Optimistic solar breakeven calculation

Many calcs of breakeven fail to include the "opportunity" cost of capital. This means:

• Loan interest charges, if you are borrowing the money, or
• Alternative Income earned, if you have the cash and invest it elsewhere
• Throw in the extra cost of managing, building and operating your own power company

All these things will lengthen your breakeven time and reduce the attractiveness of your DIY solar project.
If you know this and still want to do it anyways, that's fine but you should recognize that it's more of a hobby project and not really a pure investment decision.
Sorry to rain on your parade, but let's be realistic here.

Money is my only motivation.
No loans, I prefer not to pay interest.
The money would have been spent on something without a ROI. So, this is actually a better use of my entertainment funds.
The purpose of my system is to minimize my retirement expenses.
Once completed, it will operate itself. And if built correctly, there should be minimal maintenance.

Same as Tim, by doing it myself the cost is less.

By getting tier 1 quality equipment I'll spend more up front but reduce the operating costs and maintenance requirements.
By doing everything right and to code I eliminate many failure points thought out by people smarter than me.
Understanding WHY everything is done the way it is and doing the design and documentation myself I make the solar system maintainable and able to be operated by someone other than myself.
By doing the design myself I will be able to right-size the system and not spend extra money on the hardware and I will be able to design in redundancy so if a component fails I can get a replacement and not be down and without power.

And the point of all this is to have power without a bill in retirement. The ROI is nice but will come when it comes.


I do realize there is an opportunity cost to every dollar spent or saved or invested. Engineering economics has stuck with me through all my years since college.

I have a garage full of tools and a real hankering to use them. What more motivation do I need?

Was the increasing electric rates included in the calculation?

Was improved lifestyle adjustment included for not being concerned about usage or paying the bill?

What is the return when the power is on during a utility outage?

My calculations are a bit rough. There are things I haven't fully taken into account, like using more electricity since installing PV - average daily usage has gone from around 8kWh to 10kWh. Also reduced gas usage - more heating from electricity rather than gas, and switching to a TOU tariff for electricity which I could have done without PV, but wouldn't have been able to make full use of it without batteries to load shift.

Overall, I reckon around 6-7 years ROI on my system. After that I'm just saving money and helping the environment. It'll make things more comfortable when I retire.

Much better than when I first looked at solar many years ago when a typical ROI was 20 years and I was told the inverter would probably need replacing after 10.

I've been comparing my system to one my dad had installed in 2015. Mine cost 1.5x what his did, but has 2x the output and he didn't have batteries. He was on a FIT tariff which paid £0.20 per kWh generated (not exported). I'm on £0.15 per kWh exported. His ROI would have been close to 20 years. I don't know what he was thinking at his age (79 at the time).

45North said:

Many calcs of breakeven fail to include the "opportunity" cost of capital. This means:

• Loan interest charges, if you are borrowing the money, or
• Alternative Income earned, if you have the cash and invest it elsewhere
• Throw in the extra cost of managing, building and operating your own power company

All these things will lengthen your breakeven time and reduce the attractiveness of your DIY solar project.
If you know this and still want to do it anyways, that's fine but you should recognize that it's more of a hobby project and not really a pure investment decision.
Sorry to rain on your parade, but let's be realistic here.

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Every situation is different.

Payback period can be used to compare alternative investments because cost of funds is the same.

You can use more difficult irr or npv calculations, especially if you want to adjust for risk.

My payback period is 7 years, without accounting for increased cost of electricity, time value of money, or value of 24/7 power.

At 5% interest rate (alternative low risk bond investment), that adds 20% to the cost, so another 2 years. 9 years is very doable.

Adding more complication, the 5% investment in bonds is taxable, so you net 4% after tax. The avoided cost of electricity is not taxed, so the payback adjusted for cost of funds is shorter than 9 years.

