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Answering all those burning questions you didn’t know you had about home ownership.

Rooftop Solar Energy: Dollars and Sense

Picture of Jessica Dabkowski

Jessica Dabkowski

Helping you with all things homeownership!

Two weeks ago, I kicked off a four-part series on my family’s decision to install a rooftop solar energy system on our personal residence. A series I gleefully named The One With The Solar Panels. This week, we’re getting gritty with the money math and the decision-making process.

In the first article, I discussed how we started on this journey and the factors we considered in moving forward to get quotes. Last week, we reviewed the two sales pitches we sat through and how solar energy actually works, in words real people understand. If you missed last week’s article, you can find it HERE.

Next week, we wrap up the series covering the installation, the aftermath and the impact to our energy costs in the 10 months since the panels were installed.

Money Math

All right, folks, this week I am pushing myself slightly outside my comfort zone to talk about the financial side of installing our solar system. I don’t think anyone can get the full scope of the project if I don’t share the actual dollars and sense (haaaah, SENSE!) with you. Because I strive to provide value, I am feeling the fear and going for it anyway. (Throw back to that 1996 gem, House Arrest!)

If you remember last week, The Mathematician and I selected Michigan Solar Solutions to install our rooftop residential solar system. The estimate for the solar panels alone was $16,497. Adding in the battery backup system, the total system cost came to $32,057.

Remember, we were planning to claim the 26% tax credit on our federal income taxes for 2021. The credit was equal to $8,335, so the net cost of the system after accounting for the credit was $23,722.

Coronavirus and Snow Birds with Teeth

As we were exploring the math, we had some factors working against us. Namely, DTE only allows you to add enough panels to generate up to 90% of your energy needs. This 90% figure is calculated by, you guessed it, a look back at your historical energy usage for the previous year.

Well, shoot. We moved into our house on March 6, 2020 (oh, yes, it was cuh-razy but at least we had toilet paper on hand). Therefore, we didn’t have February 2020 data available. To compound this issue, we had spent most of January 2021 snow birding in that one warm peninsula we Michiganders love so much. January’s electric bill was artificially low because no one was living in the house that month.

Okay, so we know whatever system we install is not going to get us to where we want to be. We may need to adjust down the line. We let that stick in our craw for a minute and then move on.

Selling Back to “The Man”

Now, when DTE “buys” the extra energy you are producing, they have stacked the deck in their favor.

When solar first rolled out, rooftop solar houses had a super sweet gig. If you sent DTE 1 kWh of power, you got a credit for 1 kWh put in a “bank” for you to use later when you needed to pull from the grid. This setup was called “net metering” and even when solar was way more expensive, net metering made it possible to break even or save money because you were getting full credit for each kWh you produced.

Well, after awhile, DTE realized it was definitely on the losing end of this deal. You might send the kWh when electricity was cheaper and cash that credit in after the prices had gone up. It also didn’t factor in extra wear and tear on the grid from you sending the energy back. So, DTE lobbied for a new setup and, of course, won.

Net metering customers received a 10 year grandfathering period before they are forced to convert to the current program. If they expand their solar system (like adding panels), you get forced onto the new program immediately. (Not surprised? Me either.)

Now DTE has what is called the “Distributed Generation Program.” Terrible name, right?! Anyways, under this program, you get a dollar amount credited to your DTE bill each month for each kilowatt hour you sent to them via the grid. After that, DTE calls it square.

Of course, the dollar amount is “based on the power supply component of the customer’s retail rate, minus transmission charges.” Hah. This boils down to DTE crediting us around $0.46 (my own calculation because, of course, its not published anywhere!) on every $1 worth of energy we send them. DTE charge these nebulous “transmission charges” that make it really cheap to buy the energy I am producing. I thought Sales Guy #1 told me it was closer to $0.70 on the dollar. When I calculated it myself recently using my last billing statement, I came up with way less.

