Stop the bad math on alternative energy

Submitted by brad on Tue, 2006-10-10 17:26
Topic: 
Brad's Rant
Going Green

I think it's important that we stop burning petrofuels or indeed any fuels and get energy from better sources.

But there's a disturbing phenomenon I have seen from people who believe the same thing too much. They want to believe so much, they forget their math. (Or I may be being charitable. Some of them, trying too hard to sell an idea or a product, may be deliberately forgetting their math.)

I see this over and over again in articles about photovoltaic solar, wind and other forms of power. They suggest you could put in a PV panel array for $20,000, have it provide you with $1,000 worth of electicity per year and thus "pay for itself" in 20 years. Again and again I see people take a series of payments that happen over a long time and just divide the total by the monthly or annual amount. Recently I saw an article in IEEE Spectrum, an engineering magazine, where a $9,000 wind power system which would generate 100,000 khw over its 20 year life was thus providing power for 9 cents/kwh. The same terrible high school math, this time from people who should not be making math mistakes at all.

It's particularly disturbing because effectively everybody who puts in a PV Solar system or a wind system is a homeowner, who has a mortgage, and should be reminded every month that $1,000/month does not pay off $120,000 in 10 years.

FYI, at today's 7% interest rate, that wind power system actually costs about 17 cents/kwh. This is no minor difference. Not only is it close to double, it's the difference between being below the grid price (and thus making economic sense) and being above it.

The unfortunate truth is that it's very, very hard to make such systems make economic sense today. The stock market's historical long-term rate of return is 10%. So if you were to take the $10,000 you might use to buy a 2500 watt solar array (at the $4/watt post-rebate cost you might get in California) it would return $1,000 per year with no reduction of the principal, except inflation. That $1,000 would buy around 7,500 khw of grid power here, much more in areas with cheaper power. (Accept to lose the principal after 30 years and we get 8,000 khw.) Alas, the 2500 watt solar system can only produce around 5,000 khw of power in a year. Compared to the stock market, the PV panels never, ever pay for themselves. Get them down to $2.50/watt and you're breaking even at 13 cents/khw for grid power.

This calculation is of course for grid-tie power, where you sell your excess back to the grid. Battery based systems, aside from dealing with the cost of batteries, also discard their power when the batteries are full or near full. Which is much of the time if you want long battery life and good capacity from your system. Batteries can make sense for an expensive off-grid power system, but they are "false green" if you could tie to the grid but deliberately install a battery system. It seems green but it's actually environmentally damaging, because of the cost of making the panels and batteries and other equipment.

The math is even more complex than I describe above, of course. One must make predictions about the expected cost trends for both grid power (which many think will go up) and alternative energy equipment (which many think will go down) but of course prediction will not be perfect. In addition, inflation alters the equation. But the basic math mistake is still disturbing. Trust me, when power companies build power plants, you can bet they carefully amortize their expenses and power production to work out their costs and to figure what's economical. Companies selling solar who don't do the same thing are commiting fraud in my opinion.

I'm identifying 3 kinds of environmental action today. There's "true green" which really promotes environmentally non-destructive and sustainable types of energy. There's "false green" where let emotions ruin their math and do something environmentally poor while thinking they are being good. And in the middle there is "evangelical green" where people do activities that don't make economic sense yet in order to make a point and in particular to promote the activity so that it has a chance of becoming economical with time.

When I wrote earlier about how the Prius's hybrid engine costs vastly more than just buying carbon credits to offset burned fuel, several Prius owners said that even understanding the math, they felt it was important to make a statement and demonstrate demand for fuel efficient cars, so that eventually they would be made in volumes that brought their cost down. I can understand that argument, though it's a good idea that people realize this is what they are doing.

Next year, Burning Man's theme is environmental. I know a number of people will try to express that by bringing solar panels to the desert for power. I predict a fair number of those panels will be panels that are only used while camping, ie. they are not being taken out of and placed back into a working, grid-tied solar power system. Turns out that making solar panels with today's tech requires lots of energy. In the past, calculations suggested making a panel took 4 years worth of its output, though today I've seen estimates getting closer to 1 year. Either way, panels brought out only for camping are just transporting grid energy, and not very efficiently. False green at worse, evangelical green at best.

Update: Here's a solar economics spreadsheet to let you explore the math.

