Sunday, March 18, 2012

The Unique Personal Finance/Investment Benefits of Home Solar Panels

An interesting and important aspect of home solar panels is their unique investment and personal finance properties. In some ways they're a rare very low risk investment.

A cornerstone of finance is the risk-expected return tradeoff. The lower the risk of an investment, the lower an expected return it makes sense to settle for. And if the asset is negative risk (it lowers your current total risk), like insurance, then it can even make sense to accept a negative expected return. And people do that all the time when they buy fire insurance. A great example, too, though too few even economists seem to realize it, is global warming insurance.

With solar, you have an investment that can really lower a family's risk. And today's America is amazingly risky for most families (see Yale political scientist Jacob Hacker's book, The Great Risk Shift). A job loss can all too quickly and easily lead to ruin for a family, as unemployment insurance pays very little. A great defense is to have your house paid in full, and I usually advise a 15 year mortgage (when it does makes sense to buy), and even then, paying it off faster. But you still have utilities, property taxes, insurance, etc.

If you solar up your house, especially in a state like mine, Arizona, this means little or no utility bill, and eventually the panels may generate enough electricity to also mean no fuel bill (with electric cars). And even no property tax bill! Why? It's already common in Arizona to have backwards running meters to sell back excess power from solar panels (and it was offered in 43 other states in 2010), so the money you make from your home power plant can cover your property taxes. This, of course, depends on how many panels you have on your roof (and the rest of your property, solar gazebos!), what state you live in (not everyone lives in solar ground zero, Arizona), things like how southern facing your panels are, and the ever increasing efficiency of the panels.

Few people, even in Arizona, may generate the kind of power that covers your utilities, fuel, and property taxes today. But in 20 years, the power capturing ability of panels may double or quadruple (see, for example, here, here, and here). We can also expect big advancements in energy efficiency in our homes, appliances, and electric vehicles, also contributing to solar panels providing much more. And if solar starts providing these kinds of financial benefits, believe me, you're going to see a whole lot more people moving from cold states to Arizona, Nevada, etc. (more on this below). And panels are going to be put in a lot more places than just the southern facing part of the roof, along with perhaps other solar power capturing devices like special windows and walls.

Elizabeth Warren has what I think is the best personal finance book available today, "All Your Worth". In it she really stresses -- above all else -- the importance of keeping your "Must-Haves" (fixed expenses) low to withstand today's risky world. Solar is a very nice addition in this respect. The panels are typically guaranteed for 25 years, and may last much longer. And there are potential advancements that can extend lifespan, maybe greatly (see, for example, here and here).

Of course, you could just take the money you were going to put into solar and put it into some other very safe asset, like TIPS, but:

(1) The TIPS market can be funny and maybe illiquid, with TIPS real returns recently going negative.

(2) If you have the money in solar panels instead, it may not be touchable in bankruptcy, or by creditors or litigants in general. Many states protect your home, including additions, (homestead exemption), up to a large, or unlimited, amount. It definitely adds to your family's badly needed security knowing that no matter how bad things get, you can never lose your home, or your free electricity, fuel, and maybe regular supplemental income from your panels. Creditors and litigants can take your TIPS, but in many states they can't take your home, or your panels.

(3) When applying for college financial aid, often your home equity, including solar panels, is not considered. But I can guarantee you a hunk of money in TIPS is (unless perhaps it's in an IRA or 401k, but the panels should be on top of maxing your IRA and 401k contribution limits). The same is true of some government assistance and other need-based programs.

(4) The solar return can be really good, way better than TIPS. From what I've heard, a 7 year payback, or less, is not that rare already in Arizona. (yes, I know very well after years in finance, that NPV is the ultimate, but payback period can help you estimate NPV, because all other things equal, a shorter payback period means a less risky, less uncertain, project. So knowing the payback period helps you make a better decision on the discount rate to use.) The payback period depends a lot on the tax spiffs, and those can vary a lot by state. So interestingly, this study, found a shorter payback period in Massachusetts than Arizona.

(5) Solar Panels protect you against inflation too, and maybe a lot better than TIPS do. With TIPS, you get compensated for changes in the price of the CPI basket, but your purchases may be very different from the CPI basket. And if your family is in a financial crisis, you're not going to be purchasing much of the discretionary or luxury items that are in the basket, but electricity and fuel will be very important. A spike in their prices could really hurt you during a family financial crisis. It's very risk-decreasing knowing those things will always be free, or small, if you have to ride out a crisis.

In 20 years, if Obamacare survives for try-and-see to decimate the disinformation, it could be common for people to always have health insurance, power, and fuel for their cars that they can never lose, and maybe substantial supplemental income from selling solar power on top. This would certainly be a welcome huge step forward in families' security.

