Welcome to another mailbag post where I answer your money questions. If you want to ask a question, leave a comment in our discussion forum here.
Should I invest in Solar Panels?
Here’s a question from K that she asked in a previous post where I discussed how to navigate the crazy economy we are all living in.
As someone who takes the planetary disruptions seriously, I'm considering installing solar panels. I would like to do it in a manner that also makes Financial sense, including lost opportunity cost of money invested in the project.
How would you approach the question?
If possible, we will never move again.
To borrow a podcasting phrase, “there’s a lot to unpack here”.
The first you should consider is if the capital to buy the solar panels is“investible” money or did this cash have another purpose like an emergency fund?
Whether you are investing in stocks, bonds, or solar panels, we need to be careful we are not overextending ourselves. An emergency fund could be a lifeline for many if we do, in fact, go into a recession.
Here are the four questions I would ask myself before investing in solar panels for my roof.
What are the expected net returns of the solar panels?
What is the opportunity cost of investing in solar panels vs. the stock market?
How much time and effort is required to install and maintain the solar panels?
How important are the “non-financial” benefits of owning solar panels and contributing to the production of renewable energy?
What are the expected net returns of the solar panels?
Here are the factors I would consider to come up with the next return on investment for rooftop solar panels.
Current energy bill
Energy bill after installing solar panels
Cost to install
Government grants or tax breaks
Cost to maintain
Cost of financing (If you use debt to buy the panels)
Impact on home value
What makes this a difficult question is that all of these factors will be different for each person depending on factors like;
The level of sun exposure your roof has.
How energy efficient your home is.
Cost of labor or parts in your geographic area.
What federal, state/provincial, or muicpal tax credits and grants exist where you live.
The interest rate on a Home Equity Line of Credit (HELOC) or another form of debt you might use to finance solar panels.
Luckily, there are some online calculators that can help you get specific numbers for your situation this calculator from Solar Reviews Dot Com is easy to use.
Here’s a screenshot of an example using their pre-populated numbers. IMPORTANT REMINDER: the math here changes drastically based on your actual numbers, so make sure you have those down.
In this example, the estimated net savings—which they define as all savings and tax incentives minus the cost of the system— $66,797 over a 25-year period. It’s a hypothetical number but let’s use this as the estimated net benefit in our example.