Scenario 1: Household expenses without a solar energy investment
A typical household today might pay $170 per month, on average, to their utility for electricity – without solar, a cost of $2,000 for a single year - to power their home.
This expense increases each year due to rising utility rates. Over the last 30 years, utility rates in California have risen compound 6.7% per annum long-term. Essentially, the rates have doubled on average every 12 years. This means that a household paying $2,000 a year for electricity today will pay $4,000 a year by 2020, and nearly $10,000 per year in 25 years, simply due to the escalation of utility prices at this long-term rate of inflation.
So, if it’s business as usual, the household will write checks to the utility over the next 25 years totaling $120,000!
Section subtitle: Scenario 2: Household expenses with a solar energy investment
A Sungevity solar system will significantly reduce your electricity bill, saving you money. The bigger the system you choose, the more money you save.
Going solar reduces the amount of energy you draw from the grid and allows you to take advantage of the utility's tiered energy pricing structure. If you consume enough to pay for electricity in the higher-priced tiers, installing solar will prevent you from buying electricity from the grid at that higher tier's level, and allow you to buy only the lower-cost electricity from the utility.
For example, a solar system that generates 50% of your demand might save you 60% off your bill. Under this 50/50 hybrid scenario, your new utility bill would now look like the graph below, a pittance of its former self.
Over the life of the system, you will save $68,000 in avoided energy bills by making some of your own power.
The cost and profit
How much does it cost to save $68,000 in utility bills with solar? A solar system installed on a typical California home (about 3.7kW AC, for those technologically minded) would cost, on average, about $38,000. But here's the good news:
First, Sungevity takes out the middlemen and provides you with the highest-quality installed solar system possible. This means that our prices are generally 10% less than other solar companies prices, reducing the cost to - in this example - about $33,000 (we’ll calculate the price for your home when you enter your address).
Sungevity does the paperwork. We'll process your application forms to access the free California state government cash rebate of about $8,000, for –a system of this size. Additionally, the federal government will tax-back $2,000 at the end of the tax year.
These government incentives reduce the cost of this solar system by a further $10,000, meaning the net cost of the system is only $23,000, about half the original cost - and only a third of the total utility bill savings!
With $68,000 in utility bill savings, that’s a net profit (excluding the time value of the savings) of $45,000, and an IRR of 15%. Smaller systems will cost less but save you less money - in total dollar terms - but usually have a higher IRR due the fact that they generally save you from paying only for your most expensive electricity.
So how do you go about investing in this profitable solar system?
Payment Options
With Sungevity, you can pay either upfront or as you go.
The above analysis assumed the investor paid upfront for their system and enjoyed all the financial benefits of solar with little further expense, but $23,000 is still a lot of money. When you go solar, you are effectively buying 25+ years of electricity upfront.
To smooth out the cash flows for receiving and paying for the long-term benefits of solar, you can chose to finance your system, or “pay as you go.”
To help you figure out which option works best, let's look at the pros, cons, and cash flows of each option.
First, the cash flows. By financing your system, you pay a monthly fee spread over the term of the loan. Let's take the example of a 25-year loan at a rate of 7.5% (and as the interest repayment is tax-deductible, that’s 5.9% net of tax). This is a realistic example if the homeowner attached their system cost to their existing mortgage.
We'll show the expenses and savings of paying upfront and, secondly, the equivalent for paying as you go for the same system we discussed above. Note that the savings are the same for both, but paying as you go spreads the cost of the solar system over time.
The net cash flow (savings minus expenses) for each year - or the impact on your finances from going solar - now looks like this:
Paying as you go removes the large expense in year 1, and in this example incurs only small losses in the early years, which quickly turn into profits.
However, many solar investments (especially small systems in California's high-sunlight locations) can be cash-flow positive from year 1 with a pay-as-you-go plan.
For a customized look at the financial benefits of solar electricity to your home, simply enter your home address above, as well as some utility cost history, and we will create an interactive quote page for you. This page will show your net cash flows and help you understand your specific home economics and solar benefits!
Then, when you’ve had a chance to review these financial specifics, a Sungevity consultant can walk you through any questions.