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Feeding at Subsidy Trough

March 13, 2012

A novel approach for promoting solar on rooftops has emerged in California. It was described in an article in Wired Magazine.

Basically, it allows slick entrepreneurs to feed at the government subsidy trough.

Unfortunately, there is no economic justification for using taxpayer dollars in this latest gimmick.

With the price of solar panels falling to less than half what they were five years ago, it’s now possible for entrepreneurs to lease rooftop installations to homeowners for a fixed monthly rate that’s below what the homeowner would have paid the utility for electricity. This is largely made possible because of subsidies that amount to 40 to 50% of the installation cost of the PV panels.

While the homeowner is happy to pay less for electricity, and environmentalists are happy because more PV is installed, and entrepreneurs are happy to reap a return on their investment, tax payers should be aghast at this latest perversion.

The average homeowner isn’t in a position to spend $20,000 to install rooftop PV panels, but the entrepreneur can invest $20,000 and use depreciation and subsidies to earn a profit.

It takes awhile to do the arithmetic, but I’ll summarize it briefly so that the absurdity becomes clear.

Under the best of conditions, PV solar rooftop panels can produce 0.75 kWh of electricity per square yard of panel.

A two-story, 3,000 square-foot home will have a total roof top area of approximately 1,500 square feet. But, since only half can face the sun, the available area is 750 sq ft.

With electricity costing 11 cents per kWh, this installation can save $6.88 every day the sun shines. If the sun shone 365 days every year in every city in America, there might be some small justification for these investments.

However, the sun does not shine every day and this is one reason why the economics are bad.

In Phoenix, Arizona, where the sun shines 211 days each year, an installation on a two-story, 3,000-sq.-ft. home would save $1,451 during a year.

According to the Wired Magazine article, an installation now costs $20,000, where a few years ago it would have cost $45,000.

Dividing $20,000 by $1,451, we arrive at a payback period of nearly 14 years. This is a bad investment that only gets worse as we look at the results in other cities.

In Atlanta, GA, the payback would be over 26 years.

In Lincoln, NE, it would be 25 years.

In Washington DC, it would be nearly 32 years.

In Albany, NY, it’s over 42 years.

The results for a ranch-style house with more roof area would, of course, be better.

In many instances, PV panels might only last for 20 to 25 years, so homeowners might never recover their investments.

It’s true that there would be partly sunny days that might improve the picture, but few homes can have their roofs aimed directly at the sun, and this would reduce the efficiency of the rooftop PV panels.

Even with panels now costing half of what they did a few years ago because they are made in China, installing them makes no economic sense.

The entrepreneur, however, reaps important benefits from a $20,000 investment.

First, he receives $8,000 to $10,000 of tax payer money as subsidies.

Next, he receives the lease payment from the homeowner.

Next, he can depreciate the cost of the installation.

Next, he can sell any electricity that’s generated in excess of what the homeowner uses, to the utility. If net-metering is in place, the electricity is sold to the utility at the same price the utility charges, say 11 cents per kWh. If there are feed-in tariffs, the utility will pay the entrepreneur much more for the excess electricity.

Once again, a few sharp people are gaming the system at taxpayer’s expense, for installations that make no economic sense.

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10 Comments leave one →
  1. March 13, 2012 9:38 am

    Donn, thanks for another great look at the complex subject of energy. Next the government will be subsidizing breeders of hamsters to generate electricity in the wheels the cute little rodents run in. Do you think hamster generated electricity is the way to go or do you think the government should subsidize squirrel generated electricity?

    • March 14, 2012 9:55 am

      Thanks. I’ll look into Hamster Power; sounds interesting. Not sure about squirrels since they jump around too much.

  2. March 13, 2012 11:42 am

    Donn,

    I recently meet someone who signed an agreement to lease a PV system to be put their roof. I am not sure who, if anyone, has to pay for the real property taxes on their equipment. Given all the finance and tax credits accrue to the leasing company they should in theory pick up the property tax bill increment………… In any case the deal didn’t sound like much of a deal to me when they laid out some of the specifics- the family was paying the owner of the hardware Tier 1+ prices for the electricity generated by the PV system on their roof. As Andy Black discussed a few years back on lease deals— “These deals are currently a goldmine to developers and providers, but are just “ok” for the consumer, and will be until more competition comes along.”

    http://www.ongrid.net/papers/PaybackOnSolarSERG.pdf

  3. March 14, 2012 9:56 am

    Thanks.
    Donn

  4. May 19, 2012 7:42 pm

    This is an enormously complex subject but I congratulate you and enjoy your emails and blog immensely. I’ve linked to your site on mine, which collects various points of view on this topic:

    https://sites.google.com/site/freemarketsolarpower/home

    • May 20, 2012 9:41 am

      OK, the more factual information that’s available for people to see and digest, the better.
      Many thanks,
      Donn

      • kakatoa permalink
        May 20, 2012 9:52 am

        Donn,

        It looks like the state of CA is going to support the EPA’s E85 ethanol efforts (which will likely lead to earlier fuel system MTBF’s for my; weed eater, lawn mower, and 1977 automobile) as noted here:

        Energy Commission Business Meeting
        http://www.energy.ca.gov/business_meetings/index.html

        May 31, 2012

        …”14. PROPEL BIOFUELS, INC. Possible approval of Agreement ARV-11-024 for a grant of $10.1 million to Propel Biofuels, Inc. to cost share the installation of new E85 (ethanol) fueling stations. Propel Biofuels will construct and install 101 new E85 fueling stations at existing retail fueling locations statewide. (ARFVTP funding.) Contact: Larry Rillera. (5 minutes).”

  5. May 20, 2012 9:57 am

    More wasted tax payer money.

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