Which is more forward-looking? Solar panels or Roth investment?

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Bammerman
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Which is more forward-looking? Solar panels or Roth investment?

Post by Bammerman »

We have enough cash, let's say about $14,000, to make 2020 Roth investments... Or to pay for solar panels on our roof. I know, there are many many factors to consider, and "it depends...". But would you say that one use of the money is more "forward-looking" than the other, in general? I'm leaning toward solar panels.

EDIT: by "forward-looking" I mean in the financial/household-economic, Bogleheadian sense.
Last edited by Bammerman on Thu Apr 01, 2021 7:45 am, edited 1 time in total.
livesoft
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by livesoft »

Roth is more forward looking to me. I do not use enough energy to make solar panels worthwhile.

Has Peloton connected their machines into the power grid yet?
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Tingting1013
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by Tingting1013 »

My solar panels cost $6k post tax credit and they are saving me $1500/yr in electricity costs. That’s 25% return per year for the 20 year lifespan of my roof. I don’t think Roth can beat that.
bluebolt
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by bluebolt »

It depends on the rate of return you'll get from the solar panels. Would need to know your usage, how many kwh your system is expected to generate, $/kwh, net metering, SRECs, etc to figure that out.

In places where energy prices are high and net-metering/incentives/credits are favorable, it can have a pretty good return.
mervinj7
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by mervinj7 »

Bammerman wrote: Thu Apr 01, 2021 7:34 am We have enough cash, let's say about $14,000, to make 2020 Roth investments... Or to pay for solar panels on our roof. I know, there are many many factors to consider, and "it depends...". But would you say that one use of the money is more "forward-looking" than the other, in general? I'm leaning toward solar panels.

EDIT: by "forward-looking" I mean in the financial/household-economic, Bogleheadian sense.
You haven't put any details for either option. How much would solar cost? What's your break even time based on your own net metering? For Roth, how many years will the funds compound? What are your tax rates now and in retirement?

For me, solar would have been a clear win. However, even if you had the same ROI as me, I would consider still maxing out the Roth and doing a short-term finance for the solar. Once you give up that Roth space, you don't get it back.

viewtopic.php?t=291738
Last edited by mervinj7 on Thu Apr 01, 2021 10:41 am, edited 1 time in total.
MathWizard
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by MathWizard »

Assuming the cost of electricity does not go up, then economically , and using time value of money, I can't make a case for solar for my house.

However, I am considering solar.

It would' be a hedge against rising fuel prices (nat gas is currently cheap, but it used to be expensive, and coal has gotten more expensive).

I like the idea.

There is also a social good that I associate with solar.
My kids are very eco conscious, so that is a consideration as well.

You must be over 50 and married if you can contribute 14K to Roth, so you are probably in a similar situation to me.
sjb19
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by sjb19 »

I have always leaned towards Roth, but a lot of that is because our house is not optimally oriented for solar and our electric supply costs are generally cheap in the mid-atlantic, even trending downward over the past decade (currently a little over 7 cents/kwh). I actually try pretty hard to justify the solar investment financially, but never really get close.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by livesoft »

MathWizard wrote: Thu Apr 01, 2021 8:06 am There is also a social good that I associate with solar.
My kids are very eco conscious, so that is a consideration as well.
There is also a social good to improving energy efficiency of the household.

The other poster mentioned saving $1500 a year in electricity costs. Our household hasn't spent that much on electricity in one year in the past 27 years.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by TomatoTomahto »

livesoft wrote: Thu Apr 01, 2021 8:15 am The other poster mentioned saving $1500 a year in electricity costs. Our household hasn't spent that much on electricity in one year in the past 27 years.
You probably have natural gas for heating, cooking, and the (surprisingly to me) high energy use for domestic hot water.

In an all electric house with wells and a pool, it is easy to get to astronomical numbers.

ETA: PS I vote for solar over Roth. Solar doesn’t have down years, solar is also tax free, and depending on your electricity costs the returns can be high, year in and year out.

