Realizing the Value of Solar

2. Calculator Basics

A solar calculator looks at the component of your energy bill that depends on the kilowatt hours of electricity you consume. With those in hand, it computes the charges you could eliminate by installing solar. It then costs the system that’s right for the job, not too big, not too small.

The calculator does not consider the possibility that in residential that you might change your tariff moving to solar. Changing tariffs is a fairly remote possibility in residential California because of the significant increase in your daytime tariffs. You do get some gains by switching to a solar tariff in commercial because you can reduce your demand charges. Solar Payoff assumes you will change tariffs in commercial.

The calculator also determines both the federal, state and, where they exist, local and utility incentives for which you would be eligible and figures those into its math.

Finally, the calculator forecasts how much the system will save you over the three decades it will operate efficiently. This is the money that you won’t pay the utility because you installed solar – your \“avoided costs.\”

3. Energy Usage

An accurate determination of your potential gain – as opposed to an inexact and misleading one - must begin with the tightest possible accounting for the electricity you use.

Inputting data from utility bills can be tedious. Solar Payoff has worked hard to keep your effort to a minimum while assuring the accuracy of the results.

For residential jobs, because Solar Payoff commands a deep inventory of current electricity tariffs, we only need to know your monthly total kilowatt hours of electricity consumed. For commercial jobs we also need to know your demand charge. The demand charge is your highest monthly instantaneous demand averaged over typically a fifteen minute window. This usage is what you pull from the grid for “peak” consumption during the month and it determines the sizing specifications that the utility must respect to meet your demand.

Although twelve months of these figures by line item is preferred and will be required to receive a bid from The SunCrafters Alliance (also discussed below), we can develop a rough estimate of your potential gain from winter and summer monthly dollar average. This is because our calculator can “roughly” convert those average monthly winter and summer dollar figures to the kilowatt hours the calculator needs. Converting dollar monthly averages to kilowatt hours is not the best way to approach the issue of a user’s consumption but a place to get started for those of you in a hurry.



However, we draw a line. What we won’t do is work from a month’s bill and pretend – as many competitors do – that we can tell you what your solar system is worth.

Our commitment is to provide the best possible estimate of your costs and benefits, no gimmicks.

4. Site Analysis: Your Solar Potential

Once you know your “load” (i.e., the kilowatt hours you consume over time), the question becomes, How much of the energy you receive from the grid today can be offset with solar?

Correctly estimating the capacity of your property to produce solar energy is as simple or as complex as the layout of your property.

Our job is to educate you on the factors you must consider to produce the most realistic estimate of your site’s solar potential. This section of the website uses advanced GIS technology to allow you to map a polygon where a solar system could be sited on your property. Factors like array tilt (on a roof or the ground), the north-south orientation of the system, and the extend of shading are considered. The website is designed to walk you through the process.

5. Your Energy Savings

Energy savings are the guts of a solar financial analysis because the bulk of the gains from solar are what you don’t pay your utility for electricity over the lifetime of your system.

Energy prices are rising and will continue to rise, even with recessions. Since 1970, electricity prices in California have grown somewhere just north of 5 percent. What will the next thirty years look like?

Fossil fuels are in diminishing supply today. Inventories still in the ground are thought to be exaggerated although these rise and fall as technology advances. “Fracking” to bring up natural gas from shale would be a prominent example. Whether fracking will actually contribute to a drop in utility rates for electricity remains to be seen. A major reason for skepticism in this regard is the increasingly enormous demands which other economies with growing populations are making on the fossil fuels that exist.

We’re estimating electricity prices will rise a conservative 5.2 percent annually on average over the next thirty years. This is pretty much in line with what we’ve seen in the past but not as high as one might have projected in the absence of technological change and the current economic malaise.

Can we be sure of this number? The honest answer is “not really.” But it’s a decent guess and we’re making it completely transparent. As the years advance we will keep a hard eye on these trends.

6. Public Sector Incentives

Investing in a solar system is a relatively expensive proposition although the price has dropped by a factor of three, possibly even four, in less than five years. But cheap? Solar is at least the cost of a low-priced car (after incentives). So not cheap by most family’s math. That’s the mindset you’ll need to bring as you begin to your decision to becoming energy self-sufficient.

However, there’s help.

Because it has become generally accepted that energy produced from fossil fuels is an unsustainable risk to our life on this planet as we have known it, even our survival as a species, both the state and federal governments, even some local governments and utilities, are offering incentives to help you manage the cost of going solar. This is not a give-away to “green” but just the mildest counterweight to the society-wide costs that fossil fuels are actually imposing, costs that your gas bill at the pump and your utility bill don’t cover. Economists call these unmet costs “externalities.”

