Under Appreciated Excess Value of Solar Power Systems


By now virtually everyone knows about the existence of solar power.  In the middle of Africa where power grids don’t exist, night time lighting is had via solar power.

In many countries there are incentives to help cover the cost of acquiring solar power.  In the US, you will receive a 30% tax credit on the entire purchase price including any tree removal or other costs directly associated with installing solar power.  This basically means that anyone who pays taxes can purchase a solar power system for 70% of the retail price.

Businesses can take an additional ~20% off that price using tax deductions for the accelerated (5 year) depreciation of the solar power system asset.  For a solar power company this short term makes good sense.  There is no guarantee that unexpected circumstances won’t vaporize the solar company’s asset on the home owners house.

For any other company that just wants solar power for themselves, the life of the system is more than 25 years.  So this accelerated depreciation works out as an additional discount off of the purchase price.  The business that purchases a solar power system lands a whopping 50% discount off of retail.

Then they reap a zero dollar power bill every year thereafter.  This amounts to a competitive advantage, especially if they are in manufacturing of products that use a lot of electricity.  Gas stations have low margins and high lighting electricity bills.  Solar helps them increase their profit margins.

OK, so what?  It still takes 3 to 7 to 11 years for various people to recover their investment, right?  And if you need to risk your cash for that long a period of time, then all of the incentives make sense because it seems extremely risky to make the investment in the first place, right?

If you, like the majority of people in the US, believe those statements, then you have missed the greatest value solar power systems yield their owners.  The energy solar power systems produce is normally their second greatest Return on Investment.

I assume you read my earlier post and are planning to purchase your system and will not be tricked into signing a Power Purchase Agreement (PPA).  But do you also know that a solar power system will yield it’s purchaser the greatest percentage rate Return on Investment in the first year after purchase?

Few people do.  The typical solar power system (I can’t bring myself to say, “solar system” as that’s the thing the earth zips around within) sales pitch goes something like this:  “Hey, Ms Homeowner, if you purchase this $30,000 solar power system, the Fed will give you $9,000 off and the money you save on electricity will have paid for your system in about 10 years.”

In contrast, I am explaining to you here, that you profit the first day your power system is turned on.  Here’s why.

Suppose you had a 2,000 square foot home, and then you added a 1,000 square foot addition, would you expect to sell your home for the same price it would command when it was only 2,000 square feet in size?  The home is now a 3,000 square foot home.  There is no way anyone would offer a 3,000 square foot home for the same price they would have asked if it was only 2,000 square feet.  If the original home was $200,000, the new asking price would be around $300,000.

The same goes for the addition of a solar power system, only more so.  When you add a solar power system, your property value goes up.  And it typically goes up by more than the cost of the power system itself.  Home buyers preferentially purchase, and pay a premium for, solar homes.

Today the PG&E territory is just now reaching 5% of its capacity in solar installations.  If people really understood the value, this figure would be more like 50% today.  Let’s use some common figures to understand what’s going on and why it’s being missed.

Let’s assume a common solar power system cost of $30,000 (7.5kW).  The 30% tax credit reduces this cost to $21,000.  The solar power it produces would amount to around $2,100 per year in California (PG&E territory).

You can calculate the value of the energy a solar power system will produce over it’s lifetime at a website called PV Value.

What this site does is to calculate the future value of energy your system is going to produce.  Then, it discounts that future energy value using historic inflation values.  In the end, it gives you a Present Value for Future Energy Production.

In other words, if I hand you $1,000 today, it is worth $1,000.  If I promise to hand you $1,000 ten years from now, it is worth around $500 to $740 today.  Future money is worth (today) less.

To determine this figure, you need to make guesses as about inflation.  I simply assumed a 3% inflation rate to get that value.  And you need to assign a risk that you won’t receive the payment.

The point is, income years from today is worth less in today’s dollars, than is income earned today.  The study of how this all works is the essence of business finance.

The PV Value web site does all this for you.  That said, there are values you can enter that alter the prediction so understanding how this all works will improve your estimate of your solar power system’s Discounted Present Value of Future Energy Generation.

