Treasury Dept/IRS dramatically reduced the amount of "content" that had to be made in America to be considered "American" and thus be eligible for the tax credits.
The Inflation Reduction Act was passed in Aug 2022 and the Rules were promulgated in May 2023.
3. As an aside, if you bought First Solar Inc stock when the IRA passed in August 2022 at $114, it hit an all time price of $231 when the Rules were released in May 2023.
4. In reality, the solar manufacturers got together and lobbied the government and essentially killed the requirement for US content meaning the solar manufacturers can import cheap Chinese wafers and put them in housings in the US and qualify for the credits.
JLM
www.themusingsofthebigredcar.com
True true true......
Ha! I enjoyed this piece. The easiest way to get an actual cost build-up for a solar project is to research it using AI. I used Perplexity AI which cites specific sources and then Bard for understanding all of the elements including storage etc. I have some strategic advantages to a project I looked at for solar in FL b/c I have a warehouse in the back of my property so I looked at paneling that up and trenching to the house etc. I have an outrageous cost $60-75k but I want my project to power the house, warehouse, cars etc and have the option to live completely off the grid as well as be a net seller. So buying electric vehicles and powering them for free is also part of my ROI calculation. That is w/o any incentives. You have to also plug in the number of square feet you have and how much power you want to generate so the calculation is a bit different than yours. A separate point I’d make is that not all renewable sources make for the “best” options depending on region. For example, a Florida solar project will likely yield a faster ROI than a MN solar project. If I could do life over again, I would have looked at geothermal here in the Dunes in the midwest before we built a house. FL is most certainly solar. Spain will be 100% on solar shortly. Iceland will be on geothermal...the ROI’s of these projects greatly depends on where you live and what natural advantages you have as well. I haven’t pulled the plug so to speak on this. I’m waiting to be sure that the EV batteries can survive FL heat. I have a lot of doubts about that. I think there is going to be more bad news coming on EV fires. They are already sending entire ships ablaze....
and EV tires. They are heavy. I don't have one. My friend down the street has one and put in solar panels to charge it. There are quite a few EVs in my neighborhood. I like them as an around town commuting car, but not as an over the highway travel car. However, there are a lot of Big Brother things potentially that I don't like about them. You could pen a sci-fi novel where the hero uses a gas powered or diesel powered car to get the bad guys.
I feel the same way about big brother! I don’t think we are giving up our gas powered vehicles anytime soon either!
There is a company in north Idaho called “off grid solar”. You might call them and see what they think about this. https://offgrididaho.com/
I refuse to go solar for the same reason I refuse to buy an electric car. There is no end game for the materials when they are no longer useful. Tons of solar panel and lithium battery waste will be generated, and what is to be done with all this? Nukes and natural gas is the only way to go in the future given current tech. Don't support the madness!
I see your point and understand it. I agree, there is no way to recycle them. Same with a lot of plastic. Same with nuclear waste. There are a lot of negative externalities with any energy source. Even gerbils running on a wheel.
It is a matter of scale for me. Nuclear is much more scalable with much less (but you are right, not zero) waste. We already have the infrastructure for natty gas. The buildout to make solar scale enough to really matter and the waste that would be generated is massive. Orbital collectors beaming down solar energy is something that might work at scale decades from now, with much much less waste. Panels on individual buildings and large solar farms will never make sense, in my opinion. Just my two cents!
No argument, except I think when you put a lot of constraints on solar, it can work assuming the costs of production for materials/installation come down. Solar on a house or a barn can work to a point. Solar on a house/barn/building pumps energy back into the grid; and we need energy for an on demand information economy. Nuclear is the only real way to power that economy. Solar is a mere small sideshow. I also don't buy into the "collectively we can make a difference" crap when it comes to solar. Every house/building/structure in California, Nevada, New Mexico, Colorado, Utah, and Arizona could have solar on it but you'd still need nuclear power.
Energy as it gets more abundant gets cheaper, and people figure out new ways to use it.
Your analysis is excellent and I have passed it on to some friends. However I do not see any indication of how you've incorporated NPV into your calculations. Savings in the out-years are great but surely the time value of money figures into the equation? All the more so if we are headed into a period of higher inflation rates.
Also the recoupment aspect only figures if the estimated cost of the install remains constant over time. Since presumably that cost will continue its secular decline, I wonder if your recoupment figure will still be the same five, ten, twenty years down the road?
I didn't do NPV since I am paying cash for it. NPV makes sense if there are positive cash flows, but there are not positive cash flows here (some months, not all). I also did not figure in the monthly fixed costs the energy company charges you, taxes etc. I could do an opportunity cost calculation, where if I spent $xx on solar vs $xx on (insert) but it doesn't seem to make sense. NV Energy doesn't let you put more than 98% of your energy needs on your roof. There might be positive cash flows if you put say 150% of your energy needs on your roof and then an NPV calculation might be worth it.
Cost to install won't go down, but the cost of equipment might. Emphasis on might. My gut is that Tesla is deep discounting systems to grab market share.
