Today, I’m excited to welcome Larry from The Skilled Investor, who has written a two-part series about home rooftop solar electric power systems. We recently bought 17 panels for our house and to power a solar pump for our well, so this topic is very timely. I hope you enjoy it. Let me know if you’d like to guest post on RFI.

Comparing the Finances of Competing Home Rooftop Solar System Proposals

Recently, a client from Southern California contacted me. He and his wife had just bought a high-end Tesla electric car and were thinking about adding a rooftop solar system to charge it. They had received three detailed bids from solar installation vendors but were struggling to compare them effectively.

My client asked for my help in understanding these proposals. Given our history of developing a comprehensive retirement financial plan for them, he believed I could handle this task. Although it seemed straightforward initially, it turned out to be more complex.

All three bids were for a 9,000-watt DC solar rooftop system, including panels, racking, AC inverters, and all necessary equipment. One vendor also suggested a 6,000-watt system as a potentially sufficient option. The costs for the 9kW systems were similar, around $45,000 before federal tax credits, which reduced the net cost to about $32,000.

Financial Justification for a Large Capital Expenditure

The primary question was whether the solar system would offer a significant financial return over its expected 20+ year lifespan. Each vendor claimed an eight-year payback period, but their assumptions varied.

Differing Financial Justification Assumptions

The vendors provided different cost of ownership analyses, calculating estimated annual electricity production by the month—this varied due to the sun’s angle and the duration of sunlight. During many months, the 9kW system would exceed daytime power consumption, replacing a significant portion of the home’s electricity use, especially during peak production from late spring to early fall. However, without power storage, excess electricity that couldn’t be sold back to Southern California Edison would be wasted. Overnight, the home would still rely on the utility grid, particularly in winter when solar production was lower.

We considered whether the Tesla could serve as a storage battery, but this technology isn’t commercially available yet, and other issues like battery warranties need to be resolved.

Assumptions About Utility Buyback Rates

All vendors assumed different utility buyback rates for excess power. Southern California Edison’s multi-tier pricing added complexity to the calculation. While vendors provided assumptions, the actual rates over twenty years were uncertain, affecting the financial justification of the $30,000+ investment.

Vendors’ Assumptions on Home Value Increase

Each vendor estimated different increases in home resale value: $24,300 from Vendor A, $49,500 from Vendor B, and $70,000 from Vendor C. Given the net cash cost of just over $30,000, these estimates seemed exaggerated. Enhancements like new paint and carpets rarely increase market value significantly, so the vendors’ claims were likely overblown.

Deciding Between Vendors with Similar Proposals

Despite the lack of a clear financial standout, reviewing the proposals helped my client and me understand the key financial factors involved. We concluded that a 6,000-watt system was a better fit. Although the vendors recommended 9,000-watt systems justified by total yearly needs, a smaller system made more economic sense.

A 6kW system, costing about $22,000 after tax rebates, offered a more significant financial advantage due to Southern California Edison’s tiered pricing. A smaller system would eliminate most Tier 3 and Tier 4 power charges. Cutting total electric usage by two-thirds, such a system would reduce the annual utility bill by about 90%.

If my client’s electric use increased or if solar power purchase credits became more economically attractive, he could add another 3kW of capacity in the future. Given the declining real dollar price per installed solar kW, it would likely cost less later.

Written by Lawrence J. Russell, registered investment adviser, author, and developer of the VeriPlan retirement planning software.

Stay tuned next week for Part 2…