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Comments

Max Kaehn

Tue, 2006-10-10 20:01

There’s also the value of being able to have power during a rolling blackout— which is itself a function of the reliability of the power grid. Driving a Prius puts less emissions in the air per mile traveled, affecting the air quality in your own area, which may be more valuable to you than equivalent carbon credits (which only apply to the planetary balance). Both of them provide a certain amount of insulation from fluctuations in energy prices.

One thing I’d like to see more of is cost-benefit analyses to compare different spending choices. What is the cost per kilowatt-hour of nuclear energy once you factor in building the plant, mining the fuel, refining it, protecting the plant during operation, and disposing of the waste in a manner people find acceptable? How does it compare to the cost of creating solar cells or wind turbines, acquiring the land to put them on, and settling any ecological impact issues? Similarly, do you add more person-years of healthy life for a given amount of spending by vaccinating children and providing good nutrition in schools or by increasing funding for Medicare? We should be picking the low-hanging fruit first, and I find it frustrating that it’s so rare for anyone to provide that perspective on choices.

brad

Thu, 2006-10-12 00:29

Indeed, the ability to use a hybrid car as a backup generator is being talked about a bit, and may come on the market soon. It's not seriously deployed yet. (I even imagined a network of cars connected to the grid which the power company could command to turn on -- if out of doors! -- for spot power at a higher pollution cost.)

For CO2 emissions, there is only really a global total. For other car emissions, it's local, or more to the point downwind. Proper credit markets factor all this in, of course, and let you buy local credits to offset local pollution. But we don't have such markets yet, but we could if we wanted them.

Total cost analysis is indeed what I'm talking about. Of course it gets very hard. If you accept the more dire end of the global warming danger spectrum, you could grind up all the nuclear waste in front of big fans and it wouldn't be anywhere near as devastating.

Alex Goldman

Wed, 2006-10-11 10:42

I talk to many engineers. One of the most ideas I've ever heard is this: instead of producing electricity with solar energy, produce heat. The engineer told me that a bunch of relectors around a tank of hot water would be more efficient than solar cells. The hot water could be used to generate energy to pump itself to a nearby city, such us Las Vegas. Once primed, the system could also run pumps to pull the water into the system.

In any serious, large scale renewable energy system, the real cost is maintenance and construction. If there is enough energy to be generated, efficiency is not important.

For coastal areas, another system uses pipes that run underground into the ocean. They capture tidal action in a balloon or flywheel.

brad

Thu, 2006-10-12 00:23

Yes, solar water heating is practical. Though I had a solar water heater on my house before I replaced my roof. The quote was $500 to re-mount the water heater (and fix a leaky pipe in it.) Alas, it was saving me only $5/month in gas, and costing electricity, so it could not be justified. But with more modern techniques I think it can be. There is also promising research in thermosolar electricity, and PV panels with reflective panels.

However, the point is not that alternative energy can't be made to work, or that there are not workable systems today. It's that people are not doing their math right, not accounting for the time value of money or total cost when working out which are the right systems to use.

Anonymous

Tue, 2007-05-29 09:15

Solar thermal is very practical, and in most cases does not use any electricity. The power to run the DC powered circulating pump is derived from usually a 10-20 Watt small solar panel, thus eliminating the use of the grid to move the water. There are also thermosiphon systems that use convection to move the water through the solar panels. In the hotter months here in Southern Ca. my customers actually turn the gas pilot lights or electric elements off during these months, typically May through September. This is a very effective way to cut cost's and help reduce carbon production.

Alan

Thu, 2006-10-12 16:21

The U.S. government is now making applicants for PV research funds (via the Solar America Initiative) do the math properly when evaluating their proposals. Or, more accurately, they put together a computer program to do it for them. It takes into account inflation, financing, and discount rate, though they prescribe a discount rate of 8% rather than the 10% you suggest. Apparently that's the value DOE must use when evaluating its own projects.

It's also worth noting that doing the calculations properly means compounding the discount rate over a long period, which helps insulate one somewhat from errors in assumptions about future expenses. An error of 200% in, say, the replacement cost of some system component 20 years from now often only translates to a difference of a few percent in the cost per kilowatt-hour.

