Recently, PG&E announced a planned 65% rate hike over the next three years, inspiring me to get a quote on installing solar panels. These days, there are a couple of ways to benefit from a solar installation. One is to install a system with no out-of-pocket expenses and then pay the solar company for your energy use—the buyback system. The second is to pay for the solar system up front, and then pay nothing for monthly electricity use. Depending on your financial situation, either could work.
According to the quote I received, which was based on a Google Earth shot of my house, a solar system to cover my electricity needs would run about $112,000. This sounds like a lot, and it is, until you compare it against the long-term costs associated with your current electricity setup.
I received quotes for two types of installation: rooftop and ground-mount. The ground-mount was a little more expensive, but I have always been paranoid about roof penetrations, so I would pay the extra amount.
If I choose their buyback system, the solar company retains ownership of the system, and I buy my electricity from them at a lower rate than PG&E charges. The rate goes up a little less than 4% per year. At today’s rates, my solar company bills would be about 40% less than PG&E. As PG&E’s rates go up way faster than the solar company’s rates, my agreement with the solar company would guarantee significant savings for 25 years. When I did some quick math based on my current electricity consumption and cost, in three years, my rate would be about 60% less than PG&E’s.
The downside here is that I would be on the hook with this solar company for 25 years. If some breakthrough in technology like a nuclear power plant comes to town and provides low-cost or free electricity to everyone before my contract with the solar company ends, I still have to pay the solar company our agreed-upon monthly rate. (On the bright side, if the system needs maintenance or repairs, the solar company is responsible for them.)
If the idea of being tied to a solar company for 25 years feels risky, and if you have the financial wherewithal to finance the solar installation, there are still great savings to be had. You can pay the solar company to install the system, and then you own it. The last time I checked, there is a 30% tax credit if you buy system. In my case, that’s a $33,600 discount that reduces my out-of-pocket cost to $78,400.
If you have enough equity in your home, you can borrow money via a second deed of trust. On a 25-year loan at, say, 9% interest, I would pay the bank $660 per month, which is less than my current PG&E bill. Not only that, on a fixed-rate loan my payments remain constant, even as PG&E rates soar (and the solar company’s rates increase by 4% per year). In the early days of your loan, most of the payment is interest, which is tax deductible. Initially, $588 of the $660 is interest, which will save you $290 per month in taxes. When you account for the tax savings, you’re only paying $368 per month, which is even less than the solar company would have charged.
The only other expenses would be maintenance on the solar system, which should be minimal, and a slight uptick on your homeowners’ insurance premium. The good news is that solar installations are exempt from reassessments, so your property taxes won’t go up.
The system I looked at would convert solar energy collected during the day to power your house, day and night. It would not serve as a backup system for use during power outages. If the grid goes down, you go down (unless you want to pay an extra several thousand dollars to install an automatic termination to the grid when there’s a power outage). The length of time you can power your house depends on the size of batteries you install.
I’m leaning toward paying for a system, so I own it. I want my system to be upgradable, because I can imagine that, over time, my needs will change. Maybe we’ll all have electric vehicles in our garages that require charging and, with California threatening to outlaw gas appliances, we may all need to install electric heating space and water heaters.
So, I’m not suggesting solar is right for everyone, but I think it bears consideration.
If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.