Friday, March 8, 2019

First Annual Return on Investment (ROI) Calculation

Using the following investment formula:

ROI = (Gain from investment – cost of investment)/cost of investment

It is easy to calculate ROI for the first year of solar usage.  

First, the cost of the investment:  $23 for the increase in home insurance + $20 to obtain my HOA’s certificate of insurance for the home equity loan + $9.97 in interest at the closing of my HEL + $337.73 in electrical costs to JCP&L + $2078.30 for 14 HEL monthly payments (Jan. 2018 – Feb. 2019) = $2469.00

This cost is balanced by the money received from the sale of 8 SREC’s = $1730.50

Let’s assume that my electrical costs for Feb. 2018 – Feb. 2019 would be the same as what I paid for electricity in 2017 (before I had my solar array), which was $1124.21.  My gain from investment is:  $1730.50 + $1124.21 = $2854.71

Plugging into the formula shown above gives us:

            ROI= ($2854.71 - $2469.00)/$2469.00 = 0.156 or 15.6%

Not bad for the first year for a relatively modest and safe investment.  Note that in years 2-14, I will only have 12 HEL monthly payments and in year 15, that will decrease to 10 HEL payments.

Another way to look at it is that without solar, I would expect to pay $1124.21 for electricity.  With solar, I had a total cost for the first year of $2469.00 - $1730.50 = $738.50.   My net gain is $1124.21 - $738.50 = $385.71. Again, a modest amount, but over a ten-year period, that modest gain becomes several thousand dollars.

While my solar array produced slightly more than 8000 kWh as expected (8 SREC’s were obtained and sold), my electricity usage went up in 2018 relative to 2017, so I did end up having $337.73 in payments to my electric company.  There were two reasons for this:  one, in a bout of good weather over the Thanksgiving weekend, we put up all our Xmas decorations this year, as opposed to 2017 when we only managed to get out a limited subset.  Misplaced the timer, got too busy to deal with it, so for about a month they were on pretty much 24/7.  Because of the solar, I didn’t worry too much about the cost.  

Second, I thought when my roof was replaced in Nov. 2017 that the roofer was going to install a ridge vent along my attic as the asphalt shingle manufacturer recommends. Instead, without consulting me, he installed an attic fan and removed two passive in-roof vents (actually made it easier to arrange the 20 solar panels in an aesthetically-pleasing pattern). I was disappointed because if I had known, I would have paid the difference to have a solar attic fan installed instead.  However at that point, it was already a fait accompli, so there was nothing to do but pay the roofer, and move on.  With the addition of the attic fan, my electrical consumption increased compared to what it was in 2017.

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