Buying with Bank Financing

[J.P.M.]

Money is simply our society's way of allocating resources and keeping track of obligations, nothing more and nothing less.

That makes it important, but not more important than many other things in life.

So put me in the camp which says that in any activity, including solar power and even life itself, finances are just once consideration among many, and often not the most important.

(Skip this post if you don't want a rant.)

Me too !

Financial considerations are indeed only one facet of reality, and while believing folks should set their own priorities and make their own choices, I would strongly say financial considerations are not my highest ones either.

BUT, depending on the situation, I also believe it's important to have some knowledge on ways to acquire realistic information (or guesses really until crystal balls are perfected) about the possible relative impact that lifestyle choices like solar can have on what are usually limited financial resources, if for no other reason than to put them in perspective. Being financially ignorant is not being environmentally smart. What you don't know can hurt you. I see it just about every day.

Sometimes I wonder if some solar advocates think financial analysis is the spawn of the devil himself because it sometimes reveals alternate energy scenarios to be cost INeffective or have a negative cash flow. I'm on their side, but the intransigent ignorance and transparent attempts at dismissing reality that I sometimes see from those folks doesn't help their cause.

Cost effectiveness is indeed only ONE of the things some people look for in solar. However, and as a practical reality, my experience is that it's usually the first and last consideration for many. "Screw the environment - I want a lower electric bill" is what I hear most often. So be it. It's a free country and I glory in that fact, to the extent it's true anyway.

IMO, having the rudiments of financial analysis helps to prioritize the solar decision among what are usually many competing priorities when considering ways to lower an electric bill. In such a situation, solar at some known (estimated) long term cost is a choice. Solar at some unknown, or fuzzy cost promoted by peddlers to financially ignorant people do alternate energy causes a lot of damage with lies and half truths. Some savvy about things like the time value of money, cost of funds, etc. can give the homeowner and prospective solar customer help in spotting the absolute crap they're often fed. I'd call that a good asset to have, particularly when someone is told it's cost effective to do something when a little knowledge would call such a claim to question, or spot the B.S. in a hot second, or enable one to see that some other action is more cost effective for the same $$'s.

Having such information in no way limits one's choices. Solar can still be done even if a financial disaster. I did that very thing in Buffalo in 1983. It was a lifestyle choice and I'd do it again in much the same way in the same situation. BUT, I knew before I started that my $12K choice was not cost effective in any REALISTIC way I twisted the #'s. Pay your money, take your choice. The cost analysis police will not come and take you away. You'll at least walk in with your eyes open and maybe not be so surprised IF things do go south. Where's the harm or limits to freedom in that ?

Spend a few hrs. learning something about how to determine cost effectiveness to potentially save thousands of $$'s. I like that payback.

I'd also like someone to explain to me the harm in suggesting people acquire more accurate information that helps separate the B.S. from the truth, or some other, hopefully better version of it, and in so doing help people make more informed choices.

I think I'm one of the biggest solar advocates anywhere. It's the reason I changed careers and became an engineer many yrs. ago. I believe I know a bit about the subject of solar energy. I want to see it work. Instead, what I usually see are ignorant people getting manipulated by others who take advantage of the self imposed and perpetuated ignorance. I do not see such situations as helping to make alternate energy a viable contribution the energy mix.

[Sunking]

No money does not buy you happiness. It just makes it a whole lot easier.

[pleppik]

Having such information in no way limits one's choices. Solar can still be done even if a financial disaster. I did that very thing in Buffalo in 1983. It was a lifestyle choice and I'd do it again in much the same way in the same situation. BUT, I knew before I started that my $12K choice was not cost effective in any REALISTIC way I twisted the #'s. Pay your money, take your choice. The cost analysis police will not come and take you away. You'll at least walk in with your eyes open and maybe not be so surprised IF things do go south. Where's the harm or limits to freedom in that ?

I think most people approach the financial analysis side with one simple question: "Will it save me money?"

The problem is that while the question may be simple, the answer isn't necessarily simple. Sometimes the answer is clearly Yes, and sometimes the answer is clearly No, but at today's market rates for new solar installations and residential energy prices the answer is all to often "It depends."

Unfortunately, a lot of people aren't interested in any of the details beyond "it depends." I think there is probably a better way to explain the financial aspect so people don't get intimidated with discussion of internal rates of return, effective interest rates, and so forth. Because the key fact in financial analysis of solar power is that there's uncertainty, and that solar power isn't yet so cheap that you can be 100% certain it's cheaper than grid power.

Will solar power save you money? It depends. Installing solar power is like buying 25 years of electricity for a fixed price today. Whether that's a good deal depends on how fast the price of electricity goes up, what sort of rate plans the power companies invent in the future, and how long you plan to stay in your house among other things. Solar power has the potential to be a very good deal financially, but it might also turn out to be about the same price as the power company or possibly more expensive. The best we can say is that if things stay pretty much as they are today, solar power will probably turn out to be somewhat cheaper for most people over the long run.

[J.P.M.]

I think most people approach the financial analysis side with one simple question: "Will it save me money?"

