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  • Northeast Wisconsin
  • January 2018
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Solar is a great investment!

Benjamin Franklin said death and taxes were the only two things certain in life. However, another certainty in life is that the sun rises in the east and sets in the west. There is very little we can do about death and taxes but we can take advantage of the certainty of the sun by using solar power at our homes and businesses. 

Solar energy is the fastest growing source of new energy generation in the U.S., but has only reached a small portion of the market potential. One of the largest barriers to solar adoption is the upfront cost, as you are essentially pre-buying your electricity for the next 25+ years. In order to purchase solar, often times people will borrow from a lender or increasingly people are looking to use their existing mutual funds to invest in solar. That leads to an intriguing question: does a solar array deliver similar returns to other investments? 

It is important to note to take action on installing your solar array as soon as you can while existing financial incentives are still in place. 

Available incentives to reduce the cost of a solar array: 

  • 30 percent Federal Investment Tax Credit (30 percent through 2019, 26 percent in 2020, 22 percent in 2021 and 0 percent after)
  • 12 percent ($2,000 max residential, $4,000 max commercial) Focus on Energy Rebate (As of 12/1/17)
  • Discounted pricing from Solar Group Buy, if available in your area. 

Let’s take a look at a sample 5 kW solar array installed in We Energies territory on an unshaded roof for a cost of $3/watt for an installed cost of $15,000: 

  • Estimated installed cost $15,000
  • Federal Tax Credit $3,960
  • Focus on Energy Rebate $1,800
  • System Cost After Incentives $9,240
  • Cost Recovery in Years 12
  • 30-Year Internal Rate of Return 10.84%
  • 30-Year Levelized Cost of Energy from solar ($/kWh) $.071 (current utility rate $.13111)
  • 30-Year Cost of Utility Bills Without Solar (Estimated) $39,562

As you can see, the 30-Year Internal Rate of Return (IRR) is 10.84 percent and the levelized cost of energy over the life of the system is $.071/kWh, compared to the $.13/kWh rate that the utility currently charges. According to the Energy Information Administration (EIA), residential utility electric rates in Wisconsin rise an average of 3-5 percent per year. Should rates increase greater than 3-5 percent average the IRR of the solar array will increase. While the cost of solar generated electricity will remain the same throughout the life of the solar array. 

Let’s compare the performance of the sample array to a generic mutual fund. According to Investopedia, the historical average return on stock market investments is 10 percent, but is closer to 7 percent with inflation. Certainly there is some risk when investing in stocks as the market rises, falls and occasionally crashes such as the one in 2008. 

A typical residential solar installation in Wisconsin has an internal rate of return (IRR) around 4-11 percent and produces a levelized cost of energy of $.06 -$.10. Solar arrays are fairly low-risk. The solar modules production is warranted for 25 years and there is good data on weather patterns to closely estimate the amount of sunshine a particular location will receive. 

Additionally, installing solar keeps your investment dollars in your community and drives significant environmental benefits of using the sun instead of burning fossil fuels to create electricity and significant pollution. Solar is an investment in your family and community as opposed to a mutual fund investment in Wall Street and big business. 

A solar array performs as well or better than a mutual fund and allows you to invest in yourself and produce clean energy for the next 25+ years. As always, please consult with your financial advisor before any investments. 

 

Doug Stingle

Doug Stingle is a Solar Consultant with North Wind Renewable Energy where he works with families and businesses to go solar. Prior to joining the North Wind team Doug worked at the Midwest Renewable Energy Association where he worked on renewable energy education for 8 years delivering presentations throughout the Midwest to pressional and public audiences.

Website: northwindre.com
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