[00:00:00] It. Can you really double your money when you invest in solar? What's behind those savings projections you get with a solar proposal? Anyway, welcome to the your Energy Footprint podcast, where we cover easy ways to lower your energy bill and other ways to make your home more sustainable, with a few energy industry highlights sprinkled in. Hi, I'm Robin Sidoff and I've been in the energy industry for the past 20 years in both utilities and power generation, and I'll explain everything you need to know for some quick wins in your home to become more sustainable and save some money. Now, let's dig in on today's episode. I'm going to talk through what I think the national installers are actually calculating with those savings projections. And hint, it's not savings, at least not anywhere close to how I would define it. And just to add as a disclaimer, I haven't discussed any of this with any solar salesperson to validate my theories. What I'll discuss are only my views as part of my research for the residential solar masterclass for homeowners course, I requested over 30 quotes from mostly national installers. Nothing against local installers, but they aren't as easy to find. But while the suppliers were limited, I did test the results in five different states with multiple quotes on each house to compare. I was doing a bit of research last week to figure out which states are the best for solar using the calculator in my course, and I realized that Tesla now offers a savings amount for each proposal. When I started the process with Tesla last year, all they gave was the instant price based on the recommended system with the option to adjust your system size. Then you gave your $250 deposit and you're done. No savings projected at all. Now they have a more interactive experience like their competitors in all this time. I disagree completely with all these savings calculations, but I hadn't thought too hard about what they're really calculating until now. So I played around in Excel a bit, and here's what I did. First, I took the expected generation and forecast it out over the next 25 years, assuming standard degradation of the panels. Then I forecast the utility rate out for the next 25 years so I can play with the escalation rate.
[00:02:19] The annual value of the system for these purposes is just the rate per kilowatt hour times the number of kilowatt hours the system is expected to generate, which I added up for the whole period. Now, the Tesla proposal says that I should have a net savings of $121,000 over the next 25 years. The initial system cost is $68,000 with a pretty straightforward 30% federal tax rebate as long as I have the tax liability to claim it in my reverse calculation here, I then need the total value of the system to be at least $170,000 to get this savings. It looks like Tesla may be assuming a utility escalation rate of 2.75%, which is somewhat reasonable. However, the issue with this calculation is that it doesn't take into account the time value of money, meaning that a dollar in 2050 is worth less to me than a dollar today.
[00:03:15] If you invested a dollar in the stock market today that earned you an average return, it would be worth much more in 25 years. That's why we're all told to invest our money to save for retirement, right? So why would you look at your savings this way?
[00:03:30] If I did what I consider a more correct calculation and calculate the current value of the solar generation for the next 25 years and subtract the initial investment, the utility rates would need to be increasing by more than 6% per year.
[00:03:45] This is a line you might get from a Sunrun salesperson, but call your utility or check your old utility bills. There is no way your bills are going up by anything close to this.
[00:03:56] I saved a screenshot of my last Sunrun quote and it's even worse. The initial system was priced at $78,000. That's more than the Tesla quote. For a much smaller system, the estimated savings are supposed to be 74,000 to almost $130,000.
[00:04:15] Now for this one, since it's a picture, I can't click on the little I to get more context of what they mean by the savings. But I'm just going to guess it's not that useful and I'm not up for never ending phone calls. So I'm sorry, but I'm not going to request another quote right now.
[00:04:32] When I do the same type of calculation, given the different generation expectation, I'm tempted to think that this is not a net savings number. If I assume a 3.8% escalation, which was used by one of the local installers in Connecticut, the total value of the generation in today's dollars is at the low end of the savings estimate, $79,000. To get the value in today's dollars up to the high end of the savings, the annual utility escalation needs to be over seven and a half percent.
[00:05:04] The other thing to note here is that the savings I'm calculating for Sunrun doesn't take into account the cost of the system upfront, like it did for Tesla. Why isn't that sketchy? The escalation rate is high, and the savings, quote unquote, don't even take into account the upfront cost, and that's how you're actually losing money here.
[00:05:25] At this point, let's agree that this doesn't make sense and it's not really worthwhile to figure out what they're really doing. Whatever it is, it's wrong. Even if I agreed with all of their numbers here, it would still be wrong because it's way too simplified.