The problem is that while the question may be simple, the answer isn't necessarily simple. Sometimes the answer is clearly Yes, and sometimes the answer is clearly No, but at today's market rates for new solar installations and residential energy prices the answer is all to often "It depends."

Unfortunately, a lot of people aren't interested in any of the details beyond "it depends." I think there is probably a better way to explain the financial aspect so people don't get intimidated with discussion of internal rates of return, effective interest rates, and so forth. Because the key fact in financial analysis of solar power is that there's uncertainty, and that solar power isn't yet so cheap that you can be 100% certain it's cheaper than grid power.

Will solar power save you money? It depends. Installing solar power is like buying 25 years of electricity for a fixed price today. Whether that's a good deal depends on how fast the price of electricity goes up, what sort of rate plans the power companies invent in the future, and how long you plan to stay in your house among other things. Solar power has the potential to be a very good deal financially, but it might also turn out to be about the same price as the power company or possibly more expensive. The best we can say is that if things stay pretty much as they are today, solar power will probably turn out to be somewhat cheaper for most people over the long run.

In the financial sense, installing solar power is like any other business decision - you do your homework and research based on knowledge of the subject, take your best shot and you hope for the best, uncertainty and all. If most people looked at it that way when they buy, they'd fire themselves for incompetence. It's not like buying 25 years of anything. That's simplistic.

Similar uncertainty to buying solar applies to many major financial decisions. I guess the tolerance of ignorance can be explained and allowed by saying since nobody knows squat about anything financial it's OK to take advantage ?

Got any ideas or any thoughts on how to unintimidate the great unwashed masses or explain financial aspects to people so the poor dears don't get intimidated ?

[Sunking]

Similar uncertainty to buying solar applies to many major financial decisions. I guess the tolerance of ignorance can be explained and allowed by saying since nobody knows squat about anything financial it's OK to take advantage ?

That is certainly reality and how it works. That is exactly how the Housing Market Crash of 2007/2008 happened with an flood of money to lend.

[J.P.M.]

No money does not buy you happiness. It just makes it a whole lot easier.

I have a good friend who started poor. A real Horatio Alger story. He's worked very hard and has done very well in life, both socially and financially. He once said: "I been rich and I been poor. Rich is better." 'Nough said.

[Sunking]

I have a good friend who started poor. A real Horatio Alger story. He's worked very hard and has done very well in life, both socially and financially. He once said: "I been rich and I been poor. Rich is better." 'Nough said.

Ask anyone who has been poor then became wealthy and see which they prefer.

Sam Walton is a good example. His parents were poor dirt farmers during the Great Depression when he grew up. Walton put himself through college on ROTC program and worked odd jobs waiting tables so he could eat, and a paper route to help pay for his education. When he graduated in 1940 he went to work for JC Penny as a management trainee for $75/month. Did that for 18 months before being called into WW-II.

After the war he opened his own store (Ben Franklin) with a 20K loan from his FIL and 5K he saved during the war. PK Holmes became jealous of Sam's success and refused to renew Sam's lease at the Ben Franklin Franchise. PK Holmes wanted it for his Son. Sam sold out to Holmes for $50K which he though was a fair price.

Sam then purchased a new store front in Bentonville AR and called it Waltons. From there most everyone knows where the story leads to one of the richest man and families in history. Not bad for an OKIE dirt farmer huh?

[J.P.M.]

Ask anyone who has been poor then became wealthy and see which they prefer.

Sam Walton is a good example. His parents were poor dirt farmers during the Great Depression when he grew up. Walton put himself through college on ROTC program and worked odd jobs waiting tables so he could eat, and a paper route to help pay for his education. When he graduated in 1940 he went to work for JC Penny as a management trainee for $75/month. Did that for 18 months before being called into WW-II.

After the war he opened his own store (Ben Franklin) with a 20K loan from his FIL and 5K he saved during the war. PK Holmes became jealous of Sam's success and refused to renew Sam's lease at the Ben Franklin Franchise. PK Holmes wanted it for his Son. Sam sold out to Holmes for $50K which he though was a fair price.

Sam then purchased a new store front in Bentonville AR and called it Waltons. From there most everyone knows where the story leads to one of the richest man and families in history. Not bad for an OKIE dirt farmer huh?

There's a lot to be said for hard work and making things happen on your own. I wonder if his kids are as lucky to have his persistence, common sense, brains and sack ?

[pleppik]

Ask anyone who has been poor then became wealthy and see which they prefer.

I've known poor people who became rich, rich people who became poor, and a few round-trippers.

All else being equal, everyone would rather have money than not. But things aren't always equal. I've had a few friends who stayed in lucrative jobs which they hated, and they definitely would have been happier with less money.

I also know people who have made a conscious decision to earn less than they could because they didn't want to give up time or autonomy. They also seemed happier with less money.

I think that for a lot of people, once you have enough money to live comfortably and worry-free, more money usually doesn't make you any happier.

[Sunking]

There's a lot to be said for hard work and making things happen on your own. I wonder if his kids are as lucky to have his persistence, common sense, brains and sack ?

