High short-term costs barrier to long-term savings


editors-blog-entry3The interviews we have been conducting of current solar-charged drivers for SolarChargedDriving.Com make it clear that long-term savings are one of the great benefits of powering a plug-in vehicle partially, or fully, via home solar-generated electricity.

For example, after eight years and 137,000 solar-charged miles, J. Marvin Campbell of Culver City, Calif. estimates he’s saved $27,000 (assuming gas costs of $3 per gallon). Similarly, Darell Dickey says he’s saved $20,000 after seven years and about 107,000 miles of solar-charged driving. Several other solar-charged drivers we’ve talked to also say they’ve realized substantial economic savings by solar-charging an EV.

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It makes sense. The average American spends about $1,500 per year on gasoline. With a solar-charged plug-in car, you have no gasoline costs, and, in ideal cases, you’re paying your electric utility little to no money for your electricity.

The (Big) trouble is, you’ve got to find a way to put out a substantial sum of cash to get to the point where you’re fueling your car(s) for free.

This large — frankly, right now, to us, if feels like a giant — upfront short-term cost stands as a huge barrier to solar-charged driving, to solar in general, and to plug-in cars.

The irony, which is just as giant as the upfront, short(er) term costs, is that driving on sun and powering your home with it will cost you less in the long-term — if only you can get over the short-term cost hurdle.

So, what does the short-term vs. long-term math actually look like for us?

Here are our hard (and rather daunting) numbers:

  • $11,500 for a 5.5 kW solar system that will generate about 8,000 kWh per year (we will get a $3,000 Federal Tax Credit; this means so-called “out-of-pocket” costs will = $8,500, or about $5.56 per watt)
  • $25,000 to $50,000 for an electric car

Can we afford to save money?
The very ironic question we’re facing right now is: Can we afford to save money by solar-charging a car?

We will have the $10,500 to hand over to REC Solar in June of this year for what we hope will be a 5.5 kW system — thanks to the Colorado PUC’s so-called 120-percent rule, we’re still a bit unsure what Xcel Energy will do in terms of giving us a rebate for that system, though they’ve promised to do so (see ‘What comes first — the solar system or the EV?’ for more on this.)

But then we’ll have no money at all saved to buy an electric car.

We own two clunkers: a 1992 Acura Integra (with 141,000 miles), which I purchased new in May of 1992, and a 1994 Toyota Camry (265,000 miles), a hand-me down from my brother. Both are currently running well (knock on wood!).

money-sign-panel-vert1We spend about $1,000 a year to fuel them. Maintenance costs between the two cars are averaging about $500 per year. We have no car payments and haven’t had one for 15 years! (I have to admit, I hate car payments). So total car operating costs per year (excluding insurance, registration, etc.) are about $1,500 per year.

Clearly, one, and quite possibly, both of our clunkers is/are likely to create an increasing money drag within the next two to three years. This means we will need to replace one, and possibly both, of them within that time period.

It’s certainly possible that one of our replacement cars will be a new one — which we will probably park in our garage for the next two decades.

Additionally, given that we have a family of four, and given that, if we were to buy a gas-powered car, a Honda is a likely purchase, let’s say we’re looking at something between $20,000 to $25,000 (with a Honda Accord a likely buy).

A used car?
A second replacement car, if it were to be a conventional gas auto, would probably be a used one, given our financial constraints. Personally, I think we’ll need to plunk down a minimum of $8,000 to get a decent used car — it makes no sense to buy a used car that immediatley turns into a money pit.

In terms of the solar system and our home electric use, our annual electric costs have been very low, about $500 to $600 per year. Of course, they’ve gone up this winter as we’ve switched much of our heat to electric from gas in an effort to snag the Xcel Rebate for the solar system size that we need to power 100-percent of our home electric and about 12,000 miles in an electric car per year (again, a 5.5 kW system with an estimated output of 8,000 kWh per year).

REC Solar estimates our payback period — without taking into consideration saved gasoline money, solar companies aren’t doing this yet, although check back in three years and see what they’re doing then! — at about seven years. This payback estimate assumes electric rates will rise about 5 percent per year.

So, after the overview, where do we stand in terms of the giant short-term costs vs. long-term savings question?

Where do we stand on potential savings?
The answer, is, it depends and, additionally, it’s a bit complex.

It depends because the bigger picture hinges heavily on how long we (are able to) hold onto our clunkers. If they go another five years without incurring more than $500 maintenance costs each year between them, and gas prices remain stable for five years — a very big if — we’d spend $7,500 to maintain and fuel our 1992 Integra and 1994 Camry over that time period.

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That’s far less than the minimum $25,000 we’ll have to spend to get a highway capable EV like a Nissan LEAF, which so far appears likely to be the most affordable of the new production EVs.