For the $30,000 solar power system above, we can calculate the energy it will produce and what the value is likely to be.  This includes things like the percentage rate the utility rates increase each year.  Using numbers I consider as accurate as possible, the 7.5kW power system will produce energy with a Net Present Value of around $55,000 in the PG&E / California market space.

So one way to think about acquiring solar power is that you are going to spend a net of $21,000 today and you are going to benefit by $55,000 (in today’s dollar equivalent) over a 25 year period in the form of future energy savings.

This is great if I’m going to stay in the home for 25 years.  But few people fit that category.  Most homes are sold within about 10 years and many people have a 2 to 5 year time horizon.  Over 5 years, I won’t break even, therefore, solar doesn’t make sense for me………is the thought many people have.

This is how most people think about the value proposition, but this is the smaller half of the benefit.  This value estimate entirely ignores the increase in property value.  Virtually every solar sales person will let you know how many years it will take you to recover your investment.  They are communicating to you, the above value analysis.

If you hear a solar sales person tell you how many years it will take for you to recover your investment, you know that you are listening to someone who doesn’t really understand what’s going on.

The property value typically increases by more than the cost of the system.  And I find that it typically increases by less than the PV Value estimate.  For the example above, My first guess would be that the property value would increase on day 1, by around $42,000.  This is 140% of the Retail cost and around 75% of the value of future energy production, and about 200% of the net cost for solar a home owner pays, and roughly 300% of the net cost a business owner would pay.

I then check the value of the property.  Typically, the increase in property value will be less than 15% of the property value prior to adding solar.

Let’s pretend we are dealing with a $200,000 property.

For this system, the property value should increase by between $30,000 (solar purchase price) and $55,000 (energy value estimate).  In other words, if I assume $42,000 is the property value increase realized, then the owner doubled their equity on day 1.

I feel one should also verify that the solar power system isn’t too large for the property.  I personally use 15% as my upper limit for property value increase based on experience.  In this case, the original $200,000 property value * 15% = $30,000.  So I would also consider $30,000 as a different maximum value for a different reason.

Typically I use double the net system cost as the property value increase.  This would be the $42,000 figure.  Then I also check whether 15% of the property value is lower or higher.  In this case it is lower, so, I would reduce the expected property value increase to be $30,000.  If the home value was $500,000, then 15% would be $75,000 and I would leave the $42,000 figure alone.

Basically, the higher value the property, the higher the solar power system value can be.

For the lower priced home, people typically aren’t going to spend a huge amount on electricity, and so they typically aren’t going to value a huge solar power system to the full extent it would be worth on a higher dollar home.

Keep in mind appraisers and real estate agents do not understand this, so you need to provide these figures when you sell.

If you use a loan instrument such as PACE (Property Assessed Clean Energy), then you are actually zero dollars (cash flow) out of pocket, and your equity will have increased by the same $21,000 as someone who paid cash for their system.  The difference is that for the PACE property, the value went up by $42,000 minus the net loan amount of $21,000 (I assume you pay down on the note using the Tax Credit when it arrives).  When paying cash, you increased in value the same $42,000, and you reduced your liquid cash equity for a net gain of $21,000.

Except for the loan origination fee and interest costs each year, loans can be a great tool to get into solar without disrupting your cash savings.

Whether you take out a loan or pay cash, you profit by $21,000 on day 1.  If you take out a loan, you of course pay interest on that loan.  But typically, the loan payments are below the payments you were already making to pay for electricity.

A good way to think about this is that you are paying rent on electricity if you don’t have a solar power system to generate your own electricity.  If you own your system, then you are making mortgage payments on your solar equity asset.

Notice something very interesting here.  Your payments are going to pay off on an asset that increased your home value.  They are no longer going to pay for electricity.  From the first day your system went operational, you get electricity for free, period.  But you do still need to pay for the home improvement that increased your property value and resulted in, free electricity.

If you signed up for a Power Purchase Agreement and didn’t read my previous post, then you are paying your solar company rent for the electricity they produce.

Do you rent a car to drive to town every day?  Probably not.  We rent things we need to use once in a while.  We purchase things we need to use every day because owning is typically the lower cost path in the long run.

