Quote:
Originally Posted by brk-lnt
I have solar panels as well, in one of the best spots for solar in the US. I anticipate my system will "pay for itself" in 8 years, which means the ~$24K we spent post tax credits will have been recognized in utility bill cost savings.
However... If we invested that $24K and earned an average of 7% (currently earning much higher on other investments, so this seems conservative), and tax the growth at our average 24% tax burden (based on last 3 years of returns), I would have ~$36K in 8 years. So now my panels need to go another 4-5 years to "break even".
After maybe 15 years we will "break even", but it's a downhill slide, as the $24K we put to the panels could theoretically be earning continual interest.
Or, looking at it another way, I could set $24k aside for utility bill pre-payments and draw that account down over time, working against earned interest, and in that case we might realize an actual break-even point closer to 12 years.
This is ignoring the tax credit for solar, which you can argue is an opportunistic thing you should take advantage of, or a factor that causes false calculations.
Either way, a solar system is rarely, if ever, an "investment" in terms of net financial advantage.
Your heat pump example is closer to my initial comment in that if you have a high energy use appliance that needs replacement already, going with a high efficiency version is less of a hit than replacing a perfectly working unit. Still, these systems overall tend to not provide immediate net savings, but you may be able to offset their costs over a decade-ish of time, assuming they last that long and do not require any expensive repairs.
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Not sure of your professional background, but when you say "this is ignoring the tax credit for solar" you raise a red flag that you are not calculating the return correctly. (You've got a couple of other mistake too, but I don't want to pile on.)
Returns on any investment should be calculated on an after-tax basis--the money that ends up in your pocket at the end of the day. When I said my panels were returning >15% per year that was a post-tax return (IRR) that would conform to any business school textbook or the (pretax) numbers that an investment firm such as Fidelity would provide on their investments.
15% is approximately 2X the long term after tax return on the stock market, with much lower risk. Any professional financial analyst would tell you that the solar on my house is a home run, driven by generous government incentives. Though as I concluded before--general online advice can be helpful, but every buyer should have their own specific situation analyzed by the installer.