By: Cody Cooper, Certified Senior Solar Consultant, Yellowlite, Inc.
“What kind of return on investment am I looking at for solar?” is a question that I have been getting more frequently when consulting with potential clients about purchasing a photovoltaic system. Regardless of the environmental impacts, for some people the decision to install solar just comes down to dollars and cents.
When considering one investment versus another, I weigh three factors: risk, liquidity i.e. how easily you can get your money out of an asset, and expected annual return. Below is a brief and general comparison of solar energy, the stock market, and a rental property.
Stock Market:
Risk
Moderate. The risk in the stock market all depends on your portfolio. Of course the higher the risk the higher potential payday and vice versa. The stock market is a fickle beast but a diverse portfolio carries a moderate risk.
Liquidity
High. With stocks you can often times turn your shares into cash with just a click of a button.
Annual Return
7-8%. Although the old adage is, “you can expect a 12% return in the stock market”, long term data suggests that 7-8% is more realistic.
Rental Property:
Risk
Moderate to Low. Although the recent housing market crash is still fresh on some people’s minds, property values will show an upward trend over time. Assuming you are aware of all the risks of renting a property out and you are prepared to deal with these pitfalls, there shouldn’t be too high of risk in owning a rental property.
Liquidity
Moderate. If you have ever tried to sell a home you know it isn’t a walk in the park but there is always a market for real estate. The location of the home and how quickly you need to cash out may affect the home’s liquidity also.
Annual Return
9-13%. Some may tout a 20% or better return but considering all of the small expenses and upkeep that comes with renting a home out, 9-13% is a respectable return.
Solar Electric System:
Risk
Low. Photovoltaic systems have no moving parts and need little to no maintenance during their 30+ year life spans. As long as the sun rises every morning you can assure that you are getting a return on your money.
Liquidity
Low. I say low because a solar array is customized for each individual home. It would be fairly difficult to resell a system in the open market. In saying that the system does add value to the home, which could return your initial investment in the resale of your home.
Annual Return
6-10%. With a 30% federal tax credit being offered off of the cost of a solar installation and other production incentives you can expect a very respectable return compared to other more traditional investments. Two primary factors affecting the return are the available solar resource and the number of panels installed, as cost is dependent on volume.
With the explosion in popularity of solar energy in the past few years it has become a viable option when looking for ways to invest your money. Although the liquidity is lower than some traditional investments, solar makes up for it in intangible benefits, such as reduction in carbon pollution, and offering the owner an independent source of power in the event of an emergency. So next time you sit down with your financial planner, ask them about diversifying your portfolio by installing solar. You will be happy you did.
References:
http://blog.petetheplanner.com/what-rate-of-return-should-you-expect-on-your-investments
http://www.investopedia.com/articles/mortgage-real-estate/09/property-valuation-basics.asp