Why then would you rent electricity?  While it is true that the vast majority of people still rent electricity, this is just herd mentality and the value of solar hasn’t quite sunk in just yet.

In defense of people who don’t own solar yet, the value got better in an unusually short period of time, and most people are just now realizing that maybe they ought to look into it.  What’s more, there are so many companies out there, how do you know what to ask for?  Every solar sales person tells you a different thing.

Well, read my articles before you purchase is all I can say.  Otherwise, have fun swimming with the sharks.

Let’s get back to our example.

Beyond the immediate profit from increased property value, you also win every year by having electricity you no longer pay for.  Even if you have a loan to pay down, you are paying for the equity asset, not the electricity.

The electricity is free as a byproduct of improving your home so that it produces it’s own electrical power.  The $2,100 per year the above system will generate is additional profit and not the slow pay back most sales people and most property owners think it is.

The profit happened on the first day of operation when the property value increased by about double the net cost of the solar power system.

You now understand well enough for me to introduce a far better way of thinking about solar.  Acquiring a solar power system is like purchasing a Bond.

The maturity date of the bond is the date you sell your property (home or business).  The cost of the bond is today, 70% of the retail cost of the solar power system.  In two years, the cost of the bond will be 100% of the purchase price.  The interest earned each year during the life of the bond is about 10% annually.  …..we invested above, $21,000 into the system and it saved us about $2,100 per year in power costs.

Finally, the value of the bond at maturity is $42,000.  It doesn’t matter if you sell this year, next year, or 25 years from now, the value of the solar power system will (paradoxically perhaps) $42,000 in today’s dollars.  This is because the power system will never die.  One module here, an inverter there, and so on will need replacing decades down the road.  But the entire system will never die, ever.

No one (ok, there will be some strange reason someone will do this) will ever go back to paying the utility for electricity once they have free electricity.  Replacement parts will always cost less than utility power.

I’ve watched a number of the shows where people flip homes.  What I haven’t seen are any of those people adding solar onto the homes they flip to bump them into a completely different category.  Soon they will be doing this and about the time it becomes well known that this profit potential exists, the 30% Federal Tax credit will disappear because it is already, no longer needed.

Contrary to what the vast majority of people think, the greatest profit is had by those who install solar and sell their homes within a year or two.  The lion’s share of the profit is in equity, not energy savings.  This turns the incorrect idea that it takes ten years to recover the investment upside down.

Try this.  Go to a real estate web site that allows you to perform searches on homes for sale in your area.  Then, adjust the area until you see about 100 homes for sale.  Then, keeping the area of the search fixed, add the search term “solar” as a specifier to reduce the number of homes listed.  Typically in California, this reduced search will have around 5 to 7 homes in it or around 5% to 7% of the original number.

Now, if someone is searching for homes in an area, and they happen to wonder about solar homes, they will perform this search.  And your home will not have very many others that are both like yours, and, have solar.  Thus, they will visit / consider the 5 or 7 solar homes before they wade through the hundred other homes in the listings.

This is in part, why solar homes sell faster than homes without solar, and it is why solar homes demand a premium price and sell faster.

The incentives are going to run out very soon because the economics already favor going solar without them.  So, get your solar power system as fast as you can.

In PG&E territory, the limit for solar connections before the end of Net Energy Metering terms 1.0 is going to take place around November 15th of this year, 2016.  It’s probably already too late to order a solar power system and get in before the change, but you might just make it if you do so this coming week.

We are rushing to build out a couple final power systems before the change takes place.

If you want to sell your home, the best way to increase your profit is to install solar first, then sell the home second.  And to realize this profit, it is important to set on the counter, a description of why the solar makes your home worth more.

I recommend including a pdf print out from the PV Value web site.  Copies of your utility bills showing your bills are essentially zero.  By just telling people your power bills are zero, your home perceived value increases.  If your home shines over the other solar homes, then I would also include a print out of nearby solar homes.  But if there’s tough competition, maybe not.

Hope this helped.  And the next time you write that check to the utility, remember, every penny is being flushed down the drain and could instead be deposited into your home’s equity.  If you use your utility payments to pay for a solar power system, you would own it within about 5 years time, though this depends on a lot of parameters, so, 3 to 11 years is a typical range.  The larger the power system the faster the pay off.



