How to Measure Return on Green Investment


I am currently in Tully’s Coffee shop in San Francisco – the weather is beautiful today which I am quite thankful for. I have had enough of Boston’s impersonation of Seattle over the last 3-4 weeks.

Speaking of sunny weather (and the subsequent solar power/alternative energy it can bring), a reader sent me a note telling me that she has invested in a windmill for electricity generation and she was hoping she did not make a mistake as some of her neighbors were laughing at her.

First off, I will say – anything that even resembles advanced planning or pre-planning in this country often amuses the average person. Any idea such as buying gold to protect from inflation or going off the energy grid to save money, prevent energy price inflation, and increase independence are both considered a bit loupy by the average person.

of course the average person in the US is typically broke, negative, and generally boring so why pay any attention to what they think?

With that said, let’s do a little exercise to help someone see if a green investment such as a windmill or solar panels, etc would be a good investment. Since I don’t know all the numbers on a windmill investment, I will use some numbers I do know – from a client’s research on investing in solar roof panels.

Here are the data inputs for our analysis:

  1. cost of roof panels: $10,000
  2. client’s current electric bill – approximately $95/month
  3. tax credit available: 30% unlimited in 2009 on cost (see HERE for more info)

The simple analysis works like this. Invest $10,000. These panels then eliminate a $95/mo bill – which is similar to getting a $95/mo. dividend on that investment.

The tax credit would be $3,000 – 30% of $10,000.

Therefore, total first year return on investment is $3,000 + 12 months x $95, or $1,140 for a total of $4,140 in year one and $1,140 each year after, NOT factoring in electricity cost increases that will happen if grid services are used and service work on the panels.

This equates to a 41.4% return in year one and 11.4% return in years two on. If these numbers are real and you can find a better investment, then have at it. I don’t have another investment in mind that would give me over 10% year with some certainty like this would.

This analysis is easy to lay out on a spreadsheet too. For some people, this can make sense. Just plug in your numbers and see what happens.

Chris Grande