As for the good folks at IEEE Spectrum knowing better, well, just because engineers can do math doesn't mean they understand finance. Ever try explaining discount rate to an engineer? (I say this as an engineer myself.) The distinction between it, inflation rate, and interest rate is nebulous enough to the uninitiated without having to explain on top of it all of the different ways that discount rates can be (a) logically and legitimately determined, and (b) legitimately altered by seemingly arbitrary amounts (e.g., risk, ROI requirements). It only gets worse when I show them an entire 400+ page book that discusses nothing but appropriate discount rates for the energy industry. And even for individuals a single discount rate is not necessarily appropriate for everyone -- if I'm a savings account kind of guy, for example, then a rate based on the stock market overestimates the time value of my money even if it's dead-on for yours.

I realize I'm being a bit dramatic, and your point is well taken. When you do as many energy cost calculations as I do, only to see people throw around unrealistically low values calculated on the back of an envelope it gets frustrating. In defense of PV companies, though, I must say that the vast majority of people I see doing that are either homeowners or PV system installers, presumably without the financial background to know better.

Finally, on the topic of opportunity costs, it's not always appropriate to include them in an analysis of payback time. If you're willing to pay a premium to avoid rolling blackouts, fine -- factor it in by reducing your discount rate or something. But the nuclear power plant issues in the previous comment deserve no special consideration when calculating payback time. Their costs are either factored into the rate your utility charges you for electricity, or they are taxpayer-supported via subsidies. If the former, they're already factored into the analysis via the utility rate; if the latter, the money comes out of your wallet (and mine) whether you use nuclear power or not, and therefore shouldn't be factored into the analysis.

Anonymous

Tue, 2006-10-17 03:12

There's plenty of quotes around which go along the lines of "If every house in America replaced five of its conventional lightbulbs with low-energy compact-fluorescents, it'd be equivalent to taking 100000 cars of the road." Now that is vaguely reasonable (100000000 households, 5 bulbs, saving say 40W each, for 8 hours per day)... BUT it overlooks the fact that the energy-saving per participatory household per day is much the same as if they drove their car one less mile per day. And the fuss and hype about low-energy is vastly more than about cutting road-miles.
Personally (as a colour-scientist and photographer among others) I can't stand the quality of light from fluorescents. But since I don't own a car, I cycle or walk everywhere, share a very modest house with three people, and keep the heating pretty low, I figure I can be forgiven for my love of tungsten!

Anonymous

Sat, 2006-12-23 10:22

If you are going to crunch numbers, why haven't you accounted for the taxes, fees, and commission costs associated with investing 10,000 bucks for a ten percent return per year of $1,000.00?
Also the 10% historical long term rate of return for the stock market is not fact--there is not a concensus on this. 10% is a best case senario (and that is before taxes, fees and commissions are deducted). It seems that the real rate of return would more likely be 6.5% after taxes (15% tax rate bracket), fees and commissions for an individual.
A buyer of any alternative energy system would have to crunch the numbers for him or herself.I recently looked in online alternative energy stores for refrigerators . At best they average at about 1,400.00. Now, down the road from me, a Sear's store is selling a Energy Star Approved refrigerator for about 500.00 and a ticket inside the fridge advises that the typical cost to run this refrigerator will be about 38.00. If I were in the market for a new refrigerator, the last place I would look for an energy efficient refrigerator would be with the mom and pop green stores.
And likewise, I would not go running to the green stores for a alternative energy system for my home.
Mary

brad

Sat, 2006-12-23 23:58

The best analysis does include tax questions. I need to improve my own numbers in this area. One of the things helping push solar installs is a quick depreciation and tax credit offered on PV systems.

However, it is important to realize that while the rebates and tax savings may be able to make the PC compete with the grid, it is the taxpayer doing this, not the panels.

This may be a good thing for the taxpayer to do, of course. It may even be the best way to use tax money to promote alternative energy, but we should realize how it all works.

Anonymous

Wed, 2007-01-03 18:30

After putting up a couple of solar panels this year I've been somewhat surprised how often I'm asked how much I save on my electric bill. And this isn’t the first time I’ve heard the “bad math” argument. But that’s alright; I could care less if others choose to purchase electricity from the utility company. Why wouldn’t they, it’s cheap! But just remember, gasoline was also cheap three years ago.

I have my reasons for building my system. It has served me well during several grid power failures, and it’s good to know that it’s available for the next one. Additionally, I wonder how many people understand the true cost of grid-supplied electricity. Most of the electricity generated in the United States comes from coal-fired power plants. Over 450 mountains in Appalachia have been flattened by a process known as Mountaintop Removal Coal Mining. And the destruction continues at an alarming pace. In addition to the destruction of mountains, our air and waterways are being polluted by mining practices. Then, there’s the global warming argument. But I’ll stop there. I’m glad that there’s not a huge demand for solar panels. They’re available, they are more useful than most people realize, and they are affordable.