What is Dark Energy in an Aether Universe?

Dear Lay Person,

This description may take a while to go through, but, it will be intuitive. Dark Energy and Dark Matter are two of the most vexing issues in science today. And yet with a rather simple change in how we think about our universe, our expectations change and Dark Energy becomes something we expect instead of something that is shocking.

You may have heard scientists  claim that about 70 percent of the universe is made up of Dark Energy (about which we know close to nothing).  You may also recall that the idea that energy must be conserved in all reactions used to be a fundamental tenet in physics.  but even that has been thrown out the window in accepting the form of dark energy currently agreed upon.

Another 20 percent of our universe is supposed to be made up of Dark Matter (about which we also know close to nothing.  We have ruled out most all of the “reasonable” possibilities such as neutrinos, very dim stars, moons, and rocks that don’t glow brightly like stars.

If the dark mass was made of those, it would make sense, and, we would have found them by now.  But it is not.  So we are now on a quest to find some entirely unknown particle.  And scientists have been slowly lowered into this pot like the proverbial frog that doesn’t jump out when the water heads toward boiling.

This leaves 5% of the stuff in the universe that is the 100% of stuff we actually know about. Stars, gas clouds in galaxies, planets, and the computer I’m typing on are all made of that 5% of real stuff we all know about.

Why has the scientific community come to agreement that 95% of our universe is made of things we know nothing about?  It has taken a long time to arrive at our current situation.  A lot of work has been expended, and the mysteries have held their ground and revealed precious little about where the solution exists.  In frustration and after the exhaustion of reasonable ideas that were proven wrong by experiment, the scientific community has arrived at consensus.

95% of our universe is made of stuff we have never held, touched, or put into a bottle.  Why did this agreement come into existence?

The answer is simple. We have equations that tell us things behave a certain way, and the universe is doing a different set of things. if we hold onto our theoretical ideas, then our observations must be wrong (by 95% in this case). If instead, we hold onto what our eyes, ears, and instruments have actually measured and detected, then we need to re think our physical “laws”.

Let me give you a very simple way to understand our universe. To do this, first I need for you to let go of what you think you know, and follow along on a journey into a new, perhaps science fiction, universe where the laws for how things work are different.

In this universe, there exist no forces of attraction.

Now we of course know that an apple falls to the ground. So what does the above statement really mean? It doesn’t mean things do not accelerate toward one another. Rather, it simply means that a proton in my pinky finger, does not reach out across 2 million light years to every proton in ever star of the Andromeda galaxy, and pull with a zillion teeny rubber bands.

The notion of a force of attraction, if you think about it carefully, is a notion you have long accepted, but in fact, never understood how the two objects exerted the “pull”. “It’s a force field” the teacher says………..ok, fine, how does the force pull? The teacher has no answer.

The simple (but wrong) way to understand how to make this transition, is to think in terms of gravity. We are told there are countless neutrinos passing through our bodies every second. They pass right through the earth with only a tiny number being filtered out. Every time a neutrino strikes our body, it imparts a little push.

But we are hit by more neutrinos from above because the earth filters many of them out. this means we are pushed down harder than we are pushed up. While this is true, it is not a large enough push to explain gravity. But you should now get the idea that there can be different ways for a force to manifest such that two objects are pushed toward one another.

If we know nothing about the true nature of how the force works, and retreat into mathematics, then it really doesn’t matter what’s going on at a fundamental level. But, if we are later confronted by something odd, like say, Dark Energy and or Dark Matter, we would do well to remember that our original formulation lacked any explicit description for how the force was communicated.

We do NOT know that gravity is a force of attraction. All we know is that two nearby objects are caused to accelerated toward one another.

So far so good. Now you asked to learn about the most challenging problem in physics today, and for me to describe it so a lay person can understand it. So please bear with me, we’re about half way there.

The original thought was, “There are no tensile means for transferring action” or “There exist no forces of attraction”.

It shouldn’t take very long before you realize that this statement bans all particles. If nothing can hold onto anything else, then, the center of a particle cannot hold on to or pull on, the outer portion of itself.

