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Re: [hreg] Re: Cost of Solar

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  • phil6142@aol.com
    I only checked with one Bank on the CD so the number I got could have been too low.  But you make a good point on the mortgage and that is more than the CD
    Message 1 of 23 , Aug 7 11:28 AM
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      I only checked with one Bank on the CD so the number I got could have been too low.  But you make a good point on the mortgage and that is more than the CD anyway.  We still get a goverment subsidy to pay mortgage interest at the moment since money paid for mortgage interest is untaxed income but at any rate that is a discount rate up around 4+% that you can be pretty sure of if you have mortgage. 

      Thanks,

      Phillip

      -----Original Message-----
      From: jay.ring@... <txses@...>
      To: hreg@yahoogroups.com
      Sent: Fri, Aug 7, 2009 8:29 am
      Subject: [hreg] Re: Cost of Solar

       
      I think your interest rate is a little low.

      A 25 year treasury is yielding about 4.5%, 5-year FDIC insured CDs are about 3%.

      If you have a mortgage, you use that interest rate, since any money spent on PV will be money you didn't use to pay it off sooner. Since you can refinance to 5%, anyone who hasn't paid off their house is effectively borrowing the money at 5%.

      --- In hreg@yahoogroups. com, phil6142@... wrote:
      >
      >
      > Robert,
      >
      > Last bit of your post: 
      >
      > Anyway, if you’ve stayed with me this long, PLEASE:  ignore the rants (mine and others) and understand than the only point I REALLY am trying to make is simply that home-based PV is still 2x the cost of grid-based renewable energy at the retail electric level, if you take into account cost of capital (and some insurance adjustment).  That’s all.
      >
      >  
      >
      > Robert
      >
      >
      > While I find the discussion of national energy polotics interesting, it is not my focus at the moment so I would like to discuss a little further the implications to an individual for home-based PV.  (Since at the moment I have little control over the national polotics but I have complete control over where I spend my money.)   The discount rate of ~5% that you used to determine the cost of the capital is the primary thing driving the cost of installed PV to $0.25/kWh.  I think the value that an individual (and it is unique individual making purchases for residential solar PV) should use for this should reflect what that individual realisticly believes they can get as a return on their money.  If you are going to get a loan for the panels I guess that it would be most reasonable to use the interest rate on the loan amount. You believe that you can make >5% return in the stock market so that is the value that you should use for the cost of capital if you have the money to spend.  I recently read however that the average casual
      > investor seldom does much better than the rate of inflation (granted this study was put out by an investment company who wanted you to pay them for thier services), but at any rate I don't have the expertise or interest to study various companies and mutual funds to feel sure that I could do as well as you in the stock market therefore for my capital I think that value is too high.  The rate that I can get on long term CD's right now is ~1 to 1.5% I feel pretty sure about that investment so perhaps for my individual spending dollars a discount rate of 1.25% would be more appropriate.  If I were a person who distrusted banks and I was going to keep my $40,000 stuffed under my mattress then perhaps the discount rate should be 0%. 
      >
      > I also don't intend to purchase insurance on the panels if I decide to purchase them at all.  Instead I will do my best to protect them and live with the risk my self rather than paying the insurance company to cover the risk for me.
      >
      > I believe that we the assumptions most relevant to me and my capital (that is no insurance and capital discount rate of 1.25%) that the cost of the PV installation is around $0.15 to 0.16/kWh.  I currently pay ~$0.14/kWh for grid electricity.  So then I need to decide if the intangibles mentioned here are worth to me an extra penny or two per kiloWatt. 
      >
      > I think that with the cost of capital being such a strong driver for the cost of residential PV it is very important=2
      > 0to get a realistic picture of the cost of capital for the individual investing and not just look at averages.  Because just because you (or even if the average person) can get 5+% in the stock market it doesn't mean that I can perhaps I am a bad investor so that in my hands capital in the stock market is not worth so much.  I am not saying that 5+% is unreasonable for you, or that this number is necessarily too high, my company for instance uses a discount factor of 15% when evaluating capital investiments so they would say that 5% is way too low.  Just that to get a realistic picture of how much home-based PV will cost at your home it is essential to get a realistic value for what YOU can make on the capital rather than just looking at averages. 
      >
      > Phillip (not the same Philip with the batteries though I hate batteries)
      >

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