Wednesday, May 9, 2018

California Becomes First State to Mandate Solar on New Homes - Bloomberg

California Becomes First State to Mandate Solar on New Homes - Bloomberg:

California is 1/3 of the US economy and probably 1/3 of the US housing market. So, when California voted today to have mandatory solar on most new construction houses, this blows the top off of the non-solar rooftop.

Headlines read that the CA house will now cost about an additional $10,000 to build with the energy efficiency and solar roof mandates. This Bloomberg article says that the savings will be about twice the increase in building costs.

True, it costs more to build, but the operating costs are dramatically less.

This is related to new houses, so the decision is easier than for an existing house.

However, that decision should be really simple as well for a house with good sun exposure. There are tax credits and ways to finance that will allow the homeowner to pay for the solar system out of the savings in power, until the whole solar system is paid off in 15-20 years and then it is a perpetuity of savings!...

So, a $40,000 system in Florida is $28,000 after a 30% federal tax credit. The payment on the loan would be equal to, or less than the payments for electricity, on average. And, after you pay off the system in, say, 15 years, you have about $250 worth of net savings per month for a long, long time. That's $3,000 per year in year 15; as a perpetuity, at 5% interest, the net present value is about $29,000 positive.

Wait a minute. That is more, net present value-wise, then the entire out-of-pocket cost of the system if you had paid cash up front (less the tax credit). But you may not have paid any cash up front for it and paid all loan/lease payments from the savings on the electric bill!

So, if the same math applies for a $300,000 home in California (cause everything's far more expensive in California), which is now increased to $310,000. The additionally $10k can be separately financed; probably, with terms of nothing down and loan payments that are less than the electric bill. That is, from day one, the cash flows from operations are as good or better than paying full electric bills.

Once you pay off the PV loan, you now have free electricity, for a long time.

Plus, it is good for the environment and reduces CO2 emissions, and significantly reduces the reliance on centralized energy production form your favorite power utility.

The net present value of the cash flows may be $10-$20,000 positive.

A couple important factors: Power companies have traditionally increased costs by more than the level of inflation (inflation at about 2% and rising). Inflation and interest rates should rise significantly with full employment. PV technology reduces very slightly over time (0.5% per year).

The private PV power system protects against the rising costs of power.
So, the headlines might more accurately read:

New CA Solar Mandate will increase home costs by about $10,000 but offset by about twice from the reduced of operating costs. 

Another win, win, win of sustainability.

This should not be a hard decision to make, in any sunny state. The mandate should not be necessary. Consumers should be making this decision as a smart decision, not just a green decision.
Being Green, and making Green too.

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