Don’t forget insulation; massive ROI.
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minimalistmarc
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by minimalistmarc »

Tingting1013 wrote: Thu Apr 01, 2021 7:52 am My solar panels cost $6k post tax credit and they are saving me $1500/yr in electricity costs. That’s 25% return per year for the 20 year lifespan of my roof. I don’t think Roth can beat that.
That is fantastic. I really need to look into this (U.K. based)
Normchad
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by Normchad »

Do the Roth, you can take it with you if you move.

Solar is great though. If you wait, it will be even better and cheaper when you’re ready to buy in the future.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by TomatoTomahto »

Normchad wrote: Thu Apr 01, 2021 8:28 am Solar is great though. If you wait, it will be even better and cheaper when you’re ready to buy in the future.
True enough, but this is the old “don’t buy a TV now; the 2022 models will be better” dilemma.
I get the FI part but not the RE part of FIRE.
BigSteve79
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by BigSteve79 »

I would lean more towards Roth, BUT that is only because I know very little about solar panels. When you put money into a Roth (given you choose wise investment options, plus are in it for the long run), it's going to grow and tax free too!

Another thing to consider is sustainable options, such as solar panels, aren't widely used or demanded of right now. I can only imagine that in future, when solar panels do become more highly sought after and everyone starts using them, that the prices will go down??

One last thing you could consider is that if you have $14k, why couldn't you do both? Like I mentioned, I don't know much about solar panels, but is there perhaps an option for solar panels that go around $7k, then you could still invest $7k in a Roth and be in great shape.

Great questions!
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by RubyTuesday »

livesoft wrote: Thu Apr 01, 2021 7:42 am Roth is more forward looking to me. I do not use enough energy to make solar panels worthwhile.

Has Peloton connected their machines into the power grid yet?
That would be pretty cool, but wouldn’t generate much power. When I’m really working pretty hard on cycle I’m generating about 300 Watt seconds. Average is more like 160 Watt seconds. So between 2-6 60 Watt bulbs could be powered for the length of my ride.
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bluebolt
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by bluebolt »

Normchad wrote: Thu Apr 01, 2021 8:28 am Do the Roth, you can take it with you if you move.

Solar is great though. If you wait, it will be even better and cheaper when you’re ready to buy in the future.
Some things may not be cheaper in the future:
Federal tax credit declines to 22% in two years and 0% after that
If applicable, net metering may become less generous
If applicable, SRECs are likely to reimburse at a lower rate
MathWizard
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by MathWizard »

livesoft wrote: Thu Apr 01, 2021 8:15 am
MathWizard wrote: Thu Apr 01, 2021 8:06 am There is also a social good that I associate with solar.
My kids are very eco conscious, so that is a consideration as well.
There is also a social good to improving energy efficiency of the household.

The other poster mentioned saving $1500 a year in electricity costs. Our household hasn't spent that much on electricity in one year in the past 27 years.
That is part of the issue with the economics of solar for me.
We pay just under $800/ yr for electricity, and under $1000/yr for nat gas.

The only incandescent bulb in my house is in my fridge .


If we totally eliminated electricity costs, it would take a long time to make up $14K
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by TomatoTomahto »

I feel good about our Roths, but I feel much better about our energy investments.

Between SRECs, net metering, SMART credits, the ITC, MA CEC rebates, etc., it’s a pretty good ROI. The externalities really swing the decision for me; I’d do it again even for less financial benefit. Sometimes it is important to look at the value of something more than its cost.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by Nate79 »

The return on our solar system will handily beat our Roth investments. But without that estimate it's hard to say which is a better decision.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by MedSaver »

One thing we were not aware of when we bought solar is potential tax implications for "gains" paid on excess energy produced. Our other option is to rollover excess credits, but from a purely financial perspective, this is just giving the credits away since we obviously produce more than we use.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by Bammerman »