Solar is a net negative without the tax credit. It's a 30% tax credit. I have never seen any solar startup, nor any solar installation that pays for itself without subsidies or tax credits. The one I am installing will cover 98% of my electricity needs (but the system doesn't match them month for month-it's more like accrual accounting where you bank a lot of energy in the summer and run deficits in the winter)
Great post! The payback period makes a lot of sense for residential customers and more straight forward. For kicks, try calculating the Levelized Cost of Energy (LCOE) to compare against NVE's rates. For the 25 year life, take the NPV of Capital & Maintenance costs ($) divided by NPV of Generation (kWh). Result will be $/kWh, that's the breakeven of the panels. Now just what discount rate to use....
Think you have to use the prevailing ten year note rate.
Surely the time value of money applies even so, no? If I pay $100 today to save $100 five years from now, that's the equivalent of buying a zero-coupon bond for $100 and then redeeming it for $100 five years from now, an obviously money-losing proposition.
Or if you prefer, you pay $100 today for some amount of savings in the out-years. Those savings are implicit revenues--money you don't spend, which are thus available for other purposes. How much are the savings you get versus how much you would have gotten by investing that same amount in a revenue-bearing instrument?
Correct, but then you should also figure in the value of your home. Is a home with solar worth more or less, and if it is worth more is the multiple 1x, 2x, 3x? Does it make your home sell faster or slower when you want to move?
You could apply the NPV analysis to everything you buy if you wanted. Should I buy a regular dial thermostat or a MYSA? Should I put a pool in, or not?
As I will say here, and I said in the post, solar is a money loser without subsidies and tax credits. If you ran an NPV analysis and your alternative was a revenue bearing instrument, you'd have to estimate inflation/interest rates etc and you would probably be incorrect about that. An NPV analysis helps you make a decision, but the odds are pretty good that the actual analysis will not play out as its calculated.
It's an interesting thing with startups. They put together financial projections. None of them ever are correct. They key is to understand how founders are thinking about growth, and allocation of resources, not if they get the numbers correct.
What if electrical rates quadruple? They might. They are up 45% already this year with a plea by the company to add another 30%. What if the company decides to engage in rolling brown outs like California and Texas have had? Then solar becomes a pretty viable system you need for your house.
I forgot to say, regarding the value of your home and whether solar will signify in its resale value, the received wisdom among the real-estate agents I've talked to is that you never recoup the value of any home improvement. And as I mentioned, if solar installations become commonplace, they will perforce have had to become cheaper, which presumably will diminish their value-enhancing properties.
I'm old enough to remember when my parents put in window AC in the apartment I grew up in in New York. I daresay if my parents had sold it within a few years, they might--might--have recouped that cost, given that AC was then both rare and desirable. But by the time they'd gone to their reward and I was selling the place, window AC had become omnipresent even in quite modest apartments so it didn't figure into the equation.
True! Our last apartment in Chicago had no a/c, only a window unit. We put in Mitsubishi mini-splits which were great.
Fair enough. Part of my job when I was working for a living was economic analysis: so possibly I am succumbing to professional deformation here. But I honestly think it's a little weird to make estimates of future savings without incorporating TMV into the mix.
BTW I started responding to your previous comment before you talked about the money-loser aspects. When I submitted it and the page refreshed, your response updated with the additional paragraph. That's weird too! :-)
Ha. No idea how the commenting on Substack works! I used to use Disqus at my other blog, but I am hearing that's not working well now either
I didn't see a link to a spreadsheet or calculator. I suppose we do that ourselves. I see quite a few links to Tesla. Are you getting paid by them for the advertising?
No, not getting paid. But, thank you for asking. I don't charge for this blog, and don't accept paid advertising or anything like that. Sometimes people do "pledge", and that's cool. I do get paid a very minimal fee to write for a national publication. I publish things there very occasionally. This blog is not a money maker for me, and you will never see me ask to "hit a tip jar". As a matter of fact, if you use the last link and actually buy a Tesla system, you save $500 and I get zip.
There is no link to a spreadsheet calculator because you can't find one online---so I wrote about how I built mine. I guess I could try and put that spreadsheet online, but my technical capabilities to accomplish that task are woefully under par....
Many years ago I put solar systems on the roofs of warehouses in Bakersfield, California. I was working for Mobil at the time.
The systems were bespoke as there was no standardization, but the panels were standard.
We had meaningful maintenance costs with the impact of the heat/cold cycle. Fittings would fail simply from the heating and cooling cycle and the attendant differential movement. Not surprising being on a sunny roof in direct Bakersfield sun.
We are currently swapping a dependence on OPEC+ in the fossil fuels business for China in the solar business. 98% of electric wafers are made in China.
JLM
www.themusingsofthebigredcar.com
Solar has come a long way from those days amigo. I don't disagree on the swap. We enable China in a lot of ways via labor and tax policy as well. American labor is more expensive. Why? It's not just because workers here demand more pay. The regs/labor laws in place raise the costs as well. Many are unnecessary.
FWIW, unions don't increase employment, they increase unemployment which is why they are continuing to lose momentum in private industry and only have a solid hold on government industry.