I’m excited to welcome Larry from The Skilled Investor, who has written an insightful two-part series on home rooftop solar power systems. My recent purchase of 17 solar panels for our home, probably to power a well pump for our land, made Larry’s insights particularly timely. I hope you find it as useful as I did. If you’re interested in guest posting on RFI, let me know.
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**Comparing Finances of Competing Home Rooftop Solar Systems**
A client in Southern California recently reached out to me. He and his wife had just purchased a high-end Tesla electric car and were considering adding a rooftop solar power system to charge it. They had gathered three detailed bids from different installation vendors but couldn’t figure out which one was best.
He asked for my help in making sense of these bids. We had previously developed a comprehensive retirement financial plan for him and his wife, and given my experience in financial planning and software development, he thought I might handle this complex task.
Although it seemed straightforward initially, comparing the bids proved to be complicated. All bids were for a 9,000-watt DC rooftop solar system, complete with panels, racking, AC inverters, and all the necessary equipment. One vendor also suggested a 6,000-watt system as a possible alternative.
The total costs for the 9kW systems were quite similar, varying by only a few thousand dollars, with gross prices around $45,000 before federal tax credits reduced that to about $32,000. There were minor differences in equipment and warranties.
At first glance, it appeared that the decision would hinge on selecting the most reliable vendor and negotiating the price down. However, spending over $30,000 on a solar system requires strong financial justification. My client wanted to know if there would be a positive financial return over the system’s 20+ year lifespan. Each vendor claimed a payback period of about eight years, but their numbers varied widely.
**Different Financial Justifications**
Each vendor provided cost-of-ownership analyses with distinct assumptions. They estimated annual electricity production month-by-month, considering seasonal variations. A 9kW system could potentially exceed daytime consumption in many months but produce less in winter. These systems didn’t include power storage, so any excess power that couldn’t be sold back to the utility, Southern California Edison, would be wasted. Overnight and excess daytime usage would still rely on the grid.
We explored whether the Tesla car could serve as the house’s power storage, but the technology wasn’t yet available. Future prospects of using electric car batteries for home power storage pose challenges like battery warranties.
During peak production months (late spring to early fall), a 9kW system could produce excess electricity. The vendors estimated different financial values for this excess power. While utilities might buy back home-generated power, predicting prices over twenty years is difficult, adding uncertainty to financial justification.
To make a clearer comparison, we had to consider Edison’s multi-tiered pricing system, which complicated the cost-benefit analysis further.
**How to Decide When Proposals Are Similar**
Even after a thorough analysis, we couldn’t clearly differentiate one 9kW proposal from another financially. The largest differences were in how much each vendor claimed the system would increase the home’s resale value—ranging from $24.3k to $70k. However, these estimates seemed exaggerated.
Eventually, our analysis led us to conclude that a smaller 6,000-watt system was likely a better fit. This system, proposed by one vendor, seemed more economical. It would cost about $22,000 after rebates, saving my client around $10,000 compared to the 9kW system.
A 6kW system would significantly reduce electricity usage, eliminating most charges from the higher pricing tiers in Southern California Edison’s multi-tiered system. This could reduce the total annual utility bill by about 90%, maximizing the savings on the most expensive power.
If needed, additional capacity could be added later at potentially lower costs, thanks to the declining cost of solar technology.
In summary, we decided that the 6kW system was the best financial choice. It required a smaller initial investment and targeted the highest-cost utility power, leading to a likely shorter payback period and reduced financial risk.
The modular nature of these systems allows for future expansion if electricity usage increases or if the economic conditions of selling excess power become favorable.
This comprehensive analysis and decision-making process underscored the importance of evaluating all financial factors when choosing a home rooftop solar power system.