Are these payback periods factoring in opportunity cost? If not the game is already lost. If so periods that long are so sensitive to alternate asset returns that they could easily be infinity.
Are these payback periods factoring in opportunity cost? If not the game is already lost. If so periods that long are so sensitive to alternate asset returns that they could easily be infinity.
No - these numbers likely do not factor in opportunity cost. And yes, you can probably earn a better return elsewhere. But the reasons that I installed rooftop solar were:
* Diversification. These days stocks, bonds, real estate, crypto, and even precious metals are increasingly correlated [1]. Solar panels offer pretty consistent returns regardless of what is happening in the stock market.
* Backup power. I live in an area that is prone to natural disasters. Having a backup power source gives me a bit of peace of mind.
* Hedge against increasing energy prices. My solar panels have actually performed better than I expected due to electricity prices increasing faster than I expected.
* Clean energy. When I turn on my A/C in the summer I take some enjoyment from the fact that it's powered by the panels on my roof and not burning fossil fuels.
* Entertainment. I enjoy nerding out and learning about the tech, monitoring output, etc. A lot of people think solar panels are ugly but I actually like the way they look.
Yes the S&P 500 would have returned signficantly more than my solar panels. But I already have a lot invested in the S&P 500, solar panels were fairly inexpensive and don't make up a significant portion of my overall investments, and the psychological benefits outweigh whatever opportunity cost I have incurred.
There is also the option to finance them. You need to be careful with financing, as I think there are a lot of predatory offers out there. But if you are buying or building a house, for example, and can roll the cost of the panels into your mortgage, then that's going to reduce the up front cost and hence the opportunity cost.
But yeah when you get into the $100K range for a Tesla solar roof, then I think that starts to be a pretty substantial amount for most people that can be better spent elsewhere. Not to mention the delays, customer service issues, etc that people have experienced with Tesla - which can easily offset any peace of mind benefits.
[1] https://www.economist.com/finance-and-economics/2026/04/14/h...
I'm in the same camp as you. I'll add that my panels are returning 16% on capital spent, and it's going up as electricity prices go up.
So, yes, I could probably get a higher return if I invested that capital elsewhere, but, apart from the diversification, I get benefits beyond the raw financial return.
Firstly, earlier this year, we had a cable coming into the house fail. By the time the electrician and city had done all they needed to do to sort it out, almost 4 days had passed. We would have been without power for that time. As it happens we ran completely on solar for that period - freezers stayed frozen, could run the laundry, etc. Some stuff was limited (no oven, no hot water) but the impact was minimal compared to what it might have been.
Secondly, during the day at least, I'm not really fussed about electricity usage. If lights are on, or AC is on or whatever. So there's less "hey, that light is costing money" etc. So we end up using more electricity, but the marginal cost (during the day) is 0. My next car is electric (already on order) and that can charge at home as well (during the day, I work from home) and so that just increases the return (utilization of available power goes up.)
From a financial point of view, for me, it's a no-brainer. Obviously ymmv - everyone's numbers are different. For me the payback is in the 5-6 year range (probably under 5 once the car comes online.)
Opportunity cost meaning investing with standard rule of thumb returns? I think usually it's just total cost at installation divided by the product of power generation and energy cost. So that's $ / (W x $/Wh), which should reduce down to just hours that can be trivially converted to years
Cost of alternative investments not pursued as a result of deployed capital.
> Cost of alternative investments not pursued as a result of deployed capital.
Once you’re achieving 30-50% annual returns over 20-30 year horizons (PE, HFT, invite-only HF) , you stop caring about cost of capital for anything less than US$1 million.
But 10% VTI / VOO, sure, factor that 10% into your excel.
Bully for you
Usually, no.