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Dec 06 2016
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Driving on Sunshine: Comparing the Economics of Gas and Electric Vehicles

By Charging Your EV With Solar Panels and Using the EV Tax Credit To Lower the Cost No Comments

Driving an electric car charged by solar panels on your roof sounds like the dream – you are now driving to work in a vehicle powered (at least in part) by the Sun, independent of fossil fuels and the business and environmental stigma attached to them. But how do the economics of charging your electric vehicle (EV) from rooftop solar PV work?

Is it financially advantageous over the alternatives? We’ll break it down in this article, by first reviewing the financial aspects of solar PV, then discussing the economics of solar + EVs versus traditional gas-powered cars.

The Cost of a Solar PV System

The main drawback of solar is the upfront cost – for a 5 kilowatt system (more than enough to power the average American home), if you were to purchase it with cash it would cost you around $20,000. However, this is before taking solar subsidies and rebates into account. The Consolidated Appropriations Act allows taxpayers who purchase a solar system to claim a 30% tax credit on the cost of their system.

The Federal tax credit essentially brings the upfront cost down to $14,000 assuming you are able to claim the credit. Although there are other ways to finance a solar system, let’s assume you decide to pay for yours in cash upfront. Once installed, your system will be producing clean, cost-free electricity for the remainder of its lifetime.

Electric Vehicles

Now let’s talk cars, specifically EVs. Electric vehicles and hybrids have been rising in prominence over the last few years, due largely in part by companies like Tesla, and other affordable EVs and hybrids like the Nissan Leaf and Chevy Volt, as well as huge federal and state tax credits and rebates. But in the long run, are EVs more economical than traditional gas-powered cars? To test this question, let’s research the costs of a standard electric car with that of an average car powered by an internal combustion engine. We’ll use a 2016 Nissan Leaf as our example EV. The Leaf will be compared against a 2016 Honda Accord.

Here we can compare the total costs of an EV like the Nissan Leaf with a similarly priced conventional vehicle like the Honda Accord. Let’s run the estimate without solar initially for an example homeowner in Southern California. In this example, the homeowner resides in Pasadena, CA, and commutes 15,000 miles a year, or about 41 miles a day. They also spend $150/month on electricity (above average for a California household). A Honda Accord has an MSRP of just over $22,000. The base price for a Nissan Leaf, on the other hand, is $29,000, but federal and state tax credits and rebates* bring the cost down to $19,000 (a $10,000 reduction). This gives these two vehicles a comparable price tag, with the upfront cost of a Leaf being $3,000 less than that of the Accord.

Honda Accord Nissan Leaf
Yearly Mileage 15,000 15,000
Fuel Cost/Mile $0.09/mile $0.05/mile
Annual Fuel Cost $1,300 $780
Vehicle Maintenance $870 $710
Annual Electricity Cost $1,800 $2,580
Gross Vehicle Cost $22,300 $29,000
Federal Incentives N/A -$7,500
State Incentives N/A -$2,500
Net Upfront Cost $22,300 $19,300
Year 1 Savings N/A $3,680
Year 10 Savings N/A $9,800

In sum, having an EV raises the monthly electricity bill by $65, but the homeowner still has a net savings of around $680/year from not having a conventional gasoline-powered car. This is in addition to saving $3000 from the lower upfront cost of the Leaf, allowing for a first-year savings of $3680, breaking even from the get go.

*Federal tax credit for EVs: “Plug in Electric Drive Vehicle Credit” – allows up to $7,500 in tax credits. California state incentive for EVs: $2,500 rebate for battery-electric vehicles.

**Maintenance costs based on manufacturer-recommended maintenance times

Case Study – EV/PV Combination

Bringing solar into the equation, however, truly completes the picture. Let’s use the same conditions as above (homeowner resides in Pasadena, commutes 15,000 miles a year, and spends $215/month on electricity), but now including a solar system that offsets 100% of the utility bill installed on the homeowner’s roof. This system size is around 10.5 kW (well above average-sized).

Although the initial cost of the Leaf-PV combination is higher than just the Accord, the true savings are paid back over time. With the panels offsetting 100% of the utility bill, the annual cost for electricity after installing the panels is $0. The total savings over 10 years amounts to over $32,000:

Honda Accord, No Solar Nissan Leaf with Solar
Gross Cost (EV+PV System) $22,300 $61,300
Federal EV Incentives N/A -$7,500
State EV Incentives N/A -$2,500
Federal Solar Incentives N/A -$9,700
Net Cost After Incentives $22,300 $41,600
Annual Fuel Cost $1,300 N/A
Annual Utility Bill $1,800 N/A
Annual Maintenance $870 $710
Total Annual Costs $3,970 $710
Total Year 1 Savings N/A $3,260
Break Even Period N/A 5 Years, 11 Months
10 Year Savings N/A $32,600

Our projection estimates a yearly savings of $3,260, with a 10 year savings of $32,600. It should be noted that virtually all solar panels have a guaranteed performance of 25 years.

