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Solar Energy – Do the math

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Viewing 8 posts - 11 through 18 (of 18 total)
  • Sun, Dec 28, 2014 - 01:12pm

    #11

    davefairtex

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    solar: a call option on electric power

I understand all the arguments for EROEI and the rest – people are trying to solve the "society" problem.

I'm just trying to solve the "me" problem, and the way I view solar is, how much does it cost me to make my electricity appear at my home independent of the grid – presumably for 25 years forward.

I dropped about $7500 in 2012, and I got a nameplate 2.6 kw hr system.  (There were various shenanigans with Solar City – leasing, buyouts, tax deductions, etc, but this is the cash cost to me after all was said and done.)

The beast generated 4598 kwhr this year (solar city provides a convenient website to see this), and given SDG&E's 16 cents per kwhr baseline rate, that's $735.  Basic math says that gives me a ROI of 9.8% per year on my investment – paying for itself in (perhaps) 11 years.  Presumably after that, its just gravy.

But I don't care about that quite as much.  What I care about is having the call option on electric power generation for 20 years.  If something bad happens in the next 20 years where electric power suddenly becomes a whole lot more expensive, these panels on my roof insulate me from that. 

Given that we know Something Interesting is likely to happen with debt, fossil fuels, peaking resources, and whatnot during the next 10 years, it seems like a reasonably cheap option to buy.  Plus, no bank regulator can "bail-in" my solar power.  And unlike normal call options that actually *cost* money and decay over time, this call option actually generates power providing me a better-than-market return on investment.  From a financial math point of view, its no-lose.

Were there incentives?  You bet.  But again, I'm solving the "me" problem, not the society problem.

Its an even better option if I get one of those inverters that allow me to disconnect from the grid and operate my appliances on solar power during daylight hours.  In an extended emergency, that would let me live a high-tech lifestyle during daylight hours, and go onto limited (laptop & flashlight) battery power usage at night.  I don't have such an inverter.  They cost about $1600.  I should probably get one.  🙂

Not sure what net metering looks like these days, or what incentives are available.  But having that option sure seems like a good idea.  I don't regret my decision for a moment.

 

  • Sun, Dec 28, 2014 - 06:29pm

    #12

    Mark_BC

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    According to page 3 of the

According to page 3 of the Alberta Energy Regulator (it used to be the Alberta Energy Resources Conservation Board which was a branch of the government, but it recently got handed over to the industry itself to manage…), Alberta has 35 billion tons of established coal reserves. US consumption is 1 billion per year so that is 35 years of consumption. However, that is just established reserves. Estimated ultimately recoverable reserves are over 600 billion tons, which is over 600 years of US consumption. Granted this may be an overestimate but I think it's reasonable to assume that there is at least a century of plentiful coal remaining in Alberta, and that doesn't even include northern BC which has lots, or any other region. So based on this I don't see any major electricity shortages for a long while. Of course price will go up as oil and gas scarcity, and coal exports heat up, but since electricity is now cheaper than it has ever been (electricity rates have stayed virtually the same for a hundred years, UNadjusted for inflation which means it is now 100 times cheaper!), that is what solar power is up against.

  • Sun, Dec 28, 2014 - 07:41pm

    #13

    davefairtex

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    electricity price inflation

So the chart below suggests that electricity is not cheaper than it has been ever.  In 1975 it was 4 cents, and now its 12.4 cents.  Not.  Cheaper.

Also, coal requires liquid fuel to mine, and yet more liquid fuel transport the mined coal to the power station.  And then, power transmission to my home requires the grid to be intact.  An intact grid requires a constant stream of truck rolls, which requires even more liquid fuel.  If liquid fuel rises in price, so will the price of electricity, regardless of the size of the coal reserves in Alberta.

What's more, if the buck ever has a problem, coal prices will jump – causing electricity prices to rise even higher.  Coal has international value, and the price will be set accordingly.

Just from the chart above, it appears that electricity prices have risen 50% over the past 14 years.  So we can add an approximate 3.5% annual inflation hedge on top of the 9.8% power generation returns.  If my math is correct, that's a 13% annual tax free rate of return on my $7500.  That's like a tax free muni bond that will vanish in 25 years, but that pays you 13% per year, every year.  Or a pre-tax return of perhaps 20% annually.

In 25 years, I'll end up having generated the constant-dollar equivalent of $24,375 in power from my $7500 spend.  The arrays will generate even more value if we have problems with liquid fuel and/or the dollar in the future, which I'd rate as "a likely outcome" within the next 25 years.

Does solar make sense for society?  I have no idea.  Did it make sense for me?

Absolutely.

  • Sun, Dec 28, 2014 - 09:34pm

    #14

    Mark_BC

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    I agree, coal and electricity

I agree, coal and electricity are going to go up in price in the future as I said, but not like 10 X on a real basis. As oil runs out then we'll see coal to liquids plants pop up everywhere and this will increase the price for coal. Also increased international demand will take its toll. This will increase electricity rates but I imagine it won't go much above where we were 50 years ago on a real inflation adjusted basis, and we got by fine 50 years ago with those electricity prices.

As for electricity prices increasing since 1980, yes it seems they have. But go back 100 years and you'll see that overall the price in $ terms has been amazingly constant considering all the other inflation. Sorry I can't provide the reference, a few years ago I went to the library and looked up a book that lists prices of stuff going back a hundred years, I forget the name. It's called "History of Prices" or something obvious like that.

  • Sun, Dec 28, 2014 - 09:42pm

    #15

    Mark_BC

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    OK I googled and it’

OK I googled and it' surprisingly hard to find historical electricity rates. Here is one reference to 8 cents in 1905 and by 1968 it was 2 cents bimonthly so that is 4 cents monthly (I never know if by bimonthly means twice a month or every two months). So it bounces around a little bit but not too much.