Anonymous

Wed, 2007-01-03 18:54

Oops! I terminated my post before I was done. This is a continuation:

Oil and coal are finite resources. Future generations are going to see us as selfish for using them up. When people start to care more about what’s good for the planet and what’s good for their children’s future than they do about saving a few dollars, then this planet has a chance for survival. Unfortunately, I know of few people who think that way.

I write about my renewable energy experiences at http://solarjohn.blogspot.com

John

brad

Wed, 2007-01-03 20:00

Where I wrote about how I support moving from polluting fuels to cleaner and renewable resources.

Putting up solar because it's cleaner is a great idea, as I have said. The problem is also trying to tell people it's cheaper when it isn't. It's getting closer to the grid price and that's good, but no movement should be based on bad math. We should build solar because it's better, and make it cheaper, not because we pretend it's cheaper.

Anonymous

Wed, 2007-01-03 21:10

Brad,

I'm glad we agree that solar is a good idea because it's cleaner, but there's more to it than that. As I previously mentioned, the true cost of electricity should include the environmental damage and the cost of the health problems resulting from mining, transporting, and burning coal. When those things are considered, I do believe that solar PV is cheaper.

Another thing to consider is that solar panels have a life expectancy in excess of twenty years. Unless you know how much utility-supplied electricity will cost in the future, how can you say that solar isn't cheaper? And, considering the state of the world and recent steep oil price increases, I'd guess that solar will be much cheaper in the not-to-distant future.

I'm not sure what you've been reading regarding the solar/utility cost comparisons. Perhaps some solar equipment supplier is misrepresenting the facts. I know that I've been writing about my experiences with solar for about 7 months, and I don't remember ever writing that it's cheaper. http://solarjohn.blogspot.com

When I add a solar panel, or otherwise upgrade my system, I pay cash. I'm not concerned with how long it takes for that purchase to pay for itself in utility bill reductions. If I ever stop adding to my system, I'll enjoy free electricity from it, probably for the rest of my life. When my grandchildren ask me about the equipment I'll tell them I did it to help keep their air and water clean, and to conserve natural resources for them and their children.

brad

Wed, 2007-01-03 22:51

Solar panels once on the house are paid for. However, future solar panels, thanks to research, will almost surely be cheaper, possibly a lot cheaper. In fact, as they get cheaper they will become a major source of grid power. What power company would run coal plants at 5 cents/kwh if they could put up solar panels at 2 cents? This happens if either solar gets cheaper or carbon fuels get more expensive -- either way we switch to solar, or something even better.

Thus it would be wrong to do cost analysis assuming the cost of grid power will rise very far above your predicted future costs for solar. People would be disconnecting from the grid left and right if it were, at least during the day.

So your guess is almost surely wrong. Not that this is a bad thing. It just means that from a purely out-of-pocket-expense viewpoint, one should buy grid power until solar gets cheaper than grid power, and then one should consider putting in solar. However, after considering it, you will realize that soon the grid power you are buying will be solar so you don't need to put it in. You'll be able to buy it from them at a modest margin, and let them take the risk of putting in expensive panels. 2 years later, when panels cost 20% less, you can buy from the people putting in the cheaper panels, and so on, and so on.

If solar panels become like computers, dropping in price every year, it becomes an interesting race. Now to work out the cost, one must make a guess about how much less valuable today's panels will be in 3 years. If, like a computer, they cost half, you're in trouble. They still put out the same amount of power, but you are competing with a new installer who paid half as much.

If you believe Zeno's paradox, you would never put in any panels, but in fact that's not true. There is a number that justifies putting them in, it just requires depreciating them faster, just like computers, not because they stop working but because they can be out-competed. Which means you have to charge a bit more for the power. But soon that levels off.

PV panels can't improve as well as computers do. First of all, if they're 20% efficient today they can't get more than 5 times more efficient. Secondly, while you can imagine cutting the cost of manufacture in half several times, soon the other costs -- mounting boards, shipping, install, wiring and the biggest cost -- real estate -- start to dwarf the panel cost and so it doesn't do any good to reduce them.

