The Cashflow Reasons for Mainers to Buy Solar in the Winter
You’ve decided you’d like to invest in solar photovoltaic (PV) for your home or business. Despite your reluctance to borrow money, you recognize that it is better to pay towards a loan with a finite shelf life than to continue to spend money on electricity bills that will otherwise never go away. After kicking the tires on several options for loans with the folks at Insource Renewables, you found an option that would result in monthly loan payments that are roughly the same as what you’ll save with your new solar energy investment.
It’s January. The holidays are over and the thought of tying up money right after all of the festivities triggers your inner Yankee to grimace. “I’ll just wait ‘til summer,” you tell yourself.
Summer comes and the fishin’ is great! Between work and camping trips and shuttling the kids to their various summer activities, solar ends up on the back burner for a bit. August rolls around, and your focus is on getting next year’s firewood dropped off and squeezing everything you can out of the final days before the kids have to go back to school.
The kids settle into school. The wood gets tidied up just in time for the first chilly morning of the season. That part of your brain that got passed down from your grandmother (“It’s time to put the food up!”) or your great grandmother (“It’s time to get the wood in!”) or your dad (“Time to get in the treestand and fill the freezer!”) — and made sure you got passed down to be here today — starts ringing like an alarm. “Time to get the solar installed!”
You reach back out to Insource Renewables. They look at your quote in their files and let you know that the price is still good and that loan rates are where they were nine months ago. “Awesome!” you think. “Just like I planned it!”
You sign your contract. The Insource crew comes out in early November and kills it. You and the project manager, Jake, talk about your favorite farm equipment, Angie, the electrician, disappears in the basement with some tools and electrical parts and is done in what feels like minutes. The young guy hopping around on the roof (his name’s Dylan) looks like he’s in his early 20s, but he’s working harder than most of the 20-year-old kids you know. The solar PV system gets hooked up to the utility. Simon takes care of your final paperwork with the utility, you get a walkthrough on how everything works, an email with a link to your system monitoring site, and the lender makes your final payment directly to Insource.
That was easy.
After five or six weeks, you get a bill from Central Maine Power and a couple of days later you have a payment pulled from your account for your solar loan. At that moment, a light bulb goes off. “I should have pulled the trigger last January,” you tell yourself.
Thinking about cashflow
In Maine, we often think about electricity in averages. Our electrical rates are based on the average cost of electricity — they don’t take into account when you use electricity, only how much electricity you use. When you get a an estimate from a solar contractor on the expected output of your new solar electric system, the predictions are based on an average year. When you considered taking out a loan for the project, you were comparing the monthly payment on the loan to your average monthly savings.
Averages are good for considering the big picture of a solar investment, but averages don’t pay your utility bills in the winter when money is tight. That is why the time of year you install your system matters.
Let’s look at an example.
In January 2019, Jane decides to purchase a 7.7kW rooftop solar system for her home in Freeport. She recently purchased the home and had little available equity against which to borrow, so she opted for a solar loan offered by Insource Renewables through Mosaic. Insource Renewables estimated that her average monthly savings from the solar investment would be $100.44. Her monthly payment through Mosaic will be $107.83 per month. She is excited that her monthly payment will be quite close to her average monthly savings and that her payments won’t change during the loan’s 20-year term.
She is considering installing the system immediately, so the ability to defer the payment of her federal solar tax credit benefits until early 2020 was also a key factor in deciding to go with Mosaic.
Jane grew up on a farm outside of Farmington and learned young to watch her dollars and cents. She got into the guts of her solar proposal to see how the timing of her project would affect her cashflow.
Option A: Have the system installed in March
If she ordered the system immediately, it would be installed in March. She sharpened her pencil (meaning she opened Excel) to see if the installation date mattered. Here’s what she found:
Jane realized that she would have more money in her pocket for the first two months, as her loan payment and new utility bill would be more than $40.00 less than what she would pay if she waited to install solar. During the summer, Jane's bills are lower (she has a mini-split heat pump that runs a bunch in the winter to reduce her oil use). This results in higher costs than she would have paid to CMP without solar. Her savings in November and December coupled with her savings in March and April make her close to cashflow neutral by the end of the calendar year.
If she installs her system right away, she will end up paying $88.61 more for solar in the first twelve months than she would have paid CMP. This is what she expected based on the difference between the average monthly loan payment and the estimated monthly utility savings. The ability to save some money in the winter when cash is a little tighter is pretty attractive.
Option B: Have the system installed in October
Jane's summer is pretty booked in 2019, so her other thought is to wait until the fall to install the system.
To compare this option to installing the solar system right away, she decides to run some cashflow numbers for the first 12 months of owning the system starting in October.
“Whoa!” she exclaims.
Since an October installation means that she won’t be banking credits through the spring, summer, and early fall, the cash flow out of the gates is horrible. In the first five months, which include the holiday season, she would have to pay nearly $170 more for the loan and remaining CMP bills than she would have paid without solar. She sees savings in March and April, but then she is back to paying more for the solar loan and monthly service charge to CMP than she would have paid without solar. She realizes that things will get back to normal in winter 2020, but over the first 12 months of the loan she would end having to come up with $280 more for her electricity costs.
She immediately sends an email to the Insource Crew: “Let’s get this thing going!”
The big benefit of installing solar in the winter
While the lifetime economics of the solar energy system don’t change based on the month your system is installed, short-term cashflow can be affected pretty dramatically depending on your timing. If you buy the system outright, this isn’t a huge deal. If you are financing your project and want to avoid having to budget a larger chunk for your electricity costs in the near-term, winter is your time.
In a recent blog post, we discussed a number of considerations related to installing solar in the winter. The quick summary is this: we don’t mind installing solar on your home in the winter, it won’t cost you more, and we’ll be safe about it.