And yet we observe things that appear to be, particles. What other options might we have?

On pages 316 to 317 of “A History of the Theories of Aether and Electricity” by Whittaker, E. T. (Edmund Taylor), 1873-1956

We find that a pulsating sphere in a compressible aether will accelerate toward another sphere pulsating 180 out of phase (pulsing oppositely) whereas two spheres pulsing the same, will repulse one another.

The property “pulsation” is what Bjerknes and others used to explain the electric force in Electro-magnetism.

Before you recall your teacher telling you that Michelson and Morley proved there is no ether, let me point out that the aether here is not the ether MM considered. MM were searching for a medium to carry light. Here, Bjerknes is using the aether as the ocean within which all material objects exist. The electron (his pulsing sphere) IS matter. And it is nothing but a pulsation in and of, the aether.

We are seeking Dark Energy so you can skip this list if you want and you won’t have missed a thing. But if you’re curious, here are some further topics one could explore:

1) Matter is made of oscillations within the aether
2) The waves are, Electric “fields”.
3) To persist, and to maintain their phase relationship, there MUST ALSO EXIST a structure of waves to which the pulsations are coupled. T
4) That structure of standing waves IS, spacetime
5) Nuclear strong force is a pulsing sphere to pulsing sphere direct coupling
6) EM is pulsing sphere to spacetime to pulsing sphere coupling
7) Nuclear Weak force is just an exchange of differently phase coupled pulsing spheres

The nuclear strong force, nuclear weak force, and electromagnetism all have in common that they deal with ways pulsing spheres interact due to ***phase*** interference. But there are other ways pulsing spheres can interact……………and remember, when I say pulsing spheres I’m simply saying, “matter as we know it to exist”. I’m just describing it differently than as being a particle.

A pea like particle has no waves. So the wave particle duality makes no sense. In contrast, a spherical standing wave as taught by Bjerknes, has both waves and a central point of convergence for those waves. It has, in other words, a “location” we can point to and say, “It is over there”.

We are almost there.

8) Gravity results not from phase interference, but rather from a frequency interference.

A frequency interference, to first degree, just causes a pulsing sphere to move slightly back and forth as the frequency of the in coming waves, beat against the oscillation of the pulsing sphere. BUT, a portion of that in coming frequency mis matched wave energy gets scattered.

Just like in the neutrino example, if the pulsing sphere scatters in coming mismatched frequency waves, then, it will recoil away from those waves.

The earth, therefore, filters out some of those waves arriving from the distant (red shifted, frequency mismatched) universe.

Now, you can understand gravity for what it truly is. A mechanism that pushes nearby objects toward one another.

Two ships on the ocean know this force all too well. When ships pull alongside one another, the waves lapping on the outside of their hulls, force the ships into one another. We also know this force as the Casimir force.

Now, what property of Bjerknes’ pulsing spheres might stand in for the property we know as “Mass”?

The answer is rather simple. the pulsing spheres are spherical standing waves. I’ll convey a two dimensional version for simplicity.

Imagine a fishing bobber on a mirror flat, infinite, lake. The bobber moves up and down to send outward a series of circular waves to cover the entire infinite lake. Now, freeze those waves and reverse their direction. We now have a series of waves converging into a center location. As each wave hits center, it runs into itself and then heads back outward again.

We wind up with a series of waves moving in and out at the same time. This standing waves structure takes on a completely different dynamical appearance, but its important to remember, its just formed by convergence and reflection. This reflection at the center results in a piling up of the medium…. water in our lake example and aether in our spherical standing wave aka electron model.

Long story short, Mass simply corresponds to a portion of the medium within which the wave structure exists. Mass, corresponds to a quantity of aether.

You almost certainly know one important equation no matter what your scientific background happens to be. That equation is Einstein’s famous E=mc^2.

The standard interpretation of this equation that your teacher may have taught you, and which I will ask you to forget, is that Energy and Mass are two forms of the same thing. This is wrong.

Notice that the equation does not say, E = m.

If it did, then Energy and Mass would be two forms of the same thing.

What the equation actually says is that the Energy that will be observed in the “observed” products of a nuclear reaction is equal to the mass that disappears, times the speed of light squared.

