Payback & Return Analysis for Solar in Mueller - Revision 1

Transcription

1 Payback & Return Analysis for Solar in Mueller - Revision 1 This document should serve to help residents of the Mueller Community understand the financial implications of the solar system proposals they have received. Please read the document in full to understand exactly what assumptions are being made. Applicable Incentives Mueller residents currently used to benefit from three solar incentives that, in aggregate, pay for up to 90% of the gross cost of a solar system. These incentives are: a) Austin Energy PV Rebate - $2.50/watt b) Austin Energy PV Bonus Rebate (expires 9/30) - $0.50/watt c) Pecan Street Project Rebate - $0.50/watt for south facing systems!!!!! $0.75/watt for west facing systems!!!!! $0.80/watt for west/south facing systems d) Federal Residential Renewable Energy Tax Credit - 30% of the net cost of a solar array Applicable Variables In order to accurately determine the payback and rate of return of a solar installation, a large number of variables must be taken into account. These variables include: (1) System Size, (2) Price, (3) Orientation & Tilt, (4) Geography, (5) Monthly Power (kwh) Consumption, (6) Annual Panel Degradation, (7) Maintenance & Inverter Repair, (8) AE Tiered Utility Rates, (9) Rebate Amounts and Interaction, (10) Power Cost Inflation, (11) Expected Installation Date, and (12) other variables. For the purposes of Mueller, we can assume that these variables stay the same for all homeowners: (1) Geography, (2) Annual Panel degradation, (3) Maintenance & Inverter Repair, (4) AE Tiered Utility Rates, (5) Power Cost Inflation, (6) Expected Installation Date. The other variables will change based on each individual s specific situation. The financial analysis below accommodates 36 a lot of different scenarios. These scenarios vary based on: (1) system size, (2) gross price, (3) system orientation (south, west, or south & west), and (4) average monthly kwh consumption, and (5) rate structure. Everyone in the neighborhood should fit roughly into one of these scenarios. Applicable Assumptions 1) 96% inverter efficiency (for calculating the AE rebate) 2) 30 degree tilt (tilts within 15 degrees of this will not materially change the results) 3) 4% energy inflation 4) $4.50/watt or $4.30/watt system cost

2 Risks Obviously, when considering return, you must also consider risk. Panels don t perform as expected - This varies, but most solar panels are warrantied for 25 years to perform at 80% of of their initial yield. Historically, massive failures of solar panels don t occur because there are no moving parts. The more likely point of failure is the inverter, which we assume we repair at year 15, so we ve taken this potential cost into account. (Inverters are only warrantied for 10 years) The system is not installed properly - If your system is not performing to par, we will know almost immediately. Between PSP and SunMath s resources, we will know exactly how much electricity your system is producing and if something is wrong relative to your neighbors systems. You move and aren t able to capture the return - This is a common concern. We are getting these systems for so little that these systems will inevitably add more value to your home they they ever cost. In the meantime, you will be saving money on electricity, so if you move 3 years into your 4 year payback, you ll still be in great shape. Scenario Analysis On page 4, you will find the (1) Payback, (2) Rate of return, (3) Net present value, (4) Lifetime energy value, (5) Annual kwh Consumption Offset, and (6) Annual electricity bill reduction for the 36 different scenarios. Please keep in mind when reviewing the information that, the best financial decision for you is the one that maximizes your NPV, not the scenario that maximizes your Payback or Return. Return and Payback are important, but NPV is always the way to go. Let me put it this way. Scenario A: Person A borrows $100 from You. Person A agrees to pay you back $200 in 1 month. Return: 100% in 1 month; Profit: $100 Scenario B: Person A borrows $200 from You. Person A agrees to pay you back $350 in 1 month. Return: 75% in 1 month; Profit: $150 If you have a choice between Scenario A and B, you are definitely going to pick Scenario B even though the return is lower. Since the opportunity cost of the additional money isn t that high (opportunity cost is the discount rate), it means that Scenario B has a higher Net Present Value (NPV). This scenario is similar to considering a smaller solar system versus a larger solar system. The larger system may have a higher payback, but it may end up having the higher NPV. There are obviously other considerations like how much liquid cash you have on hand, but the point is: Don t simply try to maximize your rate of return! Instead, maximized your NPV. Also, keep in mind that your electricity consumption may change over time (i.e. electric vehicle or growing family), so given the incentive environment, going big may not be such a bad thing.

