12.08
Until recently, I always thought that solar power was a sound economic decision, because after you pay for the solar collectors, you are getting free electricity. About a week ago I rethought my idea for how solar power works as an economic concept. Allow me to explain in detail why solar is an economic wolf in sheep’s clothing.
The first thing to do is to look at the ideal situation for solar power, then to consider what else that money could be used for.
Part of the consideration for solar power is weather. If you live too far north, or have unfavorable weather conditions, solar arrays will not generate as much power. Well, it turns out that the helpful scientists at MIT made it easy to find the best regions for solar electricity to thrive, by drawing us a map (source).
Map of Available Solar Power
Based on this map, Nogales, Arizona (Zip 85621) would be a great place to set up some solar panels. If I go to Kyocera’s website and look up how much a solar system in Nogales would cost and save, they tell me that if I spend $1,200 per year on my electrical bill, I should probably get an $18,000 solar array. They tell me furthermore, that the state and federal government will help reduce my setup cost to a measly $5,640.
Kyocera's Cost Estimate
Assuming I pay cash, they tell me that I should earn back $20,453 over the 25 year lifespan of the solar equipment. This assumes not only that the equipment will never fail or degrade, but that the arrays will either never get dirty, or that you will spend your free time cleaning the dirt off of them to maintain maximum efficiency. (see How to Clean a Solar Panel)
So while solar seems well and good, you could consider investing that money somewhere else. Where should you invest? You could invest in a mutual fund, a strong set of stocks, or you could do what I would do, and invest it into one stock of Bershire Hathaway, Inc (NYSE: BRKB $3,310), and the rest into a 2% CD. I would choose the Berkshire Hathaway corporation, because since its inception in 1996, it has produced a fairly steady return with an average of 8.40% APY. Investment tactics and returns vary of course, but using my model to invest in businesses instead of solar equipment, would yield a return of more than $42,000. This is more than double the return of what you could ideally expect from solar equipment.
My advice? If you are investing your money to increase your wealth, invest in stocks, CDs, mutual funds etc. If you care about the environment, keep your money out of solar anyways, and lobby for more nuclear power, it is cleaner and far cheaper than solar. Don’t believe me? Check out this site. Still don’t believe me? Lobby for wind power. Its still cheaper than solar power and still a lot more friendly to the environment. Still don’t believe me? STFU.
Thanks for mentioning our “how to clean a solar panel” post.
As an owner of an expensive solar panel system at my business, I can’t really argue with you about how solar makes little sense as a money investment, because you’re pretty much correct.
Even after tax credits and accounting for steadily rising energy prices over the next 20 years, it will take me almost that long to break even on the purchase. Will I even still be in the same building?
However, when someone installs granite countertops in their bathroom, do they try to calculate how long before those “pay for themselves” compared to Formica? Doubtful.
People spend a lot more money than I spent on solar panels upgrading their bathrooms or kitchens and trying to pretend they are “investing” in their homes, which is the same type of fallacy.
I was willing to make a solar system purchase because I like the idea of generating my own clean energy, even if I barely break even on the deal and it takes a long time to do so.
One point that I would like to make though, is that there is huge progress being made in solar efficiency right now, which is bringing down the cost of solar energy dramatically.
Just as my solar panels from two years ago are vastly more efficient than those from 10 years ago, the solar panels 5 or 10 years from now will be much better and cheaper.
I believe they’ll eventually get cheap enough that we can plaster them everywhere and generate at least some portion of our electricity that way. Yes, that might be 20 or 50 years from now.
At that point, it won’t make sense NOT to buy them.
So I’d keep an eye on that payback calculator and check again in a few years and see if it’s still a bad money investment.
PS Coincidentally, I’ve actually been holding some BRKB since 2004, and my return isn’t anything near 8.4 percent. It’s about 1.2 percent annually. (I just looked.) And it was underwater as recently as January of this year. http://finance.yahoo.com/q/bc?s=BRK-B&t=5y&l=on&z=m&q=l&c= Take into account any inflation, and that’s not so different from my investment in….
Of course, buying a solar system for your business is far more advantageous than buying one for your home, because you break even (or come close to it) and you can tell your customer’s about it, which makes them like your company more. I know it’s not possible to put a dollar value to that increased popularity, but it is certainly is useful to almost any given company.
As far as the Berkshire Hathaway stock, it was a fairly random example. My mention for it was due mostly to the fact that Warren Buffet is one of my personal heroes. The point that I should have stated was that if your investments can average 5.3% APY or better, you would beat solar.
Now that you brought up the ever-increasing-performance nature of solar cells though, I have to say that the best option (money-wise) would probably be to invest your money for now, and to buy more solar equipment later. The economist in me wants to do some complex calculations to find out when the best time to buy solar would be, in order to maximize profit, but the realist in me keeps telling myself that I shouldn’t pay attention to it until I actually own a house.
Good job on your how to clean a solar panel page, by the way. The main reason I linked to it over others is because it seemed to be the most detailed, quick guide on how to clean solar panels.
Thanks for your feedback.