The incentives menu of our website’s financial outcomes pages explains how these incentives work and how our calculator factors in those benefits.

7. Cash Flow

Like any business, the cash flow from an investment is determined by the benefits minus the costs. The benefits from a solar system are the energy savings plus the government incentives.

The costs are the money you have to lay out to pay a licensed electrical contractor to install the system, the cost of a single inverter replacement, and minor maintenance charges over the lifetime of the system.

Cash flow is always negative the year you buy the system if you pay cash. It’s almost invariably positive from that point forward, with the possible exception of the year you have to replace the inverter.

If you finance the system with a loan, typically a down payment is required. The cash flow could be positive or negative for the life of the loan, depending on the interest rate you get. In most cases loan charges will likely overwhelm the savings from the system for a large part of the term of the loan, with the exception of the first year where the 30 percent federal investment tax credit could deliver a positive cash flow.

Once the loan is paid off, however, all the gains are yours, a very important factor in your decision about the best way to purchase your solar system. If you buy and own, once the system is paid for and any loan is discharged, your cash flows are all positive until either you sell the house or the system’s output fades away.

Again, the only exception to positive cash flow after a loan is retired might be the year you have to replace the inverter. Typically, the cash flow remains positive even the year you replace the inverter because the avoided cost of the electricity you are saving that year will likely exceed the cost of the inverter. Your savings will have been rising steadily and the inverter will almost invariably drop considerably in price, fifteen or so years out.

Solar leases sometimes require and sometimes don’t some kind of down payment. Typically, solar leases are cash flow positive for the duration of the lease although it is always wise to examine closely the assumptions behind that claim. See our discussion of Leasing Electrons below.

8. Long-Term Cumulative Gain

Cumulative gain is the sum of the yearly cash flows (that is, annual gains/losses) as the years roll out. Solar Payoff ventures to say that an investment in solar energy will always outperforms the energy alternatives. Why? Because the energy source is free while the cost of fossil fuel will be rising long-term. We say count on it, whatever the fossil fuel providers are telling you. Thirty years is a long time.

The Solar Payoff calculator tells you how many years it takes to reach Solar Payback, the year you own your system outright. The benefits continue to increase from there for the three decades the system will last. The cumulative gain curve to your right never ceases to impress, even those of us who work in the industry!

The Solar Payoff Calculator also provides you with your 10, 20, and 30 year annualized return on investment (ROI) as well as your 10, 20, and 30 year Internal Rate of Return (IRR).

Lastly, the calculator looks at what your expected increase in property value should be as the system ages.

9. Cash On The Barrel Head

If you have the money in the bank or are earning paltry returns on another investment, buying a system outright is hands-down the best financial option in today’s market, from Solar Payoff’s perspective. Where else can you get the percentage annualized returns that our calculator shows that also grow as the years advance, with virtually no risk for three decades? If you can find a better nearly risk-free return, you should take it. Most of the visitors to this website will not find a better return.

10. Financing Solar

Some will find it necessary to finance the solar system they will eventually own. The Solar Payoff calculator determines what a loan will do to your cash flow, cumulative gain, and financial metrics.

If you have good credit and equity in property, Solar Payoff can help you get the best rates in solar finance.

A savvy solar investor who finances wants to know when the monthly payments on the loan will become less than what he or she would have been paying the utility. Solar Payoff will let you know on our financial outcomes pages if you click on the annual and cumulative gain menu items on the Loan tab.

We have already discussed the cash flow issues that attend financing your solar with a loan under the Cash Flow section above.

11. Leasing Electrons

Solar Payoff understands that in today’s economy owning a system may not be an option for everyone. Another approach of increasing interest is to draw your electricity from a system sited on your property but owned by a third party. These arrangements are known as solar leases.

Solar leases come in two forms, the power purchase agreement (PPA) which offers an output guarantee (under different scenarios) and an equipment lease which offers you no guarantee. The advantage to the PPA is obviously the guarantee.

The advantage to the equipment lease is that the term is shorter and you take ownership of the system earlier with a technology that is highly stable and reliable. Something to consider. The sooner you take ownership of the system the better for you in terms of your absolute gain.

