Quote:
Originally Posted by retiredguy123
I think it is more appropriate to use the time value of money percentage of a diversified portfolio of stocks, bonds, and cash, which is closer to 6 percent, not 1.5 percent. The risk level of the time value calculation should be equal to the risk level of the solar system investment, which is by no means a guaranteed investment.
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Treasury interest rates are guaranteed to return interest and principal from when you buy them, whether bought at issuance or in the secondary market. US Treasuries are used as a risk free rate. so when you compare investments, you start with the risk free rate, then you apply the investment risk rate. . . or the discount rate. . . . I always used 10% over the risk free rate for valuing companies when I was performing valuation analysis for buying and selling companies. . . use 15 percent over risk free for highly risky companies. Other people use the funding rate, which is the net return across all funding sources, in companies, debt rate + return on equity (subjective) Home owners don't have the return on equity, but has a return on investments. . .
So, retired guy is using his funding source total, which may lead to an incorrect financial model answer. Why? because if he uses only cash to buy the system and doesn't sell some of the investments in the same proportion, he is not matching the actual funding source return to the investment. If retired guy uses only cash for his funding source to spend for the expense of the solar panels, then his comparison is the return rate for cash only, which matching maturities, will be starting with the risk free rate of the shortest duration treasury bills to estimate the savings over the current use of cash.
Once a break even is estimated, then one can decide the funding source cost. and the model will be wrong, because the future is uncertain, always uncertain, and you won't get all the uncertainties exactly correct, in both future timing and future impact, size of change
For the investment return, the factors are the amount of sunshine to the kHr created, the house rate usage at the same time, and the wholesale and retail rates for sell back and usage from the "back up" system, or SECO, and the risk is roof issues and incremental costs for new roofs given that insurance companies are giving roofs much shorter useful lives. . Also if SECO has different usage rates for the time of day, which some of the northern systems are implementing due to solar generation, then you will have to adjust net daytime usage rates versus nightime usage rates. . .
The risk is future weather, and wholesale and retail rates. The higher the retail rates, without adjusting for anything else, the shorter the payoff period. The rates are set by the Florida utility regulator, which has to balance the guaranteed rate of return to the utility company, by federal statute, and the investments required to maintain, improve and protect the grid in Florida from expected future requirements and risks, including weather and green opportunities and investments for efficiencies.
Put that all into the financial blender, and if you don't get a break even longer than your life expectancy, then you are being greenwashed by the marketing department to sell you their products. . .
Part of capitalism is to create products to solve problems, the second part is to monetize that creativity by selling the product. . . some small problem solutions don't scale and some eventually cost more in the long run than what appears in the marketing fluff. . .
Yes, I work at an electric and gas utility, and in the old world, rural areas, the solar system installations are breaking all the 50 year old electrical grid components, which is driving up the rate of distribution grid electricity for the cost of maintaining and upgrading the distribution system, which is distinctly different than the generation system and costs. You will always have to pay for the distribution system of the "back up" system called SECO today, as long as you have a meter. .
good luck, but its a no for me at the moment when the cost of electricity is currently so low, as the costs are too high for roof units, but at the same time, its a great time to make the investment expecting the cost of electricity to go up tremendously with the green movement, as can be seen in Europe cost of energy at the moment. A better way is to invest in the company stocks which generate solar energy which has efficiencies of scale, than do it yourself, which has no efficiencies of scale.
finance guy