With a 7 year payback period, the implied doubling is 14 years. Using the rule of 72 that is an irr of 10.25%. That is close to risk free, and does not factor in inflation in power costs. Compare that to a risky 8% return on stocks. Sorry if I rained on your parade.

Note: every investment has to be managed. You can use the escalating cost of power to compensate for management costs. A typical management fee for stocks is 1%, so reduce the 8% to 7% for stocks compared to a managed 10% return for solar.

ROI may not apply anymore than it does for most peoples cars. It doesn't for my solar tinkering over the last few years. Partly because grid costs are low in my area and reliability has gotten very good. I am not concerned with saving the walrus or doing my part to reduce carbon emissions. Thus there is no intangible benefits. I just enjoy the ability to build something that takes something plentiful and free (Sunlight-Most days. This morning it is raining cats and dogs.) and convert it the power to run my home.

I do read those posts from people with Jumbo jet hanger sized homes that have electrical bills each month that are higher than my annual income who want to go solar to save money. No way that could ever be practical unless the grid allows them to have a subsidy and they get a tax write-off. Though if they have the money to do so, and would enjoy having a solar setup I say, Why not? Likely less cost than their 120ft yacht to operate or the 3rd wife to keep in shoes and furs.

45North said:

Many calcs of breakeven fail to include the "opportunity" cost of capital. This means:

• Loan interest charges, if you are borrowing the money, or
• Alternative Income earned, if you have the cash and invest it elsewhere
• Throw in the extra cost of managing, building and operating your own power company

All these things will lengthen your breakeven time and reduce the attractiveness of your DIY solar project.
If you know this and still want to do it anyways, that's fine but you should recognize that it's more of a hobby project and not really a pure investment decision.
Sorry to rain on your parade, but let's be realistic here.

Click to expand...

I never once thought about buying any of my solar equipment as an investment or what the ROI would be. I bought it to be independent and power my house when the electrical grid goes out.

Mattb4 said:

ROI may not apply anymore than it does for most peoples cars. It doesn't for my solar tinkering over the last few years. Partly because grid costs are low in my area and reliability has gotten very good. I am not concerned with saving the walrus or doing my part to reduce carbon emissions. Thus there is no intangible benefits. I just enjoy the ability to build something that takes something plentiful and free (Sunlight-Most days. This morning it is raining cats and dogs.) and convert it the power to run my home.

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The difference is you need a car, but don't need solar.

Most people get solar purely to save money

1201 said:

The difference is you need a car, but don't need solar.

Most people get solar purely to save money

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Yeah, but do you need a Tesla or Lamborghini to drive to work? A lot of folks get caught up with sales hype about solar saving them money. They than get scammed by the companies that promise them glorious free electricity or ridiculous pay back periods.

Mattb4 said:

Yeah, but do you need a Tesla or Lamborghini to drive to work? A lot of folks get caught up with sales hype about solar saving them money. They than get scammed by the companies that promise them glorious free electricity or ridiculous pay back periods.

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I don't drive a Tesla or a Lamborghini. I drive a 20 yr old Ford.

Yes solar is a big scam right now. Worse than used car sales, but it's going to get better. I advise people around me to not get solar. If you are not diying it it's not worth it

my power company wanted $30k to bring power to my barn. so mine paid itself off day 1 in my opinion. iv got a total of $12K invested so far and i could make what i have work fine. iv been on solar only for almost 6 years now so id say even without the 30K iv almost paid for mine.

I have two responses to this:

1) My 401k has not done so well since Covid. So compared to that, this investment is much more reliable and has a higher return. The key here is reliability. People speculate on what their return would be if they invested. My energy bill is my energy bill. If I reduce it, that is a pretty reliable return. At my age, people start investing in more safe options because they don't have as much time to recover from a big loss. This is about as safe of an investment as a CD I think.

After the next market correction and you lose a large chunk of your investment. Remember that if you invested in solar, you wouldn't have lost anything...