“Charging Up” Our Battery Thought Process

Next, we had to consider where the battery fell in our return on investment calculations. The battery isn’t strictly necessary to benefit from the solar panels. If you don’t have a battery, your system uses the power you need for the house in the moment and sells the excess generated back to DTE. When the sun goes down, your system ceases to benefit you, and you are fully back on the grid.

This fact is important because it affects the thought process when you decide whether you want or need in the battery. If I produce a dollar’s worth of energy and use it in the moment, I have maximized my use of the panels. I am not paying DTE anything to use that energy. If I sell it back to DTE, I’m seeing less than half the benefit. If I add in a battery system, I can bank that energy and use it later, still getting almost the full dollar out of it.

Looking at this setup as a whole, selling energy back to DTE is a last resort. It is the least cost-effective use of the energy. I want to use the energy produced now or store it for our personal use later because that is energy we don’t have to buy from DTE at current rates.

“Generate”ing An Opinion

In addition, our battery back up holds the place of a generator in our home set up. It will serve as a backup power source if the grid goes down. Our system will carry 25% of our “load.” We have it set up to power our sump pump (important), furnace (also important), hot water heater, our fridge, deep freezer and the lights in our master bedroom and bathroom.

If the power goes out, our system will switch over to back up mode. The panels will still function as well as the battery. We can flip those individual items on or off using a separate electrical box that goes live when the grid goes down. E.g. If we want to power only the furnace and sump pump, we can set it to do that in a pinch.

If you do not a have a battery, your panels will automatically turn off and cease to function if the grid goes down. I REPEAT – NO BATTERY, NO ENERGY in the event of a power outage. DTE requires this setup because they cannot have your system trying to feed power back to the grid when it is down. The battery setup allows you to disconnect from the grid and become self-contained, like a spaceship. (Remember that scene in Notting Hill where Julia Roberts has the red wig and is walking on the spaceship? Sigh. Great movie.)

It is super important that I acknowledge a big shortfall of using the solar battery in place of a generator. Your panels only generate electricity and the battery charges if the sun actually comes out to play on that particular day. And we live in Michigan, where the sun is a coy mistress (remember that poem from high school English? Nerd alert 2.0 over here).

Now, if you install a natural gas generator, there could be an instance where the natural gas isn’t flowing. If you have a gas fuel generator, what if you can’t get gas at the gas station? So, each of these options has its perils. At least with the solar, I know the sun will come out at some point and to some extent. Even on a cloudy day, the panels generate some little bits of power.

Okay, decision made. The battery is in.

Money Ball

The final cost for the 4.75 kWh system of 13 panels and a 14.0 kWh battery backup for 25% of our electrical load is $32,057. Our net cost after the tax credit will be $23,722. The system will annually produce 5,568 kWh and save us an estimated $2,047 per year. The panels have at least a 30 year life span.

Sales Guy #2’s packet indicates over 30 years we will save $61,410. His estimate also projects our current average monthly bill will drop down to $11 (**SPOILER ALERT** This has not happened, and I don’t think it ever will).

The Mathematician Wants to Hedge

Here’s where it gets really interesting. MSS has a handy chart in the packet showing the potential trend of energy costs over the next 30 years, based on modeling the historical trends forward.

In 30 years, their projections show our electrical bill with the solar will be $116.75. Without solar, the bill would be $649.63 PER MONTH. At the end of the 30 years, we would be projected to save $532 per month. Now, in 30 years, $500 will probably buy a gallon of milk, but, hey, all savings are good savings.

Their trend report shows our system “breaking even” after 15.4 years, so basically after year 15 everything is savings and funfetti. So, for an estimated half of its lifespan, the system is nothing but a cash cow (well, you know what you mean).

The Mathematician presented this solar system as a hedge on future energy prices. And guess what? A year later Putin lost his mind and invaded Ukraine. Energy prices could be seeing a serious crunch, beyond the pump, in the future.

Join me next week to wrap up rooftop solar energy systems!

Next week, I wrap up my series, The One with the Solar Panels, on our rooftop solar energy system. The last article will cover the installation process and how our savings have shaped up over the course of the last 10 months.

As always, I’m here to help with all your homeowner questions, solar or otherwise!

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