How Does An Investment in Solar Compare to Wall Street

Market Performance Overview

A Wall Street Journal article from June of 2014 caught our attention. It looked at the financial returns of various investment categories over the past 85 years. It set out the annualized returns (including inflation) that can be expected from various investment vehicles, when all dividends and interest are reinvested.

U.S. Small Cap Stocks 11.9%
S&P 500 9.4%
Long-Term Corporate Bonds 6.0%
Long-Term U.S. Treasuries 5.5%
Intermediate Term U.S. Treasuries 5.4%
30-Day T-Bills 3.5%

What about other asset classes? The article went on to say that commodities traced back to 1959 have shown an annual return comparable to the U.S. stock market, while foreign stock funds for the previous 20 years lag the domestic stock market by about 2 percent.

So, how does this compare to an investment in solar energy?

SunUp Solar Carport InstallationLet’s look at the initial investment and financial return for an average rooftop installation near SunUp’s company headquarters in the vicinity of White Plains, New York, just north of New York City. Because circumstances differ so much from property to property, a case study of one of our customers to illustrate solar costs isn’t that helpful. Instead, let’s look at some average costs for a mid-sized residential project. These will be the costs to install and operate a solar energy system that’s owned (not leased) by the property owners.

This analysis is for a 6630 watt capacity residential system. The utility company in this area is ConEdison, which is important to take into account because each utility company has a different pricing structure for electricity.

Using a basic cash analysis, let’s look at some of the system’s key financial metrics.

Payback period 6.6 years
25 year internal rate of return 14.89%
25 years solar earnings $76,446
25 year return on investment 680%

 

An investment in solar energy has little risk when compared to some alternative investments, such as some of those shown above. Once installed, solar panels work away, making energy with no moving parts except electrons. And experience has shown that they last well beyond their stated lifetime of 25 years.

Homeowners in New York State have an extra advantage when it comes to paying for their solar installation over time. They can put the out-of-pocket portion of their solar purchase ($11,244 in the example) on their utility bill at only 3.5% interest, as long as their solar payment doesn’t exceed their savings. This means their utility bills won’t go up and they will own the solar energy system. In fact, in certain instances, utilizing the on-bill payment plan can eliminate any out-of-pocket expense and make the financial return infinite. To keep the calculation above simple, however, the utility-bill payment plan isn’t part of the cash analysis.

There are many reasons for adding solar energy to a home that have nothing to do with financial considerations, but it is good to know that a predictable, low-risk return of this magnitude is available for homeowners.

We want to emphasize that we are not financial professionals and are not qualified to provide financial advice. We only want to help homeowners understand how solar rates as an investment.

This is SunUp Solar’s standard disclaimer about the need for a careful evaluation of each unique property to determine if and how to best adapt solar to that property. Like any other kind of property improvement, solar requires an inspection by a professional to take site conditions into account. In the case of solar, these include roof size, pitch and orientation, shading issues, the status of the property’s electrical system and the property’s electrical billing history. This is routine for us and it is absolutely necessary to provide an accurate proposal for property owners. We use satellite photos, such as Google Earth, to get a general idea of your property’s situation. Unlike some companies, we will not provide a firm quote until one of our Energy Consultants has visited the property, done the proper analysis, and discussed the project thoroughly with the property owners. We stand behind our work and must have customers that are pleased with every aspect of their solar project.