2) I need a hobby. Hobbies can be pretty expensive. This hobby actually does return some money on the investment. So, it's a big win. My wife's comment was "This hobby is much better than me going to bars and wasting money on over priced alcohol and whores..." LOL My last hobby was buying a muscle car. I doubt that will return much on the investment and cost way more than I have invested in solar.

So to sum it up. This is an investment and a hobby. It doesn't have to be one or the other.

PS: There isn't much cost in operating solar. There are no moving parts, so wear and tear isn't a factor. Yes, gear does break down and age. Inflation also eats a nice chunk of any investment. Anything you do has some cost to it.

aragonx said:

I have two responses to this:

1) My 401k has not done so well since Covid. So compared to that, this investment is much more reliable and has a higher return. The key here is reliability. People speculate on what their return would be if they invested. My energy bill is my energy bill. If I reduce it, that is a pretty reliable return. At my age, people start investing in more safe options because they don't have as much time to recover from a big loss. This is about as safe of an investment as a CD I think.

After the next market correction and you lose a large chunk of your investment. Remember that if you invested in solar, you wouldn't have lost anything...

2) I need a hobby. Hobbies can be pretty expensive. This hobby actually does return some money on the investment. So, it's a big win. My wife's comment was "This hobby is much better than me going to bars and wasting money on over priced alcohol and whores..." LOL My last hobby was buying a muscle car. I doubt that will return much on the investment and cost way more than I have invested in solar.

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Good point. Solar is a safe investment so it should be compared to other safe options, like CDs .

There is also the implication that having safe investments allows one to take more risk with the rest of the portfolio. If I don't need dividends from my portfolio to help pay my electric bill I could investrl that portion in something with more long term growth potential without worrying about volatility

Lot's of great points so far.

For me, I do solar for Independence, tinkering and distant 3rd is the ROI. The environment is there as well!

time2roll said:

Was the increasing electric rates included in the calculation?

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Unfortunately I don't think this is going to help with the ROI as much we'd hope.

Based on what I've seen over the last 5 years almost all utilities are doing everything they can to restructure thier rates such that they rely less and less on unit charges (kWh) and more and more and increased base charges and TOU rates that are specifically designed to put a road on block grid tied solar. There's rarely a month that goes by that I don't hear about another statewide fight about another full out attack on solar with "grid access fees".

For me, I don't care about ROI, environment etc. My reason for solar is twofold. 1st. The ability to generate my own power and sell what I don't use to the grid. 2nd, when the power company becomes tyrant enough I can tell them to come get their meter. Okay just thought of a third reason. You can tell me my tinfoil hat is screwed on too tight, but with all the fighting age men from countries that don't like us coming across the border I will still have power if tbere is an attack on the grid.

I was previously in a high level financial position dealing with multi million dollar investments and can evaluate the opportunity cost of my capital very easily.. My decision was also based on a hedge against inflation of energy costs, including future erosion of the benefits of solar in California. At my age my expectation of return on capital is very conservative and my fixed income makes operating.cost reduction a priority. Another thing not mentioned is the importance of WAF (Wife Acceptance Factor).

Ampster said:

Another thing not mentioned is the importance of WAF (Wife Acceptance Factor).

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THE most important factor.

Johneb said:

For me, I don't care about ROI, environment etc. My reason for solar is twofold. 1st. The ability to generate my own power and sell what I don't use to the grid. 2nd, when the power company becomes tyrant enough I can tell them to come get their meter. Okay just thought of a third reason. You can tell me my tinfoil hat is screwed on too tight, but with all the fighting age men from countries that don't like us coming across the border I will still have power if tbere is an attack on the grid.

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I love your 2nd point. What price can you put on having some peace of mind?

Your third point is also a very strong one. Most server admins I know have backups and redundancy. It never occurred to me until just now that there is a single power option without some sort of self generation. So the grid is a single point of failure. That term alone is enough to make many server admins lay awake at night with worry.