When Donald Trump was elected president in November of 2016, some people predicted it was the end of America, or that the stock market would go haywire as people prepared for the worst. Even through the early days of his presidency, most commentators credited the country’s strong economic growth to Trump’s predecessor.
Instead, as Trump took power and enacted historic tax cuts that overwhelmingly benefited wealthy people and corporations, his election marked an inflection point in the stock market. As of February, 2020—three years and change into the Trump Presidency—those early predictions of turmoil haven’t come to pass, and the age of Trump had seen truly abnormal annual growth rates of more than 15% in stock prices.
Then came the novel coronavirus, also known as COVID-19. Just since late February, stocks have lost something like 30% of their value, and we’re not sure where the bottom is. Thousands upon thousands of people are sick, thousands more have lost work hours or jobs, and much of the country is being told to shelter in place and only make essential trips to avoid even worse outcomes.
How we go forward from here
This worldwide crisis is something unprecedented in modern times, and yet, the human race will come out of this. The vast majority of us will go on after this crisis. If we at Solar Power Rocks know anything about anything, we know you’re still going to have an electric bill in the years after COVID-19.
You’re very likely to make it out of this alive, which means you’ll be paying many, many electric bills. Kind of a good news/bad news scenario. Here’s how much the next 25 years of electricity will cost the average American:
That’s nearly $44,000 over the next two and a half decades. Incidentally, that’s the minimum length of time solar panels should last, pumping out free electricity on your rooftop.
Solar vs. the Stock Market in the Age of Coronavirus
If you’re anything like us, you watched the value of your retirement accounts tank in the past few weeks after seeing several years of robust growth. That’s the nature of the stock market. It goes up most of the time, and sometimes goes down.
Right now, it’s going way, way down.
On the other hand, the nature of an investment in solar power is a steady upward savings curve. As sure as the sun comes up in the morning and sets in the evening, your panels are going to be making electricity—which, again, you would otherwise pay lots of money for. It’s an investment with the protection of great warranties and products with a proven track record of performance.
Let’s look at an example that shows how solar returns have remained steady in the past several years. We’ll compare an investment in solar to a similar investment in the stock market made just before the 2016 election.
Our example person lives near the Bay Area of California, and installed a 6.1-kW solar system on their home on November 1st, 2016, which cost around $15,000 after the Federal Solar Tax Credit. On the same day, they made a $15,000 investment in shares of SPY, an ETF that tracks the performance of the S&P 500.
Little did our person know it, but the election of Donald Trump just days after this investment would kick off a long-term stock market rally of historic proportions.
Here are our sets of assumptions for each investment:
Solar Power Investment Assumptions:
- 6.1-kW solar system (big enough to offset a $150 average monthly electric bill) at a gross cost of about $21,500
- About $6,500 Federal Tax Credit, for $15,000 net cost
- Solar Production based on PVWatts estimates for 6.1-kW solar in Berkeley, CA: Premium modules, Roof mount, 15% system losses, 30-degree tilt, 180-degree azimuth, approximately 9,600 kWh/year to start
- Solar output decreases by 0.5% per year due to panel degradation
- Initial savings estimates of $.17/kWh—all estimates based on trailing 12-month average price data from EIA
S&P 500 Investment Assumptions:
- Starting investment $15,000
- Dividends reinvested
- Returns based on actual performance data from DQYDJ, accessed March 20, 2020
Now let’s look at the chart.
The chart above shows how an investment in solar compares to what was a historic bull market, until it wasn’t. The returns from the stock market had been great since 2016, exceeding the savings from solar for all but two months since November 1st, 2016. Notice the past tense in the previous sentence.
Now that the stock market has been rocked by the coronavirus crisis, the returns from this California solar investment are still going strong. The savings continue unabated, leaving the person who owns the system with very low electric bills; a balm in the chaos of living through a pandemic.
If this chaos goes on for longer—months or years—the solar panels on their roof will still be making electricity and saving money. If the owner happens to lose their job, or find themselves with a reduced income, the solar savings will be there. Not a huge windfall, but something to help ease the burden.
The long term outlook for solar vs. the stock market
Of course, the stock market will eventually return to “normal” and likely continue growing at its historical long-term pace of about 8% per year. At the time we wrote this article, we don’t know how long that will take, or whether the country will enter a recession or depression. We’re hopeful that some economic stimulus can help us survive this crisis and come out with a better world than we came in with.
In the next chart, we model two scenarios in which the market returns to its average behavior. One scenario assumes we quickly gain back about 50% of the losses and the market grows at 8% per year after. The other scenario assumes the market regains 100% of the losses and continues to grow at 8% per year. We’d call these two scenarios different versions of a best-case scenario, with no recession or depression.
The chart above shows that even in the best-case scenario, an investment in solar panels for this example California homeowner will likely be better than the average estimated future returns of the stock market. This may be all speculation, but we’ve been talking for years that the return on investment of home solar beats the stock market in most states. This is just a new way to look at the same numbers.
The final word on the financial returns of solar
I know you might be thinking “Well, this example is for California where the days are sunny and electricity is expensive. Solar probably isn’t as good in other places.” And you’re right: in some places, solar doesn’t produce returns as good as it does in California.
In some states, the returns of an investment in solar are even better than in California. And in nearly every state in the country, an investment in solar produces a steady stream of electric bill savings that will be there whether we’re in a bull market or bear market. In fact, owning solar panels can help you survive adverse economic conditions, giving you the peace of mind of low utility bills if you’re furloughed or laid off.
Owning a solar system adds value to your home, reduces your carbon footprint, and provides financial returns over time. It won’t make you a millionaire, but it is one of the most solid investments you can make in your future happiness.
We encourage you to check out our guides to solar in every state to discover whether solar can help you, now and in the future.
Don’t believe us? Check this out:
Here are a couple Reddit threads that helped inspire this post:
- The only investment I made in last two years that has positive returns is my solar system
- Is it smart buying solar given our current crisis?
Last modified: March 23, 2020