We pay $1308 a year for electric -- and that includes charging my Chevy Volt. (We pay $1716 for natural gas, to heat the house, hot water, kitchen range.)
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by TomatoTomahto »

MedSaver wrote: Thu Apr 01, 2021 12:55 pm One thing we were not aware of when we bought solar is potential tax implications for "gains" paid on excess energy produced. Our other option is to rollover excess credits, but from a purely financial perspective, this is just giving the credits away since we obviously produce more than we use.
I don’t know if it’s utility/state specific, but around us (MA Eversource) we can donate future production to a registered charity (a local shelter actively solicits donations), or to another meter in the same utility.
I get the FI part but not the RE part of FIRE.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by Bammerman »

What about financing the solar installation? Of course it's better if I can pay for it out of cash, but if I'm going to fund our Roth IRAs fully for 2020, I wouldn't be able to pay cash for the solar panels, etc. Did any of you use financing? One company I've been talking to is Encor, which also finances these installations. I'm leaning toward a different company, smaller, and local, and I'm sure they don't get involved in financing. Thanks.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by esteen »

mervinj7 wrote: Thu Apr 01, 2021 8:05 am
Bammerman wrote: Thu Apr 01, 2021 7:34 am We have enough cash, let's say about $14,000, to make 2020 Roth investments... Or to pay for solar panels on our roof. I know, there are many many factors to consider, and "it depends...". But would you say that one use of the money is more "forward-looking" than the other, in general? I'm leaning toward solar panels.

EDIT: by "forward-looking" I mean in the financial/household-economic, Bogleheadian sense.
You haven't put any details for either option. How much would solar cost? What's your break even time based on your own net metering? For Roth, how many years will the funds compound? What are your tax rates now and in retirement?

For me, solar would have been a clear win. However, even if you had the same ROI as me, I would consider still maxing out the Roth and doing a short-term finance for the solar. Once you give up that Roth space, you don't get it back.

viewtopic.php?t=291738
From a purely philosophical standpoint, Roth IRA because you are likely to outlive your roof. For a real ROI I agree with Bammerman you'll need to run the numbers. Me, for example, my solar would cost $22,500 after rebates, and I wouldn't break even until over 15 years in (and would never really break even since there's opportunity cost/TVOM). So for my area, solar is not worth it financially and I'd only ever get it for grid independence/environmental reasons.
Last edited by esteen on Wed Apr 14, 2021 1:13 pm, edited 1 time in total.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by TomatoTomahto »

Just don’t get into one of those lease deals. Borrow if you must, but own the solar.
I get the FI part but not the RE part of FIRE.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by phinanciallyfit »

livesoft wrote: Thu Apr 01, 2021 8:15 am
MathWizard wrote: Thu Apr 01, 2021 8:06 am There is also a social good that I associate with solar.
My kids are very eco conscious, so that is a consideration as well.
There is also a social good to improving energy efficiency of the household.

The other poster mentioned saving $1500 a year in electricity costs. Our household hasn't spent that much on electricity in one year in the past 27 years.
That's a good point. We bought a house with solar and the we have paid between $80-$250/year since moving here. My sister's family (similar size house and same town) paid about $2500 in electric each year, so it worked out nicely for us. After seeing our electric bill, they opted to get solar too.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by SmileyFace »

Since your electric bill is only a bit over $100 a month I wouldn't bother with Solar - I would go with Roth.
Have you done the math on your ROI for solar? It's likely not worth it for you.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by Quaestner »

If you’ve done your homework and know that solar is good for your situation, use some debt, do both, and pay off the debt ASAP. The non financial benefits of solar are worth more than the (brief) cost of the debt, right? Have your cake and eat it too!
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by Bammerman »

I am waiting for the detailed proposal, and then I will be able to "run the numbers". I'm told it might run $25K -- prior to the 26% federal tax credit, and prior to a possible North Carolina rebate of about 4%, I think. This latter is totally unpredictable since it's a lottery, so I won't be able to include it in my calculations.