Working through Solar Payoff and its financial partners, you can secure a lease contract which assures that you pay less for the energy generated than you would pay for the same energy coming from the utility, assuming that all the assumptions behind the lease pan out. The fees are fixed for the life of the contract (with a PPA typically 20 years) although the lessee should consider that there is typically a slight annual escalator. The lease fee rises with time.

The escalator is designed to rise less than the lessor is projecting that utility prices will rise over the term of the lease. You get price stability and predictability. Someone with a finance background might understand that a solar lease is effectively an electricity “hedge.” As with any hedge, however, if the assumptions prove wrong, you might not see the anticipated positive cash flow. So caveat emptor.

The most important issue to consider with the solar lease is that the system isn’t yours until the term of the lease expires. As we’ve already mentioned, the advantage to the equipment lease with no guarantee is that the term of the lease is somewhat to considerably shorter. But for quite a number of years in either type of solar lease, someone else owns the system on your property.

The downside should be obvious. You get something for almost nothing but you are giving up a large part, even most part of the potential gain to the investors who financed your system. The investors receive the incentives. These investors also take the lion’s share of the cash flow benefits from the system, namely, the electricity savings. The longer the term of the lease, the more for the investors and the less for the property owner. Your absolute gains as a consumer aren’t nearly what they might have been if you could buy the system outright or finance it with a lower-cost, shorter-term loan.

The gains from a solar lease are very real and in some sense the return on investment is almost infinite ….. because you can get a leased system for basically nothing or very little down. As the leasing industry says, a solar lease, whether a PPA or an equipment lease, is “cash flow positive from Day One.”

What Solar Payoff hopes to help you understand is that this is only true as far as it goes. What isn’t much discussed – or discussed at all - is that the cash flow and cumulative gain are a small fraction of what they would be if you absorbed some actual losses for a few years and then got all the gains for yourself for the remaining many years that the system will produce.

This system works for a very long time during which your gains grow steadily. A consumer-investor in solar will benefit by understanding this logic.

Solar leases are also an advantage for solar –consumer-investors without a tax bill large enough to absorb the federal investment tax credit. This would include poorer households or businesses struggling to hang on but also local and state governmental agencies, school districts, and non-profits that never pay federal taxes.

12. The SunCrafters Alliance

Solar Payoff does not install solar. Solar Payoff works through a network of expert, typically smaller solar contractors from your area. The skill of our contractor-installers, all licensed, insured electrical contractors, is unrivaled. The trademarked name of Solar Payoff’s partner network of local contractors is the The SunCrafters Alliance. These are the contractors who field your request for a bid when you click on the “Get A Bid ….” button at the end of Solar Payoff’s User Interface.

Solar Payoff has a sister firm, trcSolarWorks, that does solar installations, typically larger ones. The function of trcSolarWorks for Solar Payoff is to vet and oversee The SunCrafters Alliance. You can think of trcSolarWorks as Solar Payoff’s quality control office.

The bid process with contractors from the SunCrafters Alliance takes place on Solar Payoff’s website Contractor Platform. There, the actual specification of the bid developed from a contractor’s onsite visit are pushed back through the solar calculator using the actual inputs that you have chosen working with the contractor or contractors from whom you have agreed to receive bids.

Here we would like to anticipate a caveat that appears as you move through Solar Payoff’s User Platform. The Investor Tool on the User Platform is using industry averages and standards. These might deviate slightly from what a contractor will bid as the contractor works with you to develop a system that responds to the specific characteristics of your property and your preferences for actual inputs and siting as a solar adopter.

Perhaps the crucial objective of Solar Payoff is to harness the purchasing power of our clients to garner the best volume price from quality suppliers. This volume also attracts to your project the loan providers who offer the best rates on solar or, if you need them, the PPA and equipment lease providers. Smaller, local contractors operating on their own cannot typically offer the lowest cost inputs and the best financing. They need the power of the network to compete.

In many ways the objective of Solar Payoff is to “democratize” solar by extending opportunities to our network of smaller but skilled contractors, while also offering our users the best deals the market can provide, thereby building the market for local solar.

13. The Technology of Solar

The Solar Payoff website is more about the value of solar than the technology. At the same time you as a consumer will benefit by understanding the basics of photovoltaic technology, if for no better reason than to assure yourself of its simplicity and stability. It is a remarkable technology.

The basic silicon in a solar cell is the same stuff that the microchips in a personal computer are made of. The process begins when photons from the sun hit a uniquely treated silicon cell. This treatment, known as “doping,” modifies the nature of the semi-conductor so that the impact of the photons incites a flow of electrons. These excited electrons are channeled by the chemical structure of doping into electrical circuitry that provides a pathway to whatever uses electrical power at your site. The process is in many ways analogous to a plant that absorbs photons to catalyze growth.

