What is the ROI for going solar?

I live in California and I recently decided to get Solar. I also live in San Francisco, which is one of the least sunny part of the state. However, for solar panels, the temperature matters as much as the sun exposure, so luckily SF has as much solar potential than a warmer more sunny place like central California.

Solar energy is the ultimate passive investment. You only need to go through the pain of putting up-front money to buy/loan the panels. Everyday you’re running a small scale energy production facility. It generates income and it is saving the planet! The savings are substantial considering I was using PG&E and my tier-3 cost was 0.4$ /kWh.

Let's go in the details about my investment. I originally came up with the idea because of Wunder Capital. I was attracted to invest money to get an 8% return... until I realize I could invest in my own house instead.

The common question is whether solar makes investment sense. I would say YESSSSS in a heartbeat. Solar can give you 17.63% ROI to be precise.

Solar can give you 17.63% ROI to be precise.

Understanding your PGE bill is tricky. For simplicity, let's consider only their rate schedule E1 B Residential service. They have 3 tiers, and we were almost hitting it every month.

Price per kWh
Tier 1 $0.18
Tier 2 $0.24
Tier 3 $0.40

To put things in perspective, an electric stovetop uses about 3kWh. At tier-3, cooking your pasta for 1 hour on that stovetop will net you a nice 1.5$. If you do this 3 times a day, then it's 5$... and that's only the electricity cost !!

My typical usage

Our average monthly usage was about 500kWh per month. This averages to 16.1kWh per day. The monthly breakdown is as follow:

Monthly usage Daily usage Price per kWh
Tier 1 229.5 kWh 7.403225806 kWh $41.94
Tier 2 229.5 kWh 7.403225806 kWh $55.48
Tier 3 41 kWh 1.322580645 kWh $16.46
Sum 16.12 kWh $113.88

This means a 113.88$ in electricity cost every month.

I currently have a 5.04kWh systems. I opt for X22 Sunpower cells (360W). My total cost was 25500$. The reason is that I have a project to build a rooftop and I wanted the panels to take as least space as possible. They were the most efficient panels available on market, but they are a bit more costly.

ROI Calculations

Let's take a look at the ROI for this system. For those calculations, I will assume I use almost all the energy I produce. This means a monthly 189.54$ in electricity cost.

No Incentives With Federal With Federal, city With Federal, city, and discounts
Yearly $1,366.58 $1,366.58 $1,366.58 $1,366.58
Initial upfront cost $25,500.00 $18,000.00 $16,500.00 $12,900.00
ROI 8.92% 12.64% 13.79% 17.63%

Even without incentive it is very interesting to install solar, since you get a 8.92% ROI. This is better than the latest 10year T-bill (2.31%) and much better than the net S&P average return.

My production has been pretty steady, but I only have about 1 month of production data.

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I average about 24kWh per day for March, so I expect summer will be better and winter worse. With this average, my ROI calculations would give me on average an extra 2kWh per hour.

Also, I decided to pay the whole amount since I can afford it. I like to look at it an as investment play. The lease option is good if you don't have the capital, but you always end up paying more.

Finally, with my Airbnb Business, I found having solar panels is definitely an very valuable marketing tool. And it also adds value for any future tenants since they will save on that cost. And besides, it’s a lot of fun and makes you feel great. For the month of march, after a long tiring day, I would check my solar production and I would immediately get joy and satisfaction out of it. For only this alone, this was worth it.