Now, the other thing which no one else has mentioned so far, is the difference solar panels would make to the resale value of our house. Nationally, solar panels increase the value of the house by 4.1%, and here in NC, the figure is 4.9% (https://www.cnbc.com/2019/10/05/solar-p ... -most.html). We have no plans to sell now, but who can say how long this 1925 house with two flights of stairs will work for us now that we're almost 70? (We have restricted the solar installer's projected panel installation to the roof areas not visible from the street so as not to compromise the aesthetics/curb appeal, just in case.)
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by Fat Tails »

For us, solar returns have been about 7% per year, accounting for return of principle over the 25 year guaranteed life (note that the panels will still be producing after 25 years, just at a lower amount). And this return is almost certain to go up in the future. So you could almost consider this the equivalent to a fantastic treasury bond in your Roth. You need to stay in the house for 10 years or so. There also would be some additional costs involved if you need to reroof.

Cheers
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by Valuethinker »

Bammerman wrote: Wed Apr 14, 2021 5:28 pm I am waiting for the detailed proposal, and then I will be able to "run the numbers". I'm told it might run $25K -- prior to the 26% federal tax credit, and prior to a possible North Carolina rebate of about 4%, I think. This latter is totally unpredictable since it's a lottery, so I won't be able to include it in my calculations.

Now, the other thing which no one else has mentioned so far, is the difference solar panels would make to the resale value of our house. Nationally, solar panels increase the value of the house by 4.1%, and here in NC, the figure is 4.9% (https://www.cnbc.com/2019/10/05/solar-p ... -most.html). We have no plans to sell now, but who can say how long this 1925 house with two flights of stairs will work for us now that we're almost 70? (We have restricted the solar installer's projected panel installation to the roof areas not visible from the street so as not to compromise the aesthetics/curb appeal, just in case.)
Resale value is important.

Normally in a Net Present Value or Internal Rate of Return calculation you just assume a life for the system (say 25 years) and zero residual value. In actual fact there is residual value in the system. At any given moment the residual value is what the discounted future benefits are worth -- and for solar panels (but not inverters) that could be another 25 years (at diminished capacity). So in year 25 a calculation of the benefits years 26-50, discounted to year 25.

But if you have a data point on residual or terminal value, then that's useful. Plug that in as a terminal value at say year 15 (assuming say house prices rise with inflation over that time, from now).

TBH if you have spare cash, this is worth doing BUT I would favour tax protected investments *first*:

- these are annual allowances where past unused cannot be clawed back
- this is a liquid investment, some mix of bonds and equities, which can be turned into cash at any point. Solar panels are not liquid

It is only if you have the spare cash, taxable, that this sort of investment becomes worth doing.

You say you are almost 70? 15 years is a hard length of time to plan for. On the other hand, my mother is living in the house they bought in 1960 - w steep stairs - she says it keeps her fit. But if a knee or back goes - it may become suddenly impracticable.

If saving the planet is part of this, (I am something of a hyper green), then make sure you have had an Energy Audit (often your utility will pay for that) because a kwhr of gas or electricity saved is a lot cheaper than one generated, typically.

The actual solar array on my roof was only going to be 1.1kw (England). So even though at that time the subsidies made it attractive, I did not pursue it. 850 kwhr pa on annual consumption of say 3200 kwhr pa just did not seem worth it. I am really waiting for efficiencies to double.
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Maybe I could do both

Post by Bammerman »

OR I could fully fund our Roth IRAs for 2020 AND get the solar array installed if I took out a home equity loan from my credit union for part of the cost....

