SDG&E Vs Solar Investment
In San Diego we only have one electric company to choose from, San Diego Gas & Electric. SDG&E sits over us as a monopoly and is currently charging San Diegans a blended rate in the 31-33 cents/kWh range. This is the third most expensive power in the country, only behind Hawaii and New York City. Sempra Energy (SRE : NYSE), SDGE’s parent company is Fortune 500 and like any other giant public enterprise, the most important goal is to increase shareholder’s wealth. Below is a graph that tracks SDG&E prices over time.
For the average residential solar system owner in San Diego, they are creating power at an average rate of 7-10 cents per kWh. This is 1/3 or 1/4 the rate of what SDGE is charging. This number matters most if you plan on staying in your home forever and will reap all the energy from the system.
This is not the entire story because of the more likely case that the homeowner decides to sell their home before the 30 years of their solar system’s life is over. The value of the purchased solar system is priced into the new home value. Let’s use some theoretical but realistic numbers.... We have two houses next door to each other. Everything about these houses is the same. They both have a market value of $600,000 and have a current average electric bill of $250 dollars. They both also have owners who plan to sell in 5 years from now. Let’s look at the numbers...
Owner A goes solar. The solar system has a gross cost of $25,000 and they pay “cash.” They are eligible for a 30% tax credit of the total gross cost.
$25,000 x 30% = $7,500 tax credit (tax credit 30% through 2032)
$25,000 - $7,500 = $17,500 net cost
So, Owner A has invested a net cost of $18,500 into the home and did two things simultaneously. 1. Make home worth about $25,000 more. 2. Stop SDGE bills. (except for $10/month connection fee)
Let’s fast forward 5 years to the sale of the house. Assuming straight line depreciation over 30 years for the equipment, 1/6 depreciation means that Owner A’s solar system should add about $20,833 to the house.
Owner A sells house for $620,833 (assuming no appreciation in property). This means that the owner did not actually spend a penny on his energy costs for 5 years. In fact, he/she actually did better than that. They profited from the solar investment. He invested $18,500 and received $20,833 for it. This is what happens with owned solar systems in today’s real estate transactions.
Owner B does not go solar. Let’s even give him/her the benefit of the doubt and say that the cost of power from SDGE has stopped rising. $250/month over
5 years equals $15,000. With expected increases of 6% a year on average, we would be looking at $16,911. Owner B sells the house for the $600,000 that it is
worth. For five years, payments were made each month for power, but they never saw that money return to them.
A common analogy I use is that deciding to use SDGE vs going solar is like renting forever vs purchasing a home. When you rent where you live, each month you pay for your home and you receive rights to the property for exactly one month. You are receiving the service for your dollars but once the transaction is complete you will never see that money again. With a solar investment, when you put your home on the market, you will reap a large percentage if not more than what you paid for the solar system. Plus, with the tax credit going away, the real cost to purchase a system is going up. You will have entered the market for a 26% discount.
Using the numbers above, we can demonstrate how even without the tax credit solar is still a no-brainer. Let’s say you payed the full $25,000 and in 5 years sold your home with an added $20,833 for the solar. What was your actual cost of power over 5 years?
$25,000-$20,833 = $4,167.
If you would like more explanation of the numbers, check out my videos on youtube where I break down several scenarios.https://www.youtube.com/channel/UCipZL2P8gh74L0_L7oBVObw/featured? view_as=subscriber
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