Here was the fantasy: CEO of TY Solar

With the Solar Investment Tax Credit (ITC) extended through 2019, I would get a banging deal (30% tax write-off) on purchasing a solar panel system for my roof. My energy bill would drop to $0. The excess energy that my solar panels produced would get sold back to the utility company, which means cashing checks every month. I would then buy in-house battery packs when they became more efficient to store the excess energy. The battery packs would allow me to optimize when to use or sell energy when demand was in peak. Thus the checks would keep coming and they would keep getting bigger. The income could even fund my new Tesla which would connect seamlessly into the existing system.

Fantastical passive income stream. But after doing more research, here is the reality: Solar panels are only financially worthwhile if you have a high energy bill to begin with.

The practice of selling excess energy back to the utility company, and putting energy back into the grid, is called net metering. Rates vary by state and utility company; for California and PG&E (my own particular situation), selling rates for excess energy are ludicrously low and dropping. Two years ago you could sell energy back for $0.04900 per kWh (kilowatt hour is the common billing unit for energy). Last year the rates had decreased by 25% to $0.03645 per kWh. Today, the rate is almost half what it was two years ago at $0.02670 per kWh. For reference, a modest 3 kWh solar panel system will produce on average 300 kWh per month where I live.

Month $/kWh YoY Change
Oct 2014 0.04900 --
Oct 2015 0.03645 -25.6%
Oct 2016 0.02670 -26.7%

So some back-of-the-envelope calculations:

  • Purchase a modest 3 kWh system for $10,000
  • Take $3,000 in tax credits
  • Reduce monthly energy bill from $40 to $15
  • Sell 100 kWh monthly surplus for a total of $2.50 at current rates

The breakeven point holding the above assumptions constant would be $7000/$27.50 = 254 months or about 21 years, which is right around when the solar panels would need replacing. This is assuming net metering rates stay constant, which currently looks like they will continue to drop, as well as ignoring the opportunity cost of $7000 over those years.

The biggest financial opportunity is in reducing your monthly energy bill, not in net metering. My energy bill is tiny. And PG&E charges a $10 per month base cost for maintaining the house's connection to the grid, further reducing my savings potential.

Ultimately, not worth it.

But things change! Solar panels will get more efficient. Net metering rates could increase. My energy usage could skyrocket in the near future. Elon's new solar roof could be a nice option when my roof needs replacing. And the Powerwall's new model now has double the capacity of the first generation. Solar may not be worth it for me now, but I am certain it very soon will be.

Tesla solar panel roof

Share your thoughts, comments, questions below! Are you going solar?