One proposal is a 9.2 KW system for $26,675, that is $17,072 after federal and state tax incentives, which would cover at least 80% of our electric needs. If I fully funded the Roth I could pay $5,000 for the solar array and fund the rest from a home equity loan, or take that money out of our investments. If I go the home equity route it would be a 5 year apr 3.39% - 4.64% rate which I should be able to prepay-off within about two years from current income. Or, the solar company advertises financing at 0.99% for 25 years (but I don't know anything more about the terms now than that; I will have to find out; in any case I should still be able to pay it off in 2-3 years from current income). Yes, I know it would be best to avoid paying any interest by using our existing investments, but I'm reluctant to liquidate ... if I can get that 0.99% / 25 years rate and pay it off in a few years, that sounds pretty good.
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Re: Maybe I could do both

Post by ncbill »

Bammerman wrote: Sun Apr 18, 2021 1:59 pm OR I could fully fund our Roth IRAs for 2020 AND get the solar array installed if I took out a home equity loan from my credit union for part of the cost....

One proposal is a 9.2 KW system for $26,675, that is $17,072 after federal and state tax incentives, which would cover at least 80% of our electric needs. If I fully funded the Roth I could pay $5,000 for the solar array and fund the rest from a home equity loan, or take that money out of our investments. If I go the home equity route it would be a 5 year apr 3.39% - 4.64% rate which I should be able to prepay-off within about two years from current income. Or, the solar company advertises financing at 0.99% for 25 years (but I don't know anything more about the terms now than that; I will have to find out; in any case I should still be able to pay it off in 2-3 years from current income). Yes, I know it would be best to avoid paying any interest by using our existing investments, but I'm reluctant to liquidate ... if I can get that 0.99% / 25 years rate and pay it off in a few years, that sounds pretty good.
Have you talked to neighbors or anyone else locally about the performance of their solar installations?

Surely the company can provide references from their previous customers.

Because it seems like reading online postings those who have had solar installs complain about underperformance versus initial projections.

Is your roof in good enough shape for a solar install w/o re-roofing first?

In my part of NC electricity is only $0.10/kWh...with a $70/month average bill it's unlikely any solar install would payback in my lifetime.
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Re: Maybe I could do both

Post by Nate79 »

ncbill wrote: Mon Apr 19, 2021 11:28 am
Bammerman wrote: Sun Apr 18, 2021 1:59 pm OR I could fully fund our Roth IRAs for 2020 AND get the solar array installed if I took out a home equity loan from my credit union for part of the cost....

One proposal is a 9.2 KW system for $26,675, that is $17,072 after federal and state tax incentives, which would cover at least 80% of our electric needs. If I fully funded the Roth I could pay $5,000 for the solar array and fund the rest from a home equity loan, or take that money out of our investments. If I go the home equity route it would be a 5 year apr 3.39% - 4.64% rate which I should be able to prepay-off within about two years from current income. Or, the solar company advertises financing at 0.99% for 25 years (but I don't know anything more about the terms now than that; I will have to find out; in any case I should still be able to pay it off in 2-3 years from current income). Yes, I know it would be best to avoid paying any interest by using our existing investments, but I'm reluctant to liquidate ... if I can get that 0.99% / 25 years rate and pay it off in a few years, that sounds pretty good.
Have you talked to neighbors or anyone else locally about the performance of their solar installations?

Surely the company can provide references from their previous customers.

Because it seems like reading online postings those who have had solar installs complain about underperformance versus initial projections.

Is your roof in good enough shape for a solar install w/o re-roofing first?

In my part of NC electricity is only $0.10/kWh...with a $70/month average bill it's unlikely any solar install would payback in my lifetime.
Just to add my anecdote that my solar system installation outperformed the installer estimated output in the first full year. I've also seen a number of posts on boglehead solar threads of a similar conclusion. So underperformance is certainly not a guarantee.
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Re: Maybe I could do both

Post by bluebolt »

Nate79 wrote: Mon Apr 19, 2021 11:48 am
ncbill wrote: Mon Apr 19, 2021 11:28 am Have you talked to neighbors or anyone else locally about the performance of their solar installations?

Surely the company can provide references from their previous customers.

Because it seems like reading online postings those who have had solar installs complain about underperformance versus initial projections.