Many efforts today are actually to not increase efficiency but even to drop it, and make it cheaper to manufacture. In some places (poor areas) the real estate may be cheap but other things aren't.

Anyway, this is all good news -- for everybody but the early adopter who buys expensive 2006 technology panels. And even for him, since he did it because he wants a greener planet.

Anonymous

Thu, 2007-01-04 12:46

Brad,

You said: “You’ll be able to buy it (electricity) from them (the power company) at a modest margin.” In reality, my local power company wants increases that may be as much as 55% for some customers. http://money.cnn.com/news/newsfeeds/articles/djf500/200612291409DOWJONESDJONLINE000540_FORTUNE5.htm
For an already profitable company, that doesn’t seem like a modest margin to me.

You said: “… solar gets cheaper or carbon fuels get more expensive – either way we switch to solar or something better.” Good luck trying to purchase solar panels when the utility companies and average consumers are all wanting to buy them at the same time.

You said: “If like a computer, they (solar panels) cost half (of what they cost now) you’re in trouble.” I don’t understand your logic. If I have panels on my roof that are generating electricity for me, why does it matter how much I paid for them? How am I in trouble?

You said: “ PV panels can’t improve as well as computers do.” Why does it matter? As long as my roof is large enough to hold all of the panels I need, and they continue to generate power for 20+ years, I don’t care about improvements. If my neighbor can buy panels at a later date for half of what I paid for mine, I’m happy for him.

While you do agree that solar is good for the planet, you’re glossing over the harmful effects of using coal-generated electricity.

You said: “Grid will be cheaper” but you didn’t respond to my statements about the true cost of coal-generated electricity. A lot of tax dollars are going to projects like cleaning up abandon mine sites, repairing damaged waterways and ground water sources, and healthcare for those affected by mining and burning coal. You’ve ignored the true cost of coal-generated electricity in your initial post, and that’s just wrong.

http://solarjohn.blogspot.com

brad

Thu, 2007-01-04 14:19

And the other carbon-generated electricity.

The issue with solar is this. If you put in a roof full of panels, you fix your cost. Typically today people would put in a system at a cost like $8/watt fully loaded. (They usually reduce this with rebates and tax credits, but let's look at the real cost.)

If you amortize the panels over 30 years, that works out to about 32 cents/kwh, which is why few do it today without the rebates and tax credits. If they get it down to $4/watt it's 16 cents. (This is at 7% interest.)

Problem is, 10 years down the road, you will get panels for less, and so will power companies. With power companies you pay grid transmission costs today, though the real ideal design for solar is local mini-grids where the power doesn't come very far. Alas, we can't choose our electricity provider here in California any more but it could happen again.

So you're stuck paying off your 2007 PV investment when you could be getting power for less. That's why it matters what you paid for them. They will depreciate far more quickly than you hoped. If you sell your home, people will only value the PV system for how much the electricity it generates costs at the sell date, not at what you paid when you install them.

Obviously supply and demand will apply to panels. They won't get cheap unless there is good supply to meet demand. But that should happen in a free market.

If you don't think solar will get cheaper, then you can ignore all this of course.

As you note, the other possible outcome is we start jacking up the price of coal and other carbon burners to factor in their broader cost. This would of course make solar more competitive, along with other cleaner technologies. I'm not holding my breath -- though with all the coal being burned, I probably should be.

Anonymous

Fri, 2007-01-05 08:39

I think we’re starting to make some progress. We agree that the true cost of using coal extends beyond the cost to operate the power generation facility. These costs include health-care expenses, cleanup of abandon mine sites, repairs to damaged and polluted waterways and groundwater sources, fixing sinkhole problems, dealing with underground fires, etc. Unfortunately, taxpayers are the ones who usually end up paying. To be fair, I believe that consumers should pay an amount that covers the true cost of the electricity they use. This would not only be fair, it would encourage conservation. Those conservation efforts would help to reduce greenhouse gas emissions and all of the other negative effects of mining, drilling, transporting, and burning of fossil fuels.

Anyway, the remaining fossil fuels are becoming harder to extract, making them more expensive. Modern drilling and mining practices have helped to offset these costs, but it’s still a down-hill course. My electric bill has been less than 1% of my income, a real bargain I would say, but that can’t last. It would be no surprise to see energy costs skyrocket in the coming years. I think you’ll see some real environmental policy changes with the next administration. The current administration is a disaster in that respect.