On a related note, I think in 20 years Arizona could really be hot -- in more ways than one. Advanced, powerful, and inexpensive panels (and other solar collecting devices like special windows and walls) could really make it relatively cheap to live there, with free utilities and fuel, and with selling the excess back to the grid free property taxes, homeowners insurance, and maybe more, the way the generation of these panels keeps increasing. I always tell my wife I want to turn our backyard into a solar plant! Gazebos with panels on top! She's not thrilled with the idea.

Next: Part II:  Home Solar Panels: A New Safety Net and More

23 comments:

buy to let mortgages said...

The factors that need to be concentrated on for investing to buy to let mortgages for a housing scheme.

Solar Las Vegas said...

Good read. One of the most obvious reasons to invest in solar panels is because it’s a renewable energy source. This means that we’re able to continually harvest the energy from the sun. Forever.

Solar Albuquerque said...

Thanks for sharing fabulous information. It' s my pleasure to read it.The sun is an extraordinary source of power that is available all over the world. In the last few years, solar power is becoming increasingly affordable and an increasing number of American homeowners are beginning to use solar power for their homes.

Unknown said...

Thank you for sharing this information. It has helped me to know more about
how do you check your credit score

Alia parker said...

We have solar panels on our house and rates for power went up as of now in Las Vegas N.V. It's paying for itself and we are so cheerful we did it. We finished up renting and not acquiring since we didn’t need to have an obligation to keep up it. Exceptionally upbeat so distant. solar company

Astrid said...

Great article-really enjoyed!solar company los angeles

Hope James said...

Acadecraft has been termed as the best Corporate Content services , as this service is one of the common and fundamental required service for almost all corporate sectors. Get in touch with us for the best services.
corporate content services company

silent.john said...

I wanted to thank you for this excellent read!! I definitely loved every little bit of it. I have you bookmarked your site to check out the new stuff you post. Top ideas to invest money

website designing company in Delh said...

Get the best web design for your offline business and take your business online. Connect with the best Website designing company in Ghaziabad and increase your online business.

CSS Founder said...

CSS Founder is known as the best web design company in navi mumbai. You can connect with us if you want a dream website for your business.

Exotica Housing said...

Looking for the best appartment at the best location "Noida & Noida Extension" then you must connect with Exotica Housing. We can be the right choice for you. top builders in sector 63 Noida

Steadfast services said...

Steadfast Service can you provide Work Permit in Croatia from Dubai. If you want to get it then connect with us to get better and fast service.

Gaurav's Blog said...

You are providing such a piece of nice information to us. Keep it up!
Web Design Company Philadelphia

akashpromotedial said...

Do you want to get the best tent supplier and manufacturer in Dubai, UAE? If yes then connect with AL Mumtaz tents, this is very old and reputed company in Dubai.
Car parking shades suppliers in Dubai

Akash Kanaujiya said...

Contact us if you want to grow your business through a website. We are the best website design company that provides services in this digital world, visit here to contact us.
Website design company Utrecht

Akash Kanaujiya said...

Before we start designing your site, we will carry out a competitive design of your sector Website design company. For any type of web service, contact us
Web design company Edmonton

PROMOTEDIAL said...

Thank you for such a supportive thought. 600 GPD Reverse Osmosis System

Rio Resort Lansdowne said...

Very unique information I got here from your blog. Thanks so much. Riverside Resorts in Lansdowne

Vedasrivastu said...

Thanks for providing the best and nice information about it. This is very good. I hope, I will read your next blog soon
Vastu for Villas in Dubai

7 Hotel Hills and Resorts | BlogSpot said...

Thanks for sharing. A memorable stay in Lansdowne. Resorts in Lansdowne

cssfoundergurgaon said...

A well-designed website can attract and engage visitors, while a poorly designed website can drive them away. That is why choosing the right website designing company is so important. If you are looking for the best website designing company in Bangalore, then look no further than CSS Founder.

Saudi e-visa said...

If you need help with your "Saudi Arabia Visa apply online," I highly recommend visiting the website of visits visa. We offer a variety of services, including visa assistance, visa processing, and visa tracking. Our team of experts is knowledgeable and experienced, and they can help you to make sure that your visa application is complete and accurate.

Vishal Tomar said...

Are you planning a trip to India and need a visa? Look no further, as we offer a seamless and hassle-free online visa application process. At Visit Visa, we understand the importance of a seamless visa application experience, and we aim to make the process as simple as possible for travelers. In this blog, we will take you through the step-by-step process of applying for an India Visa online, highlighting the main requirements and documents required.