Lost your appetite for the stock market lately? If you find yourself looking for a better investment option in these unsavory economic times, you’re not alone.

The good news is that clean energy from the sun continues to flow freely toward planet earth, just waiting to be harvested to produce renewable energy and solid investment returns. If you have an 8 to 15-year time horizon in which you wish to grow your money, solar energy is a great opportunity.

Solar electric and solar hot water systems can be viewed as unique ‘investment vehicles.’ These renewable energy systems produce measurable ‘income’ because they reduce or eliminate fossil fuel energy costs. As energy costs escalate over time, the value of the energy savings (i.e. your income stream) increases.

Let’s say you want to reduce your oil consumption, and household carbon footprint, by installing a solar domestic hot water system. The installed cost for a system that will meet the demand of a 4-person household is roughly $11,000. The federal government provides a $2,000 tax credit incentive for you to do this project and the state of Maine provides a $1,000 rebate (unfortunately, this program is on a ‘lottery’ basis, so it is not guaranteed that you will receive the state rebate). In homes where an oil boiler is being used to produce domestic hot water, the savings from the solar hot water system average about 300 gallons annually while CO2 emissions are reduced by more than 5,000 lbs. per year.

Here’s the economic math on a solar hot water system:

$11,000 rough installed cost
-($2,000) fed tax credit
-($1,000) state rebate, hopefully
$8,000 net system cost

If the system saves 300 gallons of oil at $3.00 per gallon, that’s $900 per year in fuel savings. If you finance the system installation with a home equity loan at 6%, the monthly loan payment is $57.31 and the loan cost per year is $687.77. Since you are saving about $900 in fuel costs per year, your investment is ‘cash flow positive’ from day one! Under this 20-year system loan scenario, the cumulative savings are nearly $30,000 at the end of the loan! We are not aware of any other home appliance investment you can make that will generate these kinds of returns.

Below is a spreadsheet that provides a snapshot of the economics of a solar hot water system financed with a 6% home equity loan.

Financials:
Cost of System or upgrade$8,000
Loan interest rate6%
Loan term20year
Federal income tax rate34%
Energy Performance:
Expected annual fuel savings300G
Todays fuel cost$3.00$/Gall
Expected annual energy inflation6%
Results:
Loan Cost per month($57.31)
Loan Cost per year($687.77)
YearSavingsAnnual loan cost pre taxLoan interest paidAnnual cost after taxesNet yearly savingsTotal savings
1$900$688$474$527$373$373
2$972$688$461$531$441$814
3$1,050$688$447$536$514$1,328
4$1,134$688$432$541$593$1,921
5$1,224$688$416$546$678$2,600
6$1,322$688$400$552$771$3,370
7$1,428$688$382$558$870$4,240
8$1,542$688$363$564$978$5,218
9$1,666$688$343$571$1,095$6,313
10$1,799$688$322$578$1,221$7,534
11$1,943$688$299$586$1,357$8,891
12$2,098$688$275$594$1,504$10,395
13$2,266$688$250$603$1,663$12,059
14$2,448$688$223$612$1,836$13,894
15$2,643$688$194$622$2,022$15,916
16$2,855$688$164$632$2,223$18,139
17$3,083$688$131$643$2,440$20,579
18$3,330$688$97$655$2,675$23,254
19$3,596$688$61$667$2,929$26,183
20$3,884$688$22$680$3,204$29,387

Check out our newsletter next month for an economic analysis of a solar electricity investment.
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