A single panel is made up of many cells linked together electrically and the panels are “arrayed” in a series (“strings”). Panel by panel the voltage on the circuit increases as the panels join forces (because the panels are wired together parallel, the voltage but not the amperage increases along the line as each panel contributes).

The copper wire running from the panels in conduits must be sized properly to minimize energy loss and not overheat. Under-sizing the wire could cause a fire hazard. Over-sizing is unnecessarily costly. Copper like many metals is more and more expensive in a global economy.

This string of panels linked in parallel run to an inverter (often multiple strings and in some cases even multiple inverters). The current coming off the panels is direct current (DC). The purpose of the inverter is to convert the current from the panel to the alternating current (AC) that powers almost everything that uses electricity in modern society and that the utility’s electrical grid supplies. Another function of the inverter is to synchronize the frequency of the electricity coming from the inverter with that supplied by the grid.

There will always be some loss of energy as the electrons move from the panels to your appliances and/or equipment. A reasonably long list of factors contribute to what is known as the “derate.” The electronic inverters also use/lose energy in the process of converting DC to AC. The derate – or loss - typically runs close to 20 percent of the energy that the sun delivers to the panels. By the time that energy as AC current reaches your “load,” Solar Payoff estimates that you will be getting 82 percent of the energy the panels are receiving from the sun.

The AC output from the inverter connects to a circuit breaker on your main service panel. Before the inverter and between the inverter and the main service panel are two guillotine disconnects. These are there to isolate the relatively high voltage current coming from your panels. The first disconnect isolates the inverter from the panels if someone needs to work on the inverter (which is rarely). The second isolates the AC moving from the inverter to your service panel so that electrician won’t get zapped if work needs to be done on your service panel (or the utility is working further upstream on the grid during an outage).

The most important fact to understand about solar technology is its stability. Think no moving parts and solid electronics. The panels are warrantied for 25 years by the manufacturer. The inverters are warrantied forr 10 which is double what it was three or four years ago. Typically, the life expectancy of both components is somewhat to significantly longer than the warranty.

You will have to replace your inverter at some point before your panels give up the ghost. But you will do so at longer and longer intervals as the technology evolves and at a fraction of the cost you will buy the original.

The original panels are going to keep producing electricity with very slight degradation for many, many years. At Solar Payoff we estimate the lifespan of the panels to be at least 30 years. Some, possibly many, even all of your panels producing at lower outputs will last as long as 40.

Solar technology is a long-term investment.

14. Netmetering

In the U.S. today, almost all solar is “netmetered.” This is the now well-known “your meter runs backwards” phenomenon. Your meter spins/counts backwards when your solar production exceeds your demand and, the opposite, spins/counts forward when your demand exceeds your production and you draw electricity from the grid (thus, in the direction it would if you had no solar).

Another feature of netmetering is that, by law in the U.S., the surplus you give monthly to the utility must be compensated at retail rates, not the wholesale rates that the utility would pay, say, a coal or combined-cycle natural gas plant owned by a third-party. You get paid for your surplus what you get charged for a deficit. For an investor in solar, this is a significant advantage.

Unfortunately, this pricing scheme creates a disincentive for the utility. If the utility is going to have to buy solar – as the renewable energy quotas in many states, including California, mandate - they would rather do it from “utility-scale” solar plants outside the areas where they are serving a load.

The utilities’ incentive is to build plants in places like the Mojave Desert or Imperial Valley in California and import it to metropolitan (urban-suburban) areas through high-voltage transmission lines. In that scenario they buy the energy relatively cheaper at wholesale and, not a negligible factor in their decisions, get paid handsomely for the transmission itself.

Another tariff policy which has been long debated but never implemented is the Feed-In Tariff (FIT). Essentially, a FIT is in most cases a two-meter policy where you have a fixed contract for the production from your system which is guaranteed to make you a profit. You get paid according to the contract on the first meter. You pay for your consumption on the second meter. The FIT basically says install solar, we guarantee that you make money from Day One on your installation. Consume what you need but pay for it like any other consumer.

Europe, especially Germany, has used the FIT to dramatically incentivize the installation of solar. There are some variations on the theme but until a FIT is implemented in the U.S. there is no point in discussing it further here. As persons interested in solar, Solar Payoff urges you to get involved in pushing for feed-in tariffs in the U.S.