Is your roof in good enough shape for a solar install w/o re-roofing first?

In my part of NC electricity is only $0.10/kWh...with a $70/month average bill it's unlikely any solar install would payback in my lifetime.
Just to add my anecdote that my solar system installation outperformed the installer estimated output in the first full year. I've also seen a number of posts on boglehead solar threads of a similar conclusion. So underperformance is certainly not a guarantee.
Our installer guaranteed 90% of projected performance for the first 5 years or they would pay the difference.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by TomatoTomahto »

Nate79 wrote: Mon Apr 19, 2021 11:48 am Just to add my anecdote that my solar system installation outperformed the installer estimated output in the first full year. I've also seen a number of posts on boglehead solar threads of a similar conclusion. So underperformance is certainly not a guarantee
Yeah. I thought I had gotten lucky because I produced more than estimated, but have over the years discovered that it’s not at all unusual.
I get the FI part but not the RE part of FIRE.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by surfstar »

RubyTuesday wrote: Thu Apr 01, 2021 8:53 am
livesoft wrote: Thu Apr 01, 2021 7:42 am Roth is more forward looking to me. I do not use enough energy to make solar panels worthwhile.

Has Peloton connected their machines into the power grid yet?
That would be pretty cool, but wouldn’t generate much power. When I’m really working pretty hard on cycle I’m generating about 300 Watt seconds. Average is more like 160 Watt seconds. So between 2-6 60 Watt bulbs could be powered for the length of my ride.
I had an idea back in the 90s when I was in High School that a gym should have all workout equipment be able to generate electricity. I know I'm not the first to think of that, now with apps and everything it seems like a great idea. Give a discount or free month to whoever "generates" the most, etc; all kinds of goals and competition that would incentivize members. It could even be seen as more green than simply riding a bike outdoors - capture all your energy expenditure and help offset your own carbon footprint while getting in shape!!!
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Bammerman
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Increase in home value makes this a no-lose deal?

Post by Bammerman »

More thinking "out loud" about this: Since my wife and I are both 69, we have to be realistic about how much longer we will continue to live in this 1925 house with 3 levels (two sets of stairs). Of course this is relevant to the question of payback on an illiquid investment in solar panels. While we have no plans to move and we love our house and our neighborhood, we have to be aware that conditions (our health) could worsen and lead us to change our plans, i.e., to sell our house and move before payback on a solar panel investment. So I was looking at the Zillow Estimate on our house, which today is a (realistic? optimistic? pessimistic? who knows?!) $818,000. In my state the average increase in property value from a solar panel installation is 4.8%. 4.8% of $818,000 is $39,264. Now, that sounds great, but who knows how realistic it is. But let's say it's way out of whack with reality and the increase in property value is half of that, or "only" about $20,000. That amount is about what I would have to pay for the solar panels after the 26% federal income tax credit (I am not even considering the NC incentive because that's more of a lottery and can't be counted on). So: it seems to me that I can't "lose money" from investing in solar panels on the roof, even if for some awful reason I have to sell the house and move right after the panels are put up there.

Does this make sense?
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retiredjg
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by retiredjg »

It makes sense to me.

Also, since you are 69 and at least one of you is still working....do you really need more money in Roth IRA? Apparently you can afford it. I think the solar panels are more forward looking.

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chuckb84
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by chuckb84 »

With tax credits (US and NM) our solar install will have an initial 8% ROI, gradually improving as rates rise. Using historical electric power inflation rates, it will quickly go to 10% and more.

I'm again frustrated with the posters who worry about how long it takes to "get back" the initial outlay. This POV is not used in any other investment (How long until I "get back" my investment in VTSAX?) and it's just a wrong POV. There is ample evidence that: (1) solar installs with current technology will be generating 90% of the initial power when you sell your house, and so will remain a valuable asset, (2) that a solar install is at least a dollar-for-dollar return when you sell. So, the real answer is that you "get back" the initial outlay when you sell and in the meantime make a near stock-market return with much lower volatility.

