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Life Off-the-Grid

What’s the Pay Back?

For 10 years I’ve been giving workshops on renewable energy and the question I am asked time and time again is “What’s the payback?” Electricity is relatively cheap in North America and for some reason people want a payback. They do not expect a payback from their car, their hot tub, their furnace or their granite counter top, but a solar panel has to pay for itself. The payback has always been reasonable but it just got great. In fact, I challenge you to find as good a return on your investment in the near term as an investment in renewable energy. Well I’ll qualify that, a better return than any legal paybacks. People who invested with Bernie Madoff were either greedy or delusional because you simply cannot return 12% a year consistently in the market.

With the average investment portfolio down 40% the payback most people are getting on their investments is brutal. You just lost 10 years of gains in about 6 months and there’s no telling when they’ll come back. If you had invested in replacing all your lights with energy efficient compact fluorescent light bulbs your return on investment or ROI would have been 100% with them effectively paying for themselves in about 8 weeks. That’s 100% return on investment in energy efficiency, negative 40% on your stocks. Sounds pretty good so far.

Let’s pretend that you invested $7,000 in a Dow Jones Exchange Traded Fund which tracks the market without the high fees and often poor performance of a mutual fund. If you had invested $7,000 in 2002 in the Dow it would be worth about 25% less or $5,250 today (with the Dow around 7,000). That’s a “negative payback.” If on the other hand you had invested that $7,000 in a Solar Domestic Hot Water (SDHW) system, like the Enerworks unit I just installed, it would be paid for. That’s a fantastic payback! That’s a 15% ROI and an exceptional payback, all from a perfectly legal investment. The bonus is that you now would be getting 50 to 60% of your hot water for free, and you would have reduced your carbon footprint on the plant substantially. Looks like a win win investment to me.

Now let’s say you invested $20,000 in the Dow in 1997. Right now that money would be worth the same, well the same in principle but actually less because you have to factor in the inflation over that time period. Or how about another example. What if you had invested $30,000 in an SUV in 1997? Right now it would have very little value. Its payback would be zero. If on the other hand you had invested $20,000 in photovoltaic panels in 1997 you would be well on your way to paying them off. Depending on where you live and the government subsidies they may actually be paid off by now. Once those solar panels are paid off you get “Free Power for Life!” The panels will come with a 25 to 30 year warranty which means the manufacturers have great confidence that these will continue to produce for a very long time. The original solar panels shot into space in the 1960s are still working so there is no effective life span on them.

Now let’s look at the real bonus of those solar panels. They have dramatically reduced your carbon footprint. They have also helped to inflation proof your family from the inevitable increases in energy prices that are going to become more severe in the future as we start to run out of the easy to find energy sources. And they’ve helped make your home more independent from power disruptions. Utilities across North America have not been keeping up with generation or with infrastructure so the grid is likely to be as reliable in the future. If you like having your fridge and freezer keep your food cold and having those energy efficient lights on at night, your investment in solar panels provide that.

The Japanese Nikkei Index peaked in 1989 at 39,000 at the height of a housing bubble, and then crashed. For the last 20 years the Japanese government has done everything it can to revive its economy and stock market, but to no avail. They pumped $500 billion US into the banks to try and recapitalize them. It dropped the interest rate to zero, creating the “carry trade” where other countries would borrow money at no interest but nothing it did could get Japanese consumers spending again and bring back the market. This is no lightweight stock market either. It includes Sony, Toyota, Sharp, Honda, Panasonic, Mazda, Fuiji, Suzuki, Kubota, Nikon, Kawasaki, Mitsubishi, Isuzu, Hitachi and hundreds of other companies whose products you know. The similarities between our “post housing bubble” mess and what Japan began experiencing 20 years ago are striking, and there is every indication from a variety of economists that this will be a prolonged and drawn out economic upheaval. The likelihood that stock markets are going to return to their former glory are very remote, certainly over the short term and potentially over the long term.

Nikkei Index 1985 – 2009

The future returns you can expect by investing in renewable energy though are exceptional. Solar panels and wind turbines offer a great return on investment with all the added benefits such as energy inflation protection and reducing your impact on a very challenged climate. The payback is here. It’s better than the stock market. It’s better than any financial vehicle you’ll find today. What was that reason you were holding back again?


1 Comment

  1. James

    I would be interested to know how you get a payback of $1000 a year on your Solar DHW system from 2002 to 2009? Does your payback information include the maintenance and parts replacement on the system?

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