[00:05:39] First, I've been calling the annual escalation rate the utility escalation rate, which may be accurate for some of you, but not for others, including me. Connecticut, where I live, is a deregulated state, meaning that the rate increases at my utility only apply to the delivery rate, which is roughly half of my bill. The other half is for generation, and the rate varies based on the competitive market and can therefore go up or down. In order for me to get these four to 8% escalations, my utility delivery rate would actually have to go up by more than double that. This is regulated by the state, so that's not happening.
[00:06:17] I did go back and forth with a local installer who was assuming 3.8% escalation in total, and while I think that this is incredibly high in general and maybe a timing issue, they actually sent me a utility bill from ten years ago that includes the utility rates at the time from my utility. I didn't live in my house ten years ago, so this was actually useful information. At the moment, I think a 3.8% escalation is somewhat justified for my house based on their data, but this is definitely not common across the board.
[00:06:49] The other consideration, even for me, is that the utility rates go up based on rate cases filed by your utility and approved by the state board that regulates them. Utilities can file rate cases every year, but this is expensive both in time and resources. Most utilities don't, and they sometimes actually wait decades in between rate cases. If you only look at your utility rates for the past few years, you may see that they jump up, but the jump may average out if you look at the rates over a longer period, like 20 years or more.
[00:07:22] The second blatant issue that all of these solar installers overlook is net metering. With solar, you generate electricity during the daytime, and the amount you generate varies from moment to moment depending on a cloud passing overhead, the shade of a tree, some rain. The list goes on.
[00:07:40] Your electric usage is the same. It will vary on whether or not your air conditioning is on. When you use the microwave, is the TV on?
[00:07:49] Will this be perfectly aligned in real time? Of course not. If you don't include a battery in your system, then the excess electricity will go back to the grid and how your utility compensates you varies across the country.
[00:08:02] For my utility in Connecticut, if my system was less than 10 solar panels, then I would get a one for one offset for the electricity I sent to the grid and this is the best scenario.
[00:08:14] This means that if I sent a kilowatt back to my utility, I would get a free kilowatt hour back from the grid when I needed it. However, because my system is just over 20 kW, this won't apply to me. I will get a credit back on my bill for the generation value, which is roughly half of my kilowatt hour rate. So depending on your situation, this can have a significant impact to reduce your projected savings.
[00:08:40] I think we've already covered enough to show that these savings estimates are not something that you should rely on at all. But I do want to add one more consideration, the estimated generation. I'll probably cover this in more detail on a future episode after I do more research. But in the utility scale projects, we talk about projected generation by the probability that the system will generate at least that much per year.
[00:09:04] Solar is clearly impacted by the weather, like rain, snow, clouds, the angle of the sun, and dust. You may think of other things too. All of these things impact how much solar is generated. The most common number to reference is called the P 50. This means that there's a 50% chance the system will produce less and a 50% chance the system will produce more. It's a number right in the middle. Basically. The other number that comes up is the P 99. This is typically used for debt financing to make sure the project will have enough revenue to service its debt obligations.
[00:09:40] The number you get from solar installers is most likely a P 50. However, in the recent proposal I received from a local Connecticut installer with a generation guarantee, it was significantly lower than any other proposal I've gotten. My assumption would be that they're using a generation number with a much higher probability than a P 50 to reduce the chance that they'll need to pay out the unfortunate thing. It also makes their proposal look like it's uneconomic when you're getting proposals. It's just something to keep in mind and a great reason to get multiple quotes with similar system configurations to validate what your system is likely to produce. Since most installers don't offer a guarantee. If you're interested in solar and want to get a more realistic view of your potential savings, you can go to my website and check out the residential solar masterclass for homeowners, where I cover all of the basics you should know before investing in solar for your home. That's it for today. Have you gotten a solar quote? What are your thoughts on the savings calculation? If there are any topics you'd like me to cover on a future episode, please reach out and let me know. You can email me directly at
[email protected] or find me on Instagram at yourenergyfootprint. On next week's episode, we'll talk about portable heaters, how they can save you money, and what to look for when you purchase one. If you enjoyed today's podcast, please rate and review this podcast to help more listeners find us. I really appreciate it. Our mission at your energy footprint is to educate consumers on ways you can be more energy efficient at home, as well as how to make significant investments like solar while saving money. You can find more information on our courses for homeowners interested in installing rooftop solar on our website, www.yourenergyfootprint.com. All of our information is unbiased and based on my 20 years of experience working for utilities and as a renewable developer. We are not affiliated with any installers you.