I know one of his Son's (Jim) and he is the CEO of Arvest Bank and manages all of Walton Enterprizes . From my understanding all his kids have the same work ethic and are successful. I know one of his Son's John was killed in a ultra-light plane crash. The eldest Samuel is a Lawyer and now runs Walmart.

[J.P.M.]

I've known poor people who became rich, rich people who became poor, and a few round-trippers.

All else being equal, everyone would rather have money than not. But things aren't always equal. I've had a few friends who stayed in lucrative jobs which they hated, and they definitely would have been happier with less money.

I also know people who have made a conscious decision to earn less than they could because they didn't want to give up time or autonomy. They also seemed happier with less money.

I think that for a lot of people, once you have enough money to live comfortably and worry-free, more money usually doesn't make you any happier.

An Exception perhaps, if the story is true, John D. Rockefeller who, when asked by someone if he was wealthy enough, and if not what would make him happy is said to have replied: " No, just a little bit more".

[pleppik]

An Exception perhaps, if the story is true, John D. Rockefeller who, when asked by someone if he was wealthy enough, and if not what would make him happy is said to have replied: " No, just a little bit more".

True or not, it's believable.

In the other corner is John Bogle, the founder of the mutual fund company Vanguard, who wrote a book called "Enough" a few years ago. It's basically a meditation on the fact that he's got plenty of money (which he clearly does), and how a lot of people--especially the rich ones--would be happier if they spent less time worrying about getting more money.

[BGuy838]

Well stated JPM. If you cannot afford to pay in cash, forget it. Even if you can afford to pay in cash, you are better off investing that money elsewhere. Take a loan and no wonder you are poor.

Sunking- Question regarding this. I am looking at buying a PV system, and will be doing so with a 15 year Home Equity loan with no closing costs or fees. My rationale is this: We are paying on average $60/mo for electricity. A 15yr HE (tax deductible) loan at 3.99% for a PV covering 111% of annual usage would be $56.97. We could then also sell our SRECs each year for ~$1,000, which would last for 10 years. From my (very simplified) point of view, there would be a positive cash flow each year of ~$700 (paying not more than $300 in loan interest each year), and then after 10 years our electricity would be covered by the loan, making this decision positive.

What are your thoughts? Are their holes in my logic that I'm missing?

[Ian S]

Sunking- Question regarding this. I am looking at buying a PV system, and will be doing so with a 15 year Home Equity loan with no closing costs or fees. My rationale is this: We are paying on average $60/mo for electricity. A 15yr HE (tax deductible) loan at 3.99% for a PV covering 111% of annual usage would be $56.97. We could then also sell our SRECs each year for ~$1,000, which would last for 10 years. From my (very simplified) point of view, there would be a positive cash flow each year of ~$700 (paying not more than $300 in loan interest each year), and then after 10 years our electricity would be covered by the loan, making this decision positive.

What are your thoughts? Are their holes in my logic that I'm missing?

Financing can work: it depends on the details and your own specific situation. Questions I would have:

1. Why 110% usage? Depending on your electric rate details and how net metering is implemented, that excess production may not be very valuable.
2. Is the pricing of the SREC fixed or could market forces slash it dramatically?
3. Are there fixed costs to your electric bill that don't get reduced below a certain point whatever your production?
4. Any thoughts of moving in the near future or major home remodels that make things shaky financially?

[BGuy838]

Financing can work: it depends on the details and your own specific situation. Questions I would have:

1. Why 110% usage? Depending on your electric rate details and how net metering is implemented, that excess production may not be very valuable.
2. Is the pricing of the SREC fixed or could market forces slash it dramatically?
3. Are there fixed costs to your electric bill that don't get reduced below a certain point whatever your production?
4. Any thoughts of moving in the near future or major home remodels that make things shaky financially?

1. The 111% is actually on the lower end. Before I discovered this site, I made some assumptions and decisions which I have since learned to be not the best. But the 100%+ generation is still a plan for a couple reasons- it is just my wife and I now, so we expect to have more energy use in the future, and this is partly planning for that. Also, here in MA, we can build up a large negative usage balance to either sell to other customers in our energy providers' network, donate (potential tax benefit), or simply hold onto for the future.

2. Right now the floor on the SRECs is $285 ($300, less 5% fee) per 1kW. I have been told that this floor is pretty secure for the next couple of years, and payments are guaranteed for 10 years.

3. I know we have a fixed cost of $0.09 which represents a supplier charge, but am not sure if there are any other fixed fees. I'll have to verify that all of our bill can be net-metered so that the entire bill is eliminated-I would think this is normally the case?

4. Nothing big in the future, but it is my feeling that even if there was, this expense is simply replacing an existing one in the form of our monthly electric bill, so this shouldn't impact that. shouldn't, but of course that is never 100%.

We have a program that offers a 0% loan for seven years for other energy efficient upgrades (HE boiler, water heater, insulation, windows, etc.), but nothing for a PV system. I've heard it may be introduced later this year, but at the cost of no longer having the 12%-16% state rebate.