Gaming Solar Subsidies
A recent Wall Street Journal article highlighted how shrewd investors are using government subsidies, i.e., tax payer money, to promote investments in solar rooftop installations.
A report published this February by GTM1 research, and Solar Energy Industries Association (SEIA) disclosed that 50% or more of residential PV installations in major markets in 2012 were leased installations using tax-payer funded subsidies.
This report put a spotlight on the practice.
Rooftop PV Solar Installation
It’s difficult for the typical homeowner to spend $20,000 for a rooftop solar system, but a wily investor can. Investors can offer to install the roof top system while also significantly cutting the homeowner’s electricity bill.
The homeowner signs the contract and saves money, while the investor also makes money from an otherwise bad investment.
The investor makes money by taking advantage of government subsidies – here’s how2.
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 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.
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.
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 where there are fewer sunny days.
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 solar panels aimed directly at the sun all day, and this would reduce the efficiency of the rooftop PV panels. (Equipping rooftop panels to follow the sun during the day and as the sun moves north and south during the seasons would substantially increase costs.)
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 agreed upon monthly payment for electricity 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 investor much more for the excess electricity.
It should be noted that utilities are paying 11 cents/kWh, or more, to the investors for electricity the utilities could have generated for around 4 cents/kWh. In addition, the utilities also have to pay for overhead, such as maintaining the distribution system, which the investor doesn’t pay for.
South Carolina currently doesn’t permit leasing of solar panels, but Senator Paul Campbell, R-Goose Creek, is one of several cosponsors of a bill that would change that and allow investors to game the system.
Rooftop PV solar systems are a bad investment being subsidized with tax-payer dollars.
The SEIA report predicts that the rooftop PV solar business will increase to $5.7 billion in three years. Unless subsidies are eliminated, a significant portion of the $5.7 billion will be derived from tax payers.
Notes:
- Greentech Media, Inc.
- The financial and solar data was also used in the March, 2012 article, Feeding on Solar Subsidies. The new SEIA report adds emphasis to what was reported last year.
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Excellent points, Donn. Your numbers can’t possibly be accurate when thinking about subsidization state-by-state, and that’s understandable, but generally you’ve got this down.
Solar greenies no doubt would reply that hey, brown power’s subsidized so why not solar? I think I have your agreement that two wrongs never make a right, and that we should de-subsidize both.
Meanwhile, I favor letting OTHER people (the Chinese, Germans, etc.) subsidize the Solar PV industry up to a critical mass (i.e., where we Americans can then erect solar arrays at $1/watt, which fetches a 10-year payback on a 30-year system with the utility paying fair market rate for excess power). Why? Two reasons: (1) The core lure of solar is inescapable — a free source of fuel; and (2) as technology evolves to more profitably capture that free fuel, the free market will pick the winner.
I’m confident that for the electricity market it will be distributed solar PV, as blended with other renewable and non-renewable energy sources.
Critical point: The total cost of each form of energy should be illuminated and rationally analyzed (again, we are indebted to you for your blog, it’s my favorite). I think it’s fair to assign a dollar cost to negative externalities — the pollution costs to brown power like coal and nukes — when deciding what is the better fuel source and what we’re all willing to invest to get it. So if my utility is paying $.14/KWH for peak power coming from a coal-based plant but that source itself is being subsidized or is costing us, say, $.04/KWH in pollution harm, then the true ($.18/KWH, plus subsidy boost) cost should be plugged in when, for example, we all decide what’s fair to pay Solar PV energy producers during peak demand.
Currently my utility pays me a flat rate of $.083/KWH for my solar array’s excess power. That may be fair. I don’t know for sure because total costs are never revealed to me by my utility.
In any event, your thoughts are very valuable, and I appreciate the time it takes for you to research your facts and articulate your views. I have linked this particular column to the Introduction section of my Free Market Solar Power blog: https://sites.google.com/site/freemarketsolarpower/
Thanks again,
Chris
Thanks for the compliment.
With respect to externalities: I have never accepted the concept of including the cost of externalities because it boils down to opinions. For example: Some people think CO2 is bad (Global Warming), while others think CO2 is good (it promotes plant growth).
Do we increase or lower the cost because of this externality?
Should strip mining be charged, or should it be credited for restoring the land after mining is complete, the cost of which is already included in the cost of the end product, be it coal or phosphates?
Pricing art is 100% opinion-based. Pricing real-estate location cost is in no small part group-opinion based (“Gee, that’s a nice area, I’d like to live there, I’ll thus pay more”).
You accept that, as do I and “the masses.”
Why not with externalities? Why not with the price others should pay for polluting the air I must breathe?
We elect leaders, and some of us run for office, to do precisely that: Impose our “opinions” on others in the form of tough choices (example: impose guzzler taxes on energy-wasting vehicles).
By your logic, so long as there’s a possibility of “arbitrary” decision-making, there should be no decision-making at all,
Surely you don’t believe that.
Still, the undercurrent that carries your analysis is the free market. Art and real estate pricing ultimately is decided by the free-market (the mass of opinions as to value resolve art and real estate prices). It would be analytically more pleasing to me to just let the free market resolve the price amongst competing energy sourcings and technologies. Don’t let politicians and bureaucrats muck with art pricing, nor any pricing.
That’s my general preference, too.
But energy is one of the few products that imposes collateral expense (mountaintops are leveled, air is polluted, etc.) on non-market participants (the rest of us). You can’t deny that some energy producers (coal, nukes) automatically force us all to pay (suffer their pollution fall-out) for their end-product. The fact that such price goes unpaid (we just all live with the polluted air or accumulating, not-in-my-backyard nuke waste) doesn’t diminish that fact.
Anyway, as I have replied in your “Batteries — Achilles Heel” post, I have endeavored to look over the mountaintop on the role of the free market in Solar PV energy production:
https://sites.google.com/site/freemarketsolarpower/home/comments/-power-for-usa-comments
I’d welcome your very insightful feedback. My interest is in spotting a lucrative investment channel and jumping into it first. Currently the clean-tech channel is “polluted” by market-distorting subsidies, thus hampering my effort to sift winners from losers technology-wise. As I conclude in my latest post, I think the home-energy production/consumption market is primed to take-off.
I’m sorry but I don’t have any stock picks .. it’s not my game.
If I was smarter, I’d be a lot richer.
With respect to pollution from energy, nothing is perfect. Fundamentally, the question is, “what provides the greatest benefit to mankind?”
Opinions can vary on that question, but in my view, bringing millions of people out of gut wrenching poverty should be our objective.
Ultra-supercritical coal-fired power plants produce very slightly more pollutants than natural gas, and generate inexpensive electricity … That can be good for America as well as for the African Continent.