Conclusion

In conlusion, powering an electric vehicle from rooftop solar is economically advantageous compared to purchasing a gas-powered vehicle. Although the initial costs involved may be intimidating to some, these expenses are more than paid back in a relatively short amount of time. Plus, when you’re purchasing a solar system, the cost of the project is added on to your home’s value. There are also plenty of low interest financing options for solar systems that require $0 down. Not only is it clean and green, it simply makes financial sense to run on sunshine.

All calculations and estimations were done using data from the Energy Information Association, the U.S. Department of Energy, the California Solar Initiative WattPlan calculator, and Solar.com’s own solar estimate calculator. Interested in conducting your own cost-benefit analysis of driving an EV versus driving a conventional vehicle? Solar.com can help you decide how advantageous an EV can be for you.

Dec 01 2016
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Solar: High-Yield, Low-Risk for Your Financial Investment Portfolio

Solar: A High-Yield, Low-Risk Financial Instrument for Your Investment Portfolio

By Increase Your Home Property Value No Comments

As the 2016 election cycle unfolds, political uncertainty is causing investors to reflect upon the real long-term threats to their own portfolios. It occurred to me recently that there are some striking similarities between the current rate of return on a residential solar PV investment and the rate of return one would have earned on a bond investment during the high-interest-rate era of the late 80s. Many people are dead set against bonds right now and for good reason. The fact is that bonds, or any interest-bearing vehicles for that matter (especially ones that are guaranteed like U.S. Treasury Bonds, the most secure bonds in the world), are just not paying anything. This certainly was not always the case.

In the late 80s, the investing public was typically earning an attractive 8.5 – 9.0% (and even more on high-risk bonds). Not surprisingly, many portfolios at that time were 100% invested in bonds. Today, the nominal interest rate is a paltry 1.6% or 1.7% and people are staying away, but imagine if rates were much higher. It’s fair to say that – if investors could make 8 or 10% on their money, they would come back to the bond market in droves.

Actually, one can still earn such a high rate of return on such a low-risk investment. It’s called solar PV. Here’s how that scenario would unfold.

Consider a $15,000 investment in a hypothetical 8.0% yield, low-risk, 5-year bond vs. the same dollar amount invested in a solar PV system purchase for a home or a business. The bond would yield $1,200 in dividends annually ($100/month). An average sized residential solar system (6 kW) would cost about $15,000 installed (after 30% federal tax credit) and should routinely save a homeowner, depending on the utility territory, an estimated $125/month on their electric bill. Since power generated from the system would be covered under warranty, it’s fair to consider solar low risk – unless you think your utility will go bankrupt or that the sun might not rise tomorrow morning. Notice how money saved on the electric bill could be looked at as a dividend. Now, when the 5-year bond matures, the investor would cash-in that bond and receive back their principal of $15,000.

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Comparing this idea of cashing in a bond at maturity to a solar investment, let’s say the investor wants to sell his or her home after five years. A study from Berkeley Lab looked at 22,000 homes sold in eight states from 1999 to 2013 and concluded that, as far as an investment goes, solar homeowners are able to increase the resale value of their homes by $4.00/Watt, which is more than the installed cost of the system in our example. In other words, dollar-for-dollar, they get their money back. (Click here for the full report). Ten years ago, solar PV investments were frequently compared to home improvement investments like remodeling a kitchen or bathroom, where owners do not get their money back. (also of note: there are 38 states that offer property tax exemptions for renewable energy). The Berkeley Lab study was a powerful finding and made it easy for investors to see the similarities between funds gained on the maturity of a bond and gains attributed to the addition of solar realized from the sale of a home.

By adding solar, a homeowner is able to hedge against the decreased purchasing-power effects of future electricity rate increases. Now, the range of electricity prices across the United States is wide, so the money saved by going solar will vary from state-to-state. A study concluded that the cost of electricity in California had risen at the rate of 6.7% per year during a 30-year period. Take our example again, looking beyond year five and factoring in future expected electricity rate increases. To be conservative, we will assume electricity costs increase by 5% per year. Let’s look at the money saved (looks like a dividend, right?) as well as return on investment. Whereas the homeowner saves $1,500 in year 1, he or she saves $1,575 in year 2 because of the increased cost of future electricity, and so on. Thus, a 10% ROI in year 1 increases to an eye-popping 24.2% in year 20. The table below shows that a homeowner who adds solar today will have saved (earned) $49,597 in twenty years. By the same token, a homeowner who decides not to go solar today, will end up paying $49,597 extra for electricity in that same time period.

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Forward-thinking investors tend to be good stewards of their resources while extrapolating what the future will hold. They would undoubtedly see that investing in solar is not only judicious for the investor but extremely practical. As the cost of electricity predictably rises, negatively impacting the purchasing power of future money, solar energy becomes an attractive, financially appealing investment. Those whose portfolios factor in longevity as well as diversification will wisely venture into areas that bode well for their economic futures. Solar thus serves as an intelligent and expedient choice for economically prudent individuals concerned about their financial growth.