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Inflation's Impact: How Your Money's Purchasing Power Changes Over Time

Ahh... the dreaded word "inflation".

We've all been hearing about it on the news, from our friends and family, and on the internet.

Heck - who hasn't heard their elders talk about "how much a gallon of milk or a gallon of gas cost when they were a kid"? And honestly, that's the best perspective one can get or give when trying to understand what inflation really means: a dollar buys less than it used to for a variety of reasons and factors.

The reality of inflation is now starting to really set in - especially for many who have retired and aren't adding "more feathers" to their "nest" so to speak.

Once the magical retirement date hits, many of us find ourselves always looking at ways to save here or there (because we want to make our retirement accounts stretch for years or even decades).

Inflation is the enemy of the retired person. With a fixed amount of money in accounts (that were likely moved to "less aggressive" investment strategies once the retirement date hit), there's only so much to go around and it will only last for so long. And with the money moved to less aggressive investment strategies, the likelihood of large gains (or losses) is minimized. But that safety has a consequence: less risk means less reward (but more security) and as such, substantially less growth of your retirement funds.

Inflation is everywhere you look: housing, construction, fuel prices, and next on "Inflation's greatest hits - Part 2022": energy prices. Oregon's two largest electrical utilities will be seeking no less than 4% rate increases this year (PP&L has already applied for a 14% rate increase to homeowners).

You're probably guessing where this is going (because some self-serving solar contractor is writing this blog, right)?

Honestly - when I think about everything transpiring - I think about my parents. They are in their 70's and have worked very hard (and much longer than age 65) to get to where they are, but regardless of their efforts, I still find myself checking in with them to discuss their retirement accounts and how they're managing their money.

And this is where and why I'm writing this today. You see, years ago, I installed solar on their home knowing that this amount of power would effectively "net-meter" them into zero dollars spent per year buying kilowatt-hours from their electric company.

I knew that if I could install enough solar on their home to generate 100% (or more) of their annual power needs, that with the magic of net-metering, they'd never need to worry about one part of their retirement again: their electric bill.

You see, with net-metering, you get kilowatt-hour credits put on your bill (during the summer months) that "roll over" to the winter months and help offset your bill in those months (when the solar is still working but not as much as it did in the summer). The dips in winter production are filled up with the excess generation from the summer months.

And that's what my parents have: enough power generated during the summer months to offset the under-production of their solar panels in the winter months.

So what does this have to do with inflation, right?

Well, consider this:

My parents won't feel the impact of inflationary driven energy costs.


Because when they create their own power (and are given kilowatt-hour credits for their overproduction in the summer months), we have put them in a position where the cost of a kilowatt-hour no longer matters.

You see - a kilowatt-hour in the summer is the same volume of power in the winter. Or at night, or during peak cost times.

A kilowatt-hour is a kilowatt hour.

How much the electric company charges for it does not matter. Because when they use a kilowatt-hour credit at night or during the winter or during a peak-cost timeframe, they are using up a "volume" of power they have as a credit - and not a $$ amount of credit.

And THAT (my friends) is how my parents have stopped inflation and rate increases from eating away at their retirement.

Yes... their son installed this for them - so they got the family discount.

But in real world terms, I have always been someone who looked at what we sell and said "in needs to make CENTS" for our customers.

Our average homeowner sees an IRR (internal rate of return on their investment into solar) of 7.5%

That means that in average years with average rate increases from your electric company, the investment you made into solar is beating their rate increases by 3% or more per year (it's higher than that when the electric company raises their rates more than the estimated 4% per year).

Finally - and this is maybe the easiest way to understand how solar panels stave off energy cost inflation is to look at it like this:

1) with a 4% rate increase per year from the electric company, the averaged cost of power over the next 25 years works out to 20.75 cents per kilowatt hour (current rates being 11.5 cents and rates in 25 years estimated to be 30 cents per kilowatt-hour)

2) after accounting for tax credits and incentives, your cost of power for solar generated power on your roof for the next 25 years is actually LESS than 9.5 cents per kilowatt hour (we get there by dividing the net cost of the system by the estimated power production over the next 25 years).

And... because my parents own their system (just like all of our customers), they own the power production as well. And that means that once they had solar installed on their roof, it locked their electricity rates in at LESS than the current rate they were paying.


Thanks for reading.

Josh Kopczynski

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