3 Some Takeaways 1) No matter what size system you get, even if it is too large based on your electricity consumption, going solar now makes a ton of financial sense. 2) Given the option, a west facing array is more financially attractive due to the PSP rebate structure. 3) Offsetting 100% of you electricity bill is pretty difficult and not particularly advisable. 4) Even if you don t have much cash, if you don t consume that much electricity, you can offset 70% of your consumption for only $1,800 - that s pretty amazing. SunMath Solar Financial Evaluation I have produced a sample SunMath Solar Financial Evaluation which can be found at This financial evaluation is for a 6.1kW system at $4.30/watt, facing south for a homeowner who consumes 1,000 kwh per month (average). Reviewing this analysis (even if you don t fit that profile) should be helpful. Getting Solar Proposals If you haven t contacted the Mueller Megawatt Project to get solar proposals, please send your name, , phone number and address to us at amankj@gmail.com or Dan McAtee at danx0601@yahoo.com. Please review the information available on for more information. <-- This is still true!! Prices are down an additional 25% from when we bought and incentives are still pretty high, so if you are interested in going solar, don t feel like you missed out. Disclosure If I m wrong, please don t sue me. These numbers are my best approximation based on the information I have today and they may not hold true in the future. Please do your own research to verify my assumptions and information. While I am used to be a solar financial analyst (ends up giving financial analysis for free isn t a great business model) that works with a number of solar installers in Austin, I will not make a penny from Mueller homeowners who choose to go solar. I have donated my services for the next couple months to assist in educating my neighbors and hope that the information I provide helps people make a sound investment in solar. I do not recommend solar in all instance, but we are currently experiencing the best rebate environment in the country, so generally speaking, going solar is a phenomenal investment (for us, today). Remember, please use the information I provide at your own risk! Please me if you have any questions about the financial analysis, Aman - amankj@gmail.com

4 October 2012 Update Starting October 1, 2012, the new Austin Energy (AE) rate plan kicks in for ALL AE customers. This rate structure includes a change to the way AE compensates homeowners with solar from what is termed net metering to gross metering. When a utility administers an incentive plan with net metering, it nets all electricity production by the customer against electricity consumption. So, if you consume a total of 1,500 kwh of electricity in a month, but produce 1,000, you are only charged for 500 kwh. It doesn t matter when the electricity is produced vs. consumed - all that matters is the difference between how much you consumed and produced. In gross metering (the new way), you are billed for your consumption under the exact same structure as any other Austin Energy customer. If you consume 1,500 kwh your bill for consumption is exactly the same as someone with solar. The difference between you and someone without solar is, Austin Energy will compensate you at a pre-set rate for all the electricity you produced over that billing cycle. It doesn t matter if you sent some to the grid or when it was produced, you get paid 12.8 cents for every kwh produced (to give you a sense, a 5.8kW system - the average system size in Mueller would get paid $101 by Austin Energy in the month of August alone). Keep in mind, this rate is reevaluated annually - it remains to be seen how volatile this number is, though, I wouldn t expect it to move much outside of standard inflation. It ends up that since Austin Energy s rates were never really in excess of 12.8 cents/kwh before the rate change, this is a pretty sweet deal for solar-owners. To be clear, while the new rate plan isn t the sweetest deal because the fixed rate has gone up, the solar portion is. So, I m better off.....but how much better off? Below, you ll find the old analysis I did back in mid The original analysis is there and is followed by an update for the 6.1kW size system. This analysis shows that everyone is better off in this new structure and the people that benefit the most (relative to the previous structure) are low-energy consumers. Additionally, it s worth noting that under the new structure, it doesn t matter how much electricity you consume, only how much you produce. Also, for those of you who are reading this who haven t gone solar, or are looking to add to your system, I ve included a short analysis for both south and west facing roofs (east would be similar to west) under current PV prices and current incentive availability. You can fine more info about going solar in Mueller at ENJOY!

5 Payback & Return Analysis for Solar in Mueller

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