Can I Trust the Financials in a Solar Proposal?

If you are here with questions like the ones below, this blog post is for you.

• “Are this proposal’s solar savings realistic?”  

• “How do I check the accuracy of solar payback?”  

• “What numbers might be fake or misleading in solar quotes?”

Now that the Greener Homes Grant and Loan programs are over, you might look more closely at the financials of a Solar Proposal to see if it financially makes sense for you and your home. But before you sign on the dotted line, let me show you how we solar installers calculate solar Return On Investment (ROI) and estimated paybacks for solar systems in Alberta, so you can make an educated decision regarding solar for your home.

Before we dive in, just keep in mind that even the best solar installer cannot predict the future. Financial forecasts are just that, forecasts and, even if highly accurate, are always based on assumptions and are not a promise about the future. We will be looking at some of these assumptions below.

When reviewing any Solar Proposal, two sections are especially important to understand: Percentage Offset and the Financials Page.

What Is a Realistic Solar Offset in Alberta... and Why It’s Important

Your Solar Offset (also known as Percentage Offset) tells you how much your solar system is expected to produce, expressed as a percentage of your last 12-months of electricity consumption. For most Alberta homes, a realistic offset falls between 100% and 107%, which gives you enough production to cover seasonal variation without exceeding what the utility company will approve.

Knowing your Solar Offset is important for two key reasons.

1. Alberta has a hard cap of on how large a grid‑tied residential system can be (110% offset), so even if you wanted to dramatically oversize a system, you legally can’t. Proposals that have a Solar Offset greater than 110% are factually incorrect or intentionally misleading – so you can eliminate these from the outset..

2. If your offset is below 80%, perhaps due to limited roof space, you likely won’t be able to make the most out of the solar rates with the Solar Club or Solartility – this will significantly reduce the expected financial returns from your solar system, but it might still be worth going solar. A good installer will walk you through this decision.

How Do You Read the Financials Section of a Solar Proposal - And Can You Trust Them?

The Financial Section of Solar Proposals may include the following:

• 25-30 year Forecast of Utility Costs which assumes how much electricity will cost you over the next few decades.

• A Payback Period (in years) of how long the savings with solar will take to pay back the original cost of the solar system.

• 25-year Forecast of Solar Savings which shows how much money $$ you will save from going solar.

• Monthly Costs before and after going solar which can help you understand the immediate impact on your wallet and the cost of financing.

For example: if your system costs $20,000, with a payback period of 9 years, and your forecasted lifetime solar savings are $70,000, that means that your solar system will save you $20,000 in the first 9 years, and $50,000 in the following 16 years.

These numbers may seem simple, but calculating them requires analysis of dozens of factors and in-depth simulation and modelling that you likely won’t be able to recreate in a spreadsheet!

That being said, there are three key assumptions that solar companies make that can change the values significantly. These are:

1. System Lifetime in years: Is you are getting 25-year Forecasts of Utility costs and Solar Savings; the solar installer is most likely assuming their system lifetime is also 25 years. Solar panels are usually warranted for 25 years in Canada, but not all inverters are (especially not string inverters). Please make sure that if you see 25-year estimates anywhere, ask the installer to confirm your components will be warranted for the expected system lifetime (mainly the inverter!!).  Otherwise, make sure you or your installer are factoring in expected maintenance and replacement costs over the system lifetime.

2. Annual Increase or Escalation Rate: this is the assumed annual increase in electricity prices, which is key because this determines what you would pay over time if you didn’t go solar. This number has historically been between 4 and 6% (The AUC has lots of historical data regarding this). If a proposal uses anything above 6%, the projected returns will look far better than what Alberta’s historical price trends would realistically support. We use 4% which we think is conservative but realistic.

3. Your Current Electricity Rate: A good solar installer will look at your electricity bill and see how much you pay for electricity (cents per kWh) and use this number to calculate the payback period & solar savings, rather than conveniently assuming that you are paying more and therefore will save more by going solar. Make sure that you are aware of how much you pay for electricity and, most importantly, ask during a Solar Proposal Presentation for the company to tell you what number they use in their calculations.

Let’s Put Knowledge Into Practice: What You Should Be Asking During Any Solar Quote Presentation  

Hopefully, now you understand a little more about which numbers to look out for and which assumptions are made when calculating the financials of a solar proposal.  

So, when you have your next meeting with a solar company where they walk you through their solar proposal, these are the questions that I would recommend that you ask them:

1. How did you calculate my payback period? What utility rate increase percentage do you assume?

2. How much does electricity cost me right now in your modelling? (note down and compare this against your electrical bills)

3. What inverter system did you quote me and what warranties does it come with?

4. Do you offer any financing options, and if so, what is the interest after the initial 0% period (if applicable) and how long is the loan for? (usually 10 – 20 years). (Be cautious with private financing offers as they are often too good to be true. See our post on the topic for more information).

5. Did you take into consideration any shading from trees around my property?

Call us up anytime if you have questions about any solar proposal!

If you’d like information on how to interpret a solar quote, or if there is a number in your proposal we don’t talk about in this blog post, reach out to me directly (+1-368-999 1514) and I would be happy to help you navigate the complex world of solar financials!