I just told you that mass corresponds to a quantity of the aether that made up the standing wave. And aether is also what fills the entire ocean we call a universe. In other words, what we call empty space, is in reality, an ocean of aether.

When a star drives fusion reactions in it’s core, mass confined within hydrogen nuclei is released, and the products of fusion have a lot of energy. This is what causes the sun to shine. But, we have a rule in this universe:

Aether is conserved in all interactions. If aether is “stuff” then it would make no sense for that stuff to magically appear and disappear (as mass is supposed to do in our universe.). Instead, the aether must be emitted and become part of, the universe.

And since what we call empty space is just a portion of that aether ocean with standing waves we call spacetime within it, the fact that aether is emitted in the core of the sun means that what we call empty space must be flowing out of, the sun. All stars are emitting space.

And all galaxies are emitting space. And that space, the ocean of aether, can be measured and has the property, “mass”.

Thus, we can understand Dark Matter as simply being the stuff we have in one breath been calling “empty space” and another breath we have been calling it “a seething, energetic, quantum vacuum where virtual particles pop into and out of existence”. The Dark Mass of a galaxy is simply the space between the stars, to which we previously have ascribed, “nothingness”.

Finally, now that we understand that stars are emitting what we call space, we can answer the original question: “What is Dark Energy?”.

I’m going to skip a detailed description of what a black hole must have space flowing into it, and why it must have a core where that inward flowing aether rams into itself with so much pressure that it is forced to condense. But before our universe was born, there must have been a universe sized black hole into which an enormous quantity of aether had flowed and condensed into a universe sized black hole core.

When that core breached confinement, it exploded and boiled sending it’s contents racing outward in what we call the Big Bang inflationary epoch. Our universe of contents exploded into a previously existing ocean of aether and all of our universe of matter is expanding outward like raisins in a loaf of bread as it is so often described.

The problem recently discovered is that the galaxies (raisins) are increasing the speed with which they are racing away from one another. They are accelerating.

Notice that the fact that they are accelerating doesn’t bother you?

You now know that space is flowing out of all of the galaxies in the universe. And you know that gravity is not a long range force of attraction that reaches outward and pulls on other galaxies. It is a force originating in the distant universe that pushes nearby galaxies toward one another. So there is no reason the expansion of the universe should have been slowing down.

Within this model, we expect that the expansion of the universe would just coast along, or, it would accelerate. This is opposite to what physicists believe we ought to think. They thought the universe would be coasting along or slowing down due to the attraction force of gravity.

And given that we know that stars and by extension, galaxies of stars are emitting more of what fills the entire universe, the only thing we can expect is that the expansion MUST be accelerating. We don’t know how much without equations or math. But it must be accelerating, period.

You may now listen to any talk given by a leading physicist / cosmologist on the Dark Energy problem and just smile, because you understand what they don’t.

Dark Energy is the ultra simple result of stars emitting space.

If this doesn’t quite make sense yet, just think back to when you last watched a rocket ship blast off of a launch pad. You see huge billowing clouds of gas that used to be contained within the rocket engines. That cloud of gas pushed the earth’s atmosphere away from the launch pad.

If you had billions of rockets blast off at the same time and general location on earth, you would feel a wind pushing away from the center of all of the rockets. If you watched a floating helium balloon, you would notice it being moved away from the launch area.

In the same manner, all of the stars in all of the galaxies in all of the universe, are emitting the medium out of which the universe is made, aether. So the expansion is increased as a result, and we observe that the universe is accelerating in it’s rate of expansion.

Interestingly, so called Dark Energy is nothing more or less than the continuation of Inflation. matter consists of the last droplets of aether that failed to boil away during the inflationary epoch. Today, fusion replaces boiling as a far slower, but otherwise the same, process.

And rather than Mass to Energy conversion reactions, we should think of fusion reactions as being

Mass to Space conversion reactions, and the equation we all know and love should have another term:

E = mc^2 + space

It takes about 100 Joules of energy to create a cubic meter of space, or, equivalently, it takes around a trillionth of a gram to create a cubic meter of empty space.

In summary, Dark Energy is what happens because stars emit space.

Ross Tessien