Of course, even if our current cars do last another five years with low maintenance costs and low gasoline costs, when they do die, and die they will, we will be out around $4,000 (I chopped the $7,500 in half because, obviously, one electric car replaces only one of our gas cars) we could have “saved” by buying an electric car and powering with solar-generated electricity five years earlier. And, of course, we’ll still have to buy a replacement car at that point.

This is what I mean by the savings picture being rather complicated.

The high cost of saving money
The cost of financing big purchases that will “save” you money in the long run comprises another crucial part of the savings puzzle. Technically speaking, we have saved the cash for our solar system — but we will have ended up financing that cash indirectly because saving the cash slowed our ability to pay down other debts.

gas-pump1The big financing question in terms of calculating the cost/savings of the solar-charged driving is a car loan. We won’t ever be able to scrape enough cash together to buy a $25,000 electric car outright.

In fact, we’ll have to take out a loan to cover something approaching 80-percent of that cost — that’s the problem with keeping a car for 20 years, you don’t get much money for it when you sell it šŸ˜‰

An annual interest rate of 7.5 percent is likely on a new auto loan — I doubt there will be 0 percent interest deals for new plug-ins. Assuming we can scrape $5,000 together to put down on a $25,000 electric car (the price I’m assuming it will be after the $7,500 Federal Tax Credit), we’d have to finance $20,000. With a five-year loan, we’d end up paying about $9,000 in interest payments for that new car.

At this point, solar-charging an EV would appear to be guaranteed money drain for us.

However, that’s only assuming our clunkers last forever, which, again, they won’t.

When they die, we’ll be facing a very similar cost for a new gas-powered car such as a Honda Accord as for a new EV. Yes, the new Accord will likely be a bit cheaper than the new EV. But we won’t have to pay for gas for the EV, while we’ll be forking over $800 to $1,000 per year — and probably more, as gas prices are certain to rise over time — to fuel the gas-powered Accord for, in our case, probably 20 years (remember, we hold on to our new cars!).

In contrast, we’ll be able to power the EV for free off of electricity generated by our admittedly — when viewed through a short-term lens — pricey solar system.

So, a final look at the math, this time with less background and talk and more pure numbers:

A. The solar-charged scenario

  • $8,500 = total out-of-pocket costs for 5.5 kW solar system (generates 8,000 kwH per year, enough to cover 100-percent of our home electric use + 12,000 miles a year in an EV)
  • $29,000 = estimated total out-of-pocket costs for a new Nissan LEAF, or similarly priced EV, including $20,000 financed at a 7.5% annual interest rate, or about $9,000 in interest costs
  • Total cost = $37,500

B. The non-solar-charged + the clunker cars that last ‘forever’ + gas prices that stay the same forever scenario

  • $800 per year = current annual electric costs (+ 5% rate increase every year)
    $1,500 per year = annual gasoline and maintenance cost for our 1992 Integra & 1994 Camry
  • x 10 years (as an example) = $25,062

C. The non-solar-charged + the inevitable having to buy a new gas-powered car scenario

  • $29,000 = estimated total out-of-pocket costs for new Honda Accord, or similarly priced mid-sized gas-powered sedan including $20,000 financed at a 7.5 annual interest rate, or about $9,000 in interest costs
  • $800 per year = current annual electric costs (+ 5% rate increase every year)
    $1,500 per year = annual gasoline and maintenance cost for our 1992 Integra & 1994 Camry
  • x 10 years (as an example) = $54,062

When you compare scenario ‘A’ to ‘C’, the long-term savings solar-charging an EV generates become clear. In this particular case, we’re talking about nearly $17,000 in savings. Of course, those savings are almost certainly going to be higher, indeed, quite a bit higher because:

a) I did not calculate inflation into the gasoline costs as part of either scenario ‘A’ or ‘C’ above
b) maintenance costs for EVs are expected to be much lower than those for gas-powered cars;

In fact, this is the first time I’ve gotten a bit “down and dirty” with specific numbers — math is not something I’m inclined to do unless I have to do it ;-).

How do you scrape together the cash for the home solar system and for the electric car so that you can save money in the first place?

It’s clear to me now that I’ve done the math that, when one looks at the long-term cost picture, solar-charging saves money (the environmental benefits have always been my primary motivation).


But — and here’s the giant and frustrating stumbling point — how do you scrape together the cash for the home solar system and for the electric car so that you can save money in the first place?

For those with good credit and/or fortunate enough not to be upside down in their mortgage like us (being upside down doesn’t mean we are behind in our payments; we aren’t; it means that, thanks to the American real-estate slump, you owe more on your home than you could sell it for), taking out a separate (home equity) loan for the solar system and the car is an option, though, of course, this adds interest costs to the solar system.

Assuming a $11,500 loan — enough to cover the entire cash cost of our 5.5 kW solar system — this would mean only an additional $1,800 in total costs for a four-year loan at 7.5 interest. So, for example, in our own case, even if we did borrow the money to pay for our solar system we would still realize about $14,000 in savings over ten years, and it’s likely that many others would realize similar savings.

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