Right, there is market risk involved, because the solar install is now rolled into real estate market fluctuations, but I think the risk/return is good. And electric bill avoidance is tax free.
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Bammerman
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Any point in Roth investment if RMD's are just two years away?

Post by Bammerman »

It just occurred to me that this is probably relevant* too: in just two years we'll have to start taking RMD's. (I have not attempted to figure out yet what that might amount to.) Does it even make sense to make a Roth IRA investment at all if we're going to have to start taking distributions in such a short time period? Or are the two issues completely separate and unrelated? Money is fungible, etc.

Edit: *I'm really trying to choose between two different investments here using one pot of cash: Roth IRA for 2020, or a solar installation on my roof. I'd really prefer not to finance the solar install with a loan, even a home equity loan.
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RickBoglehead
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by RickBoglehead »

I've analyzed solar time and time again, and it simply doesn't make financial sense, especially as compared to Roth investments.

For the OP's most recent question - Roths have no RMDs...

At 0.99% financing for 25 years, if true, that would be the route I would go IF I saw a 10 year or less payback.
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retiredjg
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Re: Any point in Roth investment if RMD's are just two years away?

Post by retiredjg »

Bammerman wrote: Thu Apr 22, 2021 10:32 am It just occurred to me that this is probably relevant* too: in just two years we'll have to start taking RMD's. (I have not attempted to figure out yet what that might amount to.) Does it even make sense to make a Roth IRA investment at all if we're going to have to start taking distributions in such a short time period? Or are the two issues completely separate and unrelated? Money is fungible, etc.
Good news. There are no RMDs on your own Roth IRA.

If you have money in Roth 401k, there are RMDs on that, but that can be avoided by rolling the Roth 401k into Roth IRA.
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by arcticpineapplecorp. »

considering the totoal global stock market will last longer than your solar panels (25-30 years then continue operating at 88% only), source: https://www.google.com/search?client=fi ... anels+last) I'd say investing in the total global stock market is more long lasting from a forward looking perspective.
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quantAndHold
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by quantAndHold »

Bammerman wrote: Wed Apr 14, 2021 1:05 pm What about financing the solar installation? Of course it's better if I can pay for it out of cash, but if I'm going to fund our Roth IRAs fully for 2020, I wouldn't be able to pay cash for the solar panels, etc. Did any of you use financing? One company I've been talking to is Encor, which also finances these installations. I'm leaning toward a different company, smaller, and local, and I'm sure they don't get involved in financing. Thanks.
You could always pay for the panels with a HELOC.

I would get some quotes, find out how much it’s gonna cost, how much electricity it would be projected to generate, then come back here and get some help with the math. Our panels have easily done better than the same amount in a Roth would have (it didn’t hurt that the price of electricity is 50% higher than it was when we did the install), but the other variable is how long you plan to stay in the house. You can get some payback on the cost when you sell, but since solar installs tend to get cheaper over time, the best you can expect is to get *almost* as much as a new installation at the time you sell.
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Bammerman
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Here's the actual solar array proposal I'm considering:

Post by Bammerman »

Here's the proposal I'm looking at:
System size: 10.03 kWh with annual production of 9,099 kwh covers 97% of my historical electric usage. 16 Q.Peak Duo L-G7.2 400W Hanwha Q-cell modules, 11 SIL-330 HL Silfab Solar modules, 27 Enphase IQ 7+ micro inverters.

