If you own your home, installing solar panels on your roof is a sound financial decision in almost every state in the nation. The estimated rate of return on a solar investment is better than the stock market in 26 states—in some cases two or three times as good.
But those numbers assume you have a good-sized, un-shaded, structurally-sound roof. If you have a roof that gets sun, you owe it to yourself to find out how much solar panels can save you.
But what about people who don’t own a home? How do you get in the game and grab some of those great returns? Well, here are three ways solar pays for renters, landlords, or anyone:
- Community Solar
- Solar Stocks and ETFs
- Solar Bonds and Other Investments
Community solar is still in its infancy, but there are now successful projects in a few states. The most notable of these is Minnesota, where a 2013 law paved the way for what the state calls “Community Solar Gardens.”
The big electric utility in Minnesota is Xcel Energy, and that 2013 bill required the company to help support large-scale solar installations their customers could buy into. Here’s how it works:
In case that isn’t clear, here’s what it represents if you become a subscriber:
- A solar company installs a large array of panels somewhere sunny, like an unshaded hillsde.
- You agree to purchase the monthly output in kilowatt-hours of a certain number of panels at a set price (in the image, this is 13.3 cents/kWh).
- The electricity goes to Xcel’s grid, and they reduce your bill by the cost of the amount of energy your panels produce (14.6 cents/kWh).
- Your total savings is the difference between the two prices (1.3 cents) multiplied by the number of kilowatt hours you subscribe to. An average home uses about 900 kWh per month. The savings if you subscribed to that amount would be about $12 per month, or $144 per year.
- Your contract lasts 25 years, and the price you pay for your solar kWh goes up by 2.3% per year. Xcel’s prices have traditionally risen by 2.75% per year.
Is community solar a good deal?
The real value of community solar is in that last line above. Electricity from Xcel keeps getting more expensive, and if Xcel’s rate increases by the historical average of 2.75%, the company estimates that the savings over the 25-year contract will be $6,369. Here’s how they project other scenarios might look:
So the best-case scenario there is a $13,000 savings over 25 years. Not bad for putting $0 down on the investment. To compare, here’s a chart of the returns if you bought a mid-sized solar system for your house:
Those returns are a little better than the community solar, but not by that much. Maybe the difference is enough to make you say “why put panels on the roof when I could make half as much without the hassle?” Why, indeed.
More information is available on our Minnesota state page, where you can compare the returns of a solar investment if you buy outright, lease, or pay with a loan.
Other community solar programs
Community solar exists in other states and from other companies, as well. If you’re an Xcel customer, you can check to see if community solar is available near you at the Xcel website. There are programs in Wisconsin, Colorado, and Minnesota.
Several community solar companies have offerings in Massachusetts as well.
Solar Stocks and ETFs
Going big on SolarCity Stock last year before the company merged with Tesla turned out to be a risky but brilliant strategy, but not all solar stockholders were so lucky. And picking winners is extremely difficult, as we all learned, oh, early November 2016 or so. So why not invest in a broad swath of solar stocks?
A popular way to invest in a “sector” (i.e. businesses that are all of-a-kind) is to purchase shares of an exchange traded fund, or ETF. ETFs act like mutual funds, because they represent shares in many different companies, but they’re traded like a stock. They could also be considered somewhat less risky that a pure stock purchase. They contain multiple companies, some of which may fail while others succeed wildly, so there is a built-in hedge against the risk you take going all-in with a specific company. Unfortunately, that can also mean they underperform compared to stock in a solid company.
There are two popular solar ETFs, each of which represents a mix of stocks from some of the top solar companies in the world. One is the Guggenheim Solar ETF (NYSEARCA:TAN), and the other is the Market Vectors Solar Energy ETF (NYSEARCA:KWT). They’ve both been around since 2008, and they’re both down about 94% in that time. Ouch.
The main reason for their poor performance is their start dates. The recession was particularly hard on the solar sector, so in late 2008, just months after the funds began, the companies they represent suffered extreme losses. So how have they been performing since? Well… TAN is down just over 26% in the past year, and KWT is down over 28%. Ouch. No Trump Bump for solar stocks.
The are a couple other ways regular folks like you and me can invest directly in solar projects, and you don’t need more than a grand or so to do it.
We wrote about SolarCity’s Solar Bonds last year after the company introduced them. At the time, the promised to pay a 6% return on the bonds over terms of 1 to 15 years. That was a pretty good deal, but it had some caveats.
A lot has happened in the past year in the solar world. SolarCity was purchased by Tesla, and the company no longer offers the bonds for sale. As of this writing, the Solar Bonds page at the SolarCity website has a message that says they’re “updating current offerings.”
We’ll check back and let you know if that changes.
One company that offers direct solar investment is still doing well: Wunder Capital provides financing for large-scale solar investments, and allows individual investors to put a minimum of $1,000 into its hands, with “annual target” returns of 6% to 8.5%.
The company is like a LendingClub for the solar industry, allowing multiple investors to group their money together and fund projects that are vetted and underwritten by Wunder.
Last modified: April 3, 2017