  • Sun, Dec 28, 2014 - 10:26pm

    #16

    sand_puppy

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    DaveF, best solar argument I’ve heard

Thanks for the very concise summary of the compelling reasons to invest in a home solar PV system.  When you look on it as: 

1.   a "Call Option" on future electricity price increases,

2.   an investment that has a better-than-market rate of return now

3,   an investment vehicle that is difficult to plunder, and,

4.   an energy source that would endure a catastrophic electrical grid failure,

its pretty hard to doubt that this is a damn good idea.

I forwarded this post with the price of electricity graph over he last 35 years to most of my family and friends.

And thanks, Mots, for methodically deconstructing the solar-doesn't-make-economic-sense article above.

See, this is why I like PP.

  • Sun, Dec 28, 2014 - 11:20pm

    #17

    Mots

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    solar: a call option on electric power

Thank you for sharing your installation details.

My summary: Two years ago I spent almost 5000$ on 4500 watts that I installed myself with NO incentives or tax breaks and another 200$ to connect this to my 50 gallon water heater with a circuit sold by a small inventor in Nevada.  I spent 50$ on parts to connect my waffle maker, coffee pot (I reluctantly was forced to design and build the circuit myself because it is not sold by anyone, in fact, much of what I am doing is reluctant and based on extreme dislike of the inefficient and backwards technology we are saddled with from long ago: for example AC is much more dangerous, more expensive than DC even for local power grids).  I spent over 1000$ on fancy Chinese inverters for my 96 volt battery system, which ALL burned out and I am not using my batteries (they are backup).  So I have enjoyed hot water showers and other uses for more than a year now  without buying expensive equipment from big international companies. 

My other solar system is two 200 Watt panels (about 400$, installed, no incentives or tax breaks) which has been running all of my house lights (48 volt 4-lead acid battery system, 75 dollar charge controller, NO inverter since all lights are LED) for almost 2 years, with NO problems.  LEDs use such little power it is easy to run all lights on 2 – 4 batteries and a couple solar panels.  This is so reliable and cheap and is independent of other circuits.  by the way, my house is a rebuilt warehouse so I was able  to install my own DC wiring and LED light fixtures before closing up the walls.

As a separate project my 1800 watt 1500$ garden system (2011) has been powering my 250$ 2000 watt DC to AC inverter and 400$ (4 lead acid batteries) which run my 200$ walmart freezer in the garden shed for almost 2 years with NO problems, and powering my 100$ electric grass trimmer and my 400$ homemade double electric cultivator (shown in my avatar picture) for gardening.  Prices for the panels have only gone done since then.  I dont pay attention to incentives or tax breaks and do not use them, or get any bank or government or utility involved.  I connected  some panels to a grid tie inverter (500 watts, 150$) and have been injecting power into my house wiring (the part that is connected to the grid) for one year now and noticed that it turned off automatically when the power company came by replace their feed-entrance wires with fresh new wires.  Also the power company came by to check for ground leaks periodically and did not find any problem.  This is in Japan by the way, the power companies in the US do not take such care. 

I have had to invent simple circuits that are more efficient than what the international companies sell to connect things and am building a DC grid with upverters and downverters, and which is self regulating, and which is much more efficient that what the big international companies are doing.  However, a bank cannot easily make money on it and there is no need for expensive utility control and administration.  This is totally different both electrically and and management wise and investment wise than what everyone in the old dying paradigm are jabbering about.  The old phone system melted away to make way for cellular, with self-regulating connections.  The old communication system melted away to make way for internet with self-regulating routing.  The old electric system is starting to crack and can be replaced by a self-regulating network organized nodally and with very dispersed energy inputs, based on solar inputs everywhere, and storage nodally everywhere,  The bankers and big utilities are trying to figure out how to make a killing (and control our freedom and money for their benefit) in the new paradigm.  There are articles on this change in the mass media including one in Business Week last Summer.
 

  • Mon, Dec 29, 2014 - 01:39am

    #18

    Locksmithuk

    Status Bronze Member (Offline)

    Joined: Dec 19 2011

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    Electrickery call options

Dave made some good observations from a consumer perspective, and my comment is for anyone planning to take advantage of rebate-based government schemes for consumers. Be sure to read the smallprint AND to understand longer term implications, particularly where politics are involved in policy decisions.

 

 

In my locale in Australia the state government promoted solar schemes which financially benefit business and residential users who feed back more electricity into the grid than they use, based on a predefined rebate tariff… not materially different to similar schemes elsewhere in the world. All good so far. We have an obscene amount of sunshine per annum, which is a solar generator's dream, so naturally there was a mad scramble from consumers to sign up.

 

 

Several months ago the state government quietly introduced changes on business electricity bills which impose massive costs on "large users". This effectively switches the basis of charge rates from usage to fixed-rate. Fixed charges were not specifically addressed in solar legislation, while usage tariffs were. Whilst this naked money-grab is only levied on businesses, the same sly move can also applied to consumers if deliberately loose legislation permits it. There've already been some rumblings about similar changes in the private consumer market, none of which surprises me -: I worked on a 2-year project with the state energy provider, and during that time all presentations and strategic costings pointed to off-the-charts infrastructural increases in future.

 

 

I trust politicians and governments as much as I'd trust a fox in a chicken coop, so if you're going to join a rebated solar scheme then please do your homework, build some flex into your payback analysis, and if you can hedge then do that too (one rather enterprising tradesman whom I know installed 30+ panels at his property (roof & garden), with an apparent 3-year projected payback. After that, any rebates will accelerate his mortgage debt reduction. Fast. His setup is designed flexibly enough to be quickly scaled back to subsistence usage if legislation / charge rates become too onerous).

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