Grid-Tied System Cost: $29,854
less $7,762 federal ITC and $3,132 utility rebate = Total Net System Cost $18,960

Est. Annual Savings: $807

FINANCIAL SUMMARY:
Upfront Cash Payment: $29,854
Est. Monthly Utility Bill after installation: $16
Rebates and incentives: - $10,894
30-Year Electric Bill Savings: $39,137
30-Year Internal Rate of Return (IRR): 5.22%
30-Year Levelized Cost of Energy (LCOE) PV: $0.08
30-Year Net Present Value (NPV): $20,176.56
Cost Recovery Period :15.0 years

(Local firm in business here 9 years. Licensed electrical contractor, licensed general contractor, certified battery & generator installer)
cadreamer2015
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by cadreamer2015 »

With those economics I would not purchase the solar system. We have a solar system ourselves, but with much higher electricity prices here in California our rate of return is 15-20%. For a 5% rate of return I think your Roth is the better way to go.
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Bammerman
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Talking to the company rep at 9 am

Post by Bammerman »

I'm going to talk to the solar company's representative about their proposal today, and I'd like to really go over the economics of it all. I'd appreciate any comments or thoughts. Again, here is the financial summary they gave me:

Upfront Cash Payment: $29,854
Est. Monthly Utility Bill after installation: $16
Rebates and incentives: - $10,894
30-Year Electric Bill Savings: $39,137
30-Year Internal Rate of Return (IRR): 5.22%
30-Year Levelized Cost of Energy (LCOE) PV: $0.08
30-Year Net Present Value (NPV): $20,176.56
Cost Recovery Period :15.0 years

I know these numbers are not as good as many I've seen. I think the fundamental problem is that my roof is very steep with lots of dormers and the result is a less-than-optimal platform for solar panels resulting in lowered efficiency. Now, the above numbers cannot take into account the increase in resale value of my house resulting from solar panels on the roof, and that fact and perhaps other factors (like maybe the unknown future increase in grid-based electricity costs) makes it hard to compare this financial investment to, for example, a bond fund. Nevertheless, I'd be interested in all comments.
EDIT: I just researched IRR and I still do not get it, nor do I understand how this IRR compares to other solar array situations or to any other asset class, for that matter....
SethJane42
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by SethJane42 »

Solar panel costs and upkeep are not a money maker for an individual owning a small home like me. It would take until probably after my death to start seeing any savings in electrical costs. I understand that some people have deeply held values about such things and that it's not about cost, but about "saving the planet", as if we can do such a thing anyway (the earth is much bigger than we are led to believe, and we are less powerful than we are led to believe). So, if one installs panels for savings--I don't see it, and stocks and bonds are a much better place for the money. It depends on your values in the end.
vg55
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by vg55 »

Put me in the solar panel column.

i was in the same position in 2017 and opted to install solar panels. financial details and followup numbers in my other bogle posts.

For me, the payback period is irrelevant. It was about asset diversification. I am getting something like an 8% completely tax free return and have positioned my home for a premium when sold. Depending on zipcode, the premium on sale is @ 15k. "According to the Lawrence Berkeley National Laboratory, homes with standard-sized 3.6 kW systems sold for about $15,000 more than homes with smaller systems or no panels." This investment is beginning to smell like a high-powered tax free bond. Hence asset diversification with environmental satisfaction.

I have solar panels on the roof (8kWp), a level 2 EV charger in the garage, and used Chevy volt in the driveway. In addition to not paying for electricity, I am also not buying gasoline, and have a full tank every morning.

In 5 years, many of us on this forum will have an electric vehicle and will be quite ready to make the investment in solar. A home without solar or an EV charger will be akin to a house with a 110 service panel and no internet service.
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JoMoney
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Re: Which is more forward-looking? Solar panels or Roth investment?

Post by JoMoney »

No idea what your electricity costs are, or what you would be investing in with your Roth account.
My electricity bills tend to be just under $20 a month, a little higher in the winter. I also don't tend to live in the same house longer then about 5 years (which is pretty typical for Americans), so it's hard for me to imagine solar panels ever recouping their cost.
"Solar Panels" being generally in the area of technology, that tends to be the kind of thing that gets much cheaper over time (and/or outdated with better new technology.) ... so I would tend against thinking of solar panels as an "investment" or savings, it would be a consumption expense for something I wanted.
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