When is solar electric affordable? How long does it take to pay for itself? Should I buy a system, lease a system, or let a solar vendor like SolarCity become my utility company. Do I buy in now or do I wait till it gets cheaper? And should I take the environment into account?

These are the complex questions one has to ask when buying solar. So I’ll try to deal with them in a logical order taking into account different kinds of buyers with different economics and different values. I’ll try to do the easy ones first and work my way up to interesting and tricky ways to look at the issue.

First – if the environment is your concern the sooner the better. Every KWH you make is a KWH not generated by coal, nuclear, or natural gas. Different states get their power from different places so your state could be clean or dirty. So if you want to stopp adding carbon to the environment then that adds justification to go for it.

But – let’s just say that the environment isn’t a big factor and you just want to look at the numbers? Should you jump in now or wait till next year when it’s better and cheaper than it is now? Why buy a system now that pays for itself in 10 years if you can get one next year that pays for itself in 8 years? let’s look at different ways of viewing the cost problem.

let’s use round numbers just to keep things simple. Your electric bill is $100/month. A solar installer Will sell you a solar system for $12,000 installed. So assuming it makes 100% of your power and ignoring a meter bill in 10 years the system has paid for itself and for the next 10 years after that you have free power. Kind of like the way it feels to pay off your mortgage.

This very simple model isn’t quite accurate because it doesn’t take into account that power rates are going up. As the cost of carbon based energy rises electric rates will increase. So if rates go up 7% a year then after 10 years your bill would have been $200/month rather than $100. That makes the break even point sooner, say 8 years. And after 20 years the rate would be $400/month and you’re paying nothing.

But is that the best way to look at it? Do you really want to put the money up front and wait 8 years to justify it – or you don’t have the money and need to borrow it. If you borrow the money then you aren’t putting your money down and the cost of your power is your loan payment. On a 20 year note at 5% interest your payment is $80 which is $20 less than your current electric bill and stays flat for 20 years while power rates increase from $100 now to $400 20 years from now. So in that sense you are money ahead immediately.

Another method is the idea that companies like SolarCity become your utility company. You are never buying and you will never own the solar panels. SolarCity or your other solar vendor owns the equipment and they become your “electric company”. You still have to pay meter rent but most of your electricity will be billed to you by SolarCity, and at a lower rate than the utility companies. but unlike the flat rate that you would have if you bought the panels with a loan, SolarCity can increase your rates no more than 3% a year. But that’s a lower rate of increase that the utility companies have increased their rates historically.

So why would this be better that just getting a loan? Because SolarCity is so large and buys in volume and have their installation perfected, they can put solar on your roof cheaper than you can from a local contractor. And because they retain ownership in the equipment they can take tax deductions for depreciation that home owners can’t take. So the initial electric rate they charge you might start out significantly lower than your loan payment, making it somewhat more even.

Additionally SolarCity, because they are the biggest, is more likely to do it right. That takes away some of the risk of someone not doing it right and you’re paying for something that doesn’t work. And since SolarCity is providing power and owns the equipment they also maintain it. So you have no maintenance costs. So it might cost more – but it’s more worry free.

Finally – and this is the most imaginative solution – I think there’s a way to get it all for free. but there’s some risk involved and it relies on assumptions that may or may not happen. But this is what I’m doing.

I’m starting to save and invest for retirement and buying some stocks in places where I think I’m getting in on the ground floor of an emerging market. So here’s what I’m doing. i’m taking the money I would have spent on the solar system doing it myself and buying SolarCity stock with it. The idea being that SCTY stock is going to increase in value enough to pay my electric bill. $12,000 today will buy 200 shares of SCTY at $60/share. If the stock goes up $6 in this first year then it pays my power bill now, and my electricity is basically free. But – who knows if that will be a good investment. So far I’m down about $1000. But that’s to be expected short term.

SolarCity also has a referral program where they will pay you $250 for a referral so if you refer 4 people a year, in my case, I make enough to pay for my power. So even if I don’t get rich on SCTY stock I might make it up in referrals. So there’s 2 ways to get your electricity totally free.

So – do you jump in now or wait and see? It’s just like buying a computer or cell phone. If you wait it’s just going to get better. But the longer you wait the more savings you’re missing out on. A few years ago the numbers were a lot harder to justify than today. And it depends on where you live. Here in California where electric rates are high and the state is solar friendly, it makes sense here. In your state it might not make sense yet. If you hold off it’s just going to get better.

The bottom line is carbon based fuels are going away and solar is going to replace it. So the only choice is if you are going to get in early or later. I’m a geek and solar is kool and I get a new toy to play with so I’m in. Hope this information is useful in helping you see solar for a new perspective.