4 ms·

Unfortunately it isn't a 16% return because he can't sell that system for what he paid. If you buy a stock at $300 and sell it for $348, that's a 16% return. Bu

by pilom 9y ago

Unfortunately it isn't a 16% return because he can't sell that system for what he paid. If you buy a stock at $300 and sell it for $348, that's a 16% return. But for him, he probably would have trouble selling all of that for $100 (the battery will be worthless in about 2 years given how far it is being discharged and very few people buy these things on craigslist for anywhere near what they cost). If he can sell it in 6.5 for $100 he has now made $400 in 6.5 years, a 4.5% annual return.

galdosdi 9y ago
Being able to sell the system is irrelevant as long as the system will last indefinitely (or say, 30 years, which approximates the same value anyway). Everything but the battery is solid state and should last indefinitely -- or certainly more than 8 years. I already excluded the battery as a consumable to calculate the 13% rate of return. But one thing you are right about is the other parts will fail eventually, dragging the return down as well. Solid state parts can last decades though. The best way to calculate the rate of return would be to actually get accurate numbers for lifespans for all the parts and amortize them. It's probably greater than 4.5% and lower than 13%. Regardless, at near zero risk, even 5% is a great return these days, so it's totally worth doing. Since you like the stock analogy -- a share bought at $100, that earns $10 a year, and that for whatever reason we confidently expect to keep earning $10 every year for decades, returns a 10% rate of return. The fact that the stock now sells for $50 makes no difference, as long as we believe we are right and the market is wrong about the likely future earnings.
- pilom 9y ago
  Honestly I think even my number is a little optimistic because I doubt his battery lasts 2 years. Most lead acid batteries are only good for 100-200 100% cycles. I also doubt that the PWM controller or the inverter last 30 years. I've seen failure rates as high as 50% for cheap PWM controllers like that after 10 years. The inverter is likely similar. Sure you can buy stuff that will last 30 years but that will be much more expensive. 8 years seems like an appropriate amortization schedule which puts my $100 at 6.5 years as a little generous.
- JumpCrisscross 9y ago
  > as long as we believe we are right and the market is wrong about the likely future earnings In a liquid market like the stock market, the odds of this being true is small. Recognizing a 10% return against a stock that's crashed 50% borders on, depending on if you're investing your money or others', delusion and fraud, respectively. There is no liquid secondary market for home-solar components, however, so approximating cash flows and amortization schedules works. (If you've heard the terms "mark to market" and "mark to model", this is what they're talking about.)
  - galdosdi 9y ago
    Yup, it's very hard to make a good return in the competitive stock market, but easy to make a good return in the market you have exclusive monopoly access to: making investments that cut your own personal costs of living
- jldugger 9y ago
  > Solid state parts can last decades though. But every year we seem to get better silicon. Better CPUs, GPUS, SSDs, etc. Same holds for photovoltaics. To run with the investing analogy, it's like claiming you bought a bond with a 5 percent return, when six months later interest rates shift in the bond market. Now the rest of society is getting 7 percent returns, and you have to sell your to sell your bond at a discount to compensate. Sure you can hold the bond to maturity, but you're still missing out on that 2 percent return in the greater market.
  - emiliobumachar 9y ago
    To run further with that same analogy, what if you expected bond rates to keep increasing for 50 years? It would not seem wise to keep your savings in a checkings account for these same 50 years, to then get the highest rate. Yet that's what most of us keep doing with solar, missing out on a good deal because it gets better every year.
    - galdosdi 9y ago
      Exactly! Thank you! Assuming these are real, not nominal rates, who cares? I'd rather maybe miss out on the extra 2% than definitely miss out on the original 5%. Why be jealous? You can also hedge your bets by gradually increasing your investment (maybe even "dollar cost averaging" or some other strategy) For solar, that could mean getting a small system like the OP describes, trying it for a year or two, then expanding it a little more every year or two with the latest cheapest most effecient panels. This should work even better than dollar cost averaging does for securities, since you know it's unlikely the cost of panels will go up.

by pilom 9y ago

galdosdi 9y ago

Being able to sell the system is irrelevant as long as the system will last indefinitely (or say, 30 years, which approximates the same value anyway). Everything but the battery is solid state and should last indefinitely -- or certainly more than 8 years. I already excluded the battery as a consumable to calculate the 13% rate of return. But one thing you are right about is the other parts will fail eventually, dragging the return down as well. Solid state parts can last decades though. The best way to calculate the rate of return would be to actually get accurate numbers for lifespans for all the parts and amortize them. It's probably greater than 4.5% and lower than 13%. Regardless, at near zero risk, even 5% is a great return these days, so it's totally worth doing. Since you like the stock analogy -- a share bought at $100, that earns $10 a year, and that for whatever reason we confidently expect to keep earning $10 every year for decades, returns a 10% rate of return. The fact that the stock now sells for $50 makes no difference, as long as we believe we are right and the market is wrong about the likely future earnings.

pilom 9y ago
Honestly I think even my number is a little optimistic because I doubt his battery lasts 2 years. Most lead acid batteries are only good for 100-200 100% cycles. I also doubt that the PWM controller or the inverter last 30 years. I've seen failure rates as high as 50% for cheap PWM controllers like that after 10 years. The inverter is likely similar. Sure you can buy stuff that will last 30 years but that will be much more expensive. 8 years seems like an appropriate amortization schedule which puts my $100 at 6.5 years as a little generous.
JumpCrisscross 9y ago
> as long as we believe we are right and the market is wrong about the likely future earnings In a liquid market like the stock market, the odds of this being true is small. Recognizing a 10% return against a stock that's crashed 50% borders on, depending on if you're investing your money or others', delusion and fraud, respectively. There is no liquid secondary market for home-solar components, however, so approximating cash flows and amortization schedules works. (If you've heard the terms "mark to market" and "mark to model", this is what they're talking about.)
- galdosdi 9y ago
  Yup, it's very hard to make a good return in the competitive stock market, but easy to make a good return in the market you have exclusive monopoly access to: making investments that cut your own personal costs of living
jldugger 9y ago
> Solid state parts can last decades though. But every year we seem to get better silicon. Better CPUs, GPUS, SSDs, etc. Same holds for photovoltaics. To run with the investing analogy, it's like claiming you bought a bond with a 5 percent return, when six months later interest rates shift in the bond market. Now the rest of society is getting 7 percent returns, and you have to sell your to sell your bond at a discount to compensate. Sure you can hold the bond to maturity, but you're still missing out on that 2 percent return in the greater market.
- emiliobumachar 9y ago
  To run further with that same analogy, what if you expected bond rates to keep increasing for 50 years? It would not seem wise to keep your savings in a checkings account for these same 50 years, to then get the highest rate. Yet that's what most of us keep doing with solar, missing out on a good deal because it gets better every year.
  - galdosdi 9y ago
    Exactly! Thank you! Assuming these are real, not nominal rates, who cares? I'd rather maybe miss out on the extra 2% than definitely miss out on the original 5%. Why be jealous? You can also hedge your bets by gradually increasing your investment (maybe even "dollar cost averaging" or some other strategy) For solar, that could mean getting a small system like the OP describes, trying it for a year or two, then expanding it a little more every year or two with the latest cheapest most effecient panels. This should work even better than dollar cost averaging does for securities, since you know it's unlikely the cost of panels will go up.