Why no one has Solar Power

Published on January 26, 2008 by David Llorens.
Categories: Solar Trends, san francisco.

I live in San Francisco… Probably the MOST progressive city in the US for solar power.

California has a very juicy state solar rebate, and on top of that, is proposing the biggest and also one of the first municipal credits for solar power in the US. As an experiment, I sent out 1000 mailers to owner-occupied homes in San Francisco, and this article is about the response to those mailers.

First, let’s review what one would need to make solar work financially:

• You own the property. (If the tenant pays power, they have little incentive to improve property they don’t own). 100% of the mailers I sent were all owner occupied.
• You have a good chunk of change or enough equity in the home to finance the project. Although this is unique to San Francisco, this also effectively applies to 100% of the homeowners (if you own a $2mil home, you almost certainly have the equity or cash to pull the trigger)… We’ll call it 98%.
• Your roof cannot be drastically shaded, especially in the summer, or have an impossible orientation. We’ll call it 70%. There are some shading problems, although almost all the roofs are flat, so not many orientation problems.
• You have a decent sized power bill above the baseline. (note, this isn’t needed to make it work, but with a tiny bill it make take 20 years to recoup your investment). We’ll call this 80%.
• You don’t already have it. We’ll call this 99.997%.

This leaves us with about 550 homes who received the mailers where solar is a wise financial investment.

Who called or emailed? 1 person. One nice gentleman named Loren, possibly the nicest guy I’ve met in San Francisco. Turns out his (gorgeous) home sits in between two buildings both twice as high, so it would never work (although we did look at one of the investment properties where he pays the power, and that place is perfect, and IS going to happen. So at least something good came out of this), but that’s not the point. Furthermore, I understand that a 1% response from direct mail is decent. I know that not a lot of people call, so that’s not the point either. Also I probably suck at making direct mailings…. THAT’S NOT THE POINT EITHER! The point is that no one ever believes solar makes sense unless they can see it. Loren happened to have an installation visible across the street from him. This one, actually:

I run across this over and over again. If I ever get a call out of the blue, it’s because someone’s neighbor has it. Always. So that’s my beef! Why do “The Joneses” have to have it first in order for it to be possibly financially viable?! Let’s look at some numbers:

Here’s a residential quote I gave out the other day that assumes that PG&E (our local utility here) rates go up about 10%, which is a fair assessment given that they’ve increased over 40% in the last two years for some rate plans (although for the last 40 years they have about a historic rate increase of 7%):

This gentleman used about 1780 kWh/month and was paying about $6100 a year in power. He had a nice large southern facing roof sloped at 19%. I designed a system of 36 panels of Sun Power’s SPR-225 panels and two 4000W SMA inverters, which would have brought his power costs down to about $1320 a year. That’s $4780.00 in power savings the first year, and that number grows as power costs increase (the sun is the most laid back landlord ever, he never decides to raise your rent). So how do the numbers work?

• The system costs $72,644. That’s turnkey, everything, no other costs ever required. System is covered for a decade and the panels for 25 years.
• BUT WAIT! California wil pay $15,252 of that, bringing the cost to $57,392.
• BUT WAIT! Uncle Sam will give you a $2000 tax credit, good as cash at the end of the year… So now we’re talking about $55,392.00
• NO, NO, WAIT! In San Francisco they’ll be giving us $4000 to install a system using a local installer, so $51,392.00
• Now let’s assume he finances that $51,392.00 with home equity at a rate of 7.25% for 25 years, which was actually what he could get from his own loan guy.

$371.46 would be his monthly payments. What’s his monthly power bill? $508. SO THE DUDE SHOW’S AN INSTANTANEOUS $130/mo SAVINGS BY INSTALLING SOLAR.

Now, the situation is not always that perfect. Sometimes the roof tilt and orientation aren’t perfect, the power bill smaller, so here are some more numbers for you:

In addition to the dude’s instant savings., this Appraiser Journal article explains how every dollar saved in energy costs per year adds $15-$20 to the value of your home. So if our guy is saving $4780.00 per year then that’s (and we’ll make it conservative) $15*4780.00 = $71,700.00. So in addition to the fact that he’s instantly saving money, his home just shot up 70K in value. Sound ridiculous and impossible? Of course it does…. and….one second…

AAAAAAAHHRRRRRRRRRRRRRRRRGGGGGGGGGHH!!!!!!!!!!!!!!!!!!!

It’s freakin NOT! It’s REAL. And one day, after enough roofs have it, and people finally think “hey, maybe it’s a good deal,” and they call me… by that time, the Californial Solar Initiative credits are gone. The federal tax credit is gone (yah, that’s right, it got voted out of the energy bill), and the municipal credit is gone (I think it only has 3Mil in funding, at least for now)… and you’ll be left out in the cold.

Let’s do a commercial one, shall we? The numbers are commercial are even more of an obvious score than residential.

Here’s a guy who owns a Laundromat and has a “Small Commercial” PG&E rate schedule. (if you’re wondering about whether or not you get the residential or commercial benefits, the rule of thumb is that it typically follows the meter/rate schedule). He was paying about $185 per month in power to run his Laundromat.

I proposed a system of 28 SPR-225 panels and a 7000 Watt SMA inverter. This would have saved him $1870 in energy costs the first year.

• Gross System Cost: $60,835
• California Solar Initiative Rebate: -$10,560
• Tax on rebate $2,957.00 (in a commercial situation, you have the rebate assigned to the customer and not the installer, in order to create a higher basis cost for the system, in order to attain high tax savings. The customer must pay tax on the rebate but it’s usually worth it.)
• 30% Federal Tax Credit -$18,251.00 (no cap here folks, not with commercial)
• Advanced (5 year) Depreciation Schedule -$17,770.00
• San Francisco Municipal Credit -$8,550.00 ($1500 per kW up to $10K)

This brings the net system cost to $8662.00 That’s recouped in 4 years. And let’s not forget about the property value increase of 15-20 times his yearly energy savings, or $1,870.00*15 = $28,050.00 (a number that rises with the tide of power costs).

Now it costs a good chunk of change to pull the trigger, but he’s more than got it. After that you’ve paid it off in 4 years, and you’re getting an $2000+ a year in dividends, not to mention the extra 10’s of 1000’s of dollars you get when you sell the building.

So these both sound pretty lucrative, right? Guess which of the two bought the system… or any system from any installer? …neither of them. I mean, this is definitely MY FAULT as I never pressure anyone to buy anything and I want them to come to their own conclusions and be happy with what they will own, but maybe I need to stop doing that and start using some dirty sales tactics like “alternative choice questions” or “the yes ladder,” because logic and numbers don’t work for beans.

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