Your “bad math” argument regarding solar photovoltaic systems is based on the assumption that the equipment is financed over time. As I’ve previously stated, I pay cash for all of the equipment I buy. I started small, and I add to my system as I can afford to. Millions of people foolishly pay high interest rates for credit-card purchases every day for all sorts of things, but I’m not one of them. I guess that’s why I didn’t understand it when you said that if the cost of solar panels goes down, I’m in trouble.

Perhaps if I sell my home the cost of the panels will matter. Due to manufacturing expenses and supply-and-demand issues, I believe the cost of panels will increase in the long run. If the cost of panels goes up, my house is more valuable with them. If the cost of panels goes down I may not recoup the amount I spent for the panels, but I’ll just buy the less expensive panels for my new residence. Then there’s the issue of significantly higher utility-supplied electric rates in the future. You said that “people will only value the PV system for how much the electricity it generates costs…” That being the case, my system might be valuable beyond my wildest dreams in the future. Time will tell.

http://solarjohn.blogspot.com

brad

Fri, 2007-01-05 12:10

I've written about this in many other posts, I'm all for it, but in this thread I am focusing on what's more practical.

I'm afraid you've fallen victim to bad math if you think that paying for your system up front is much different from financing it over time. For any expensive purchase, those two approaches are considered equivalent. For example, most people have a mortgage. So $20K spent on a solar system is $20K not put in to paying down the mortage, which results in exactly the same numbers. If you are debt-free, the $20K can be put in the stock market and it will pay back quite a bit more per year than the cost of buying grid power to match the output of the PV system -- and you'll still have the principal too.

This is one of the classic examples of the bad math, and it's remarkably common so don't feel too bad about it. Value received in the future for money paid today must be discounted, there is no way around it, no matter how you pay for it.

Anonymous

Fri, 2007-01-05 14:11

I pay about 6% interest on my mortgage. To pay down the principle by $1000.00 would save me 6% of $1000.00, or $60.00 per year. I can easily save more than that on my electric bill if I put the same $1000.00 into solar PV equipment. I agree that I could do better than 6% in the stock market, but I could also lose.

On the other hand, I didn’t install solar in order to save on my electric bill, so I don’t consider myself a victim to bad math. To paraphrase Jeff Foxworthy:

If you drive a car instead of walking, you might be a victim of bad math.
If you watch TV instead of listening to the radio, you might be a victim of bad math.
If you flush a toilet, instead of using an outhouse, you might be a victim of bad math.

Well, you get the idea. There is much more to PV and renewable energy in general than the short-term economics of it. I’ll avoid going too far off topic for now as I try to understand why you believe I’m a victim of bad math. As I see it, you would have to be able to see into the future in order to know if purchasing PV makes one a victim of bad math.

http://solarjohn.blogspot.com

brad

Fri, 2007-01-05 14:49

But here I'm strictly talking about the economics of it. So walk me through it -- You pay about what, 11 cents/kwh in IL? So $60 buys 545 khw. Here in California you would need 270 watts peak power to get you 540kwh in a typical year, but I have to presume it's more in IL, not even counting snow days. So you can get 270 watts -- or I suspect more like 350 to 400 watts where you are -- installed for $1,000? That's installed -- panels, construction, wiring, inverters, insurance, grid-tie equipment etc. You can't even get the panels for that price, uninstalled, but that's changing.

Now Illinois does have pretty good rebates (50%) thanks to the taxpayer, so maybe you could do it there, or rather the taxpayer could. And I'm not saying that it's necessarily wrong for the taxpayer to subsidize solar over carbon methods, just that we should understand what's going on.

Oh yeah, and $60 was the figure at 6 percent in a very safe investment (safe as houses, in fact :-) with no reduction of the principal. Solar panels are not so safe an investment, since their value will fluctuate with the cost of grid power and the cost of replacement panels.

The real comparison is more complex than this, mind you. But solar installs don't yet pay for themselves compared to grid power. They only barely pay for themselves when you factor in how much you or the taxpayer values you being green.

However, to make things more bleak, what if you buy cheaper grid power and put the savings into carbon credits at $4/tonne?

540kwh of carbon-burnt grid power adds 216kg of CO2. You can offset that for about 87 cents and now you're cleaner than solar.

In fact, at today's carbon credit prices, you are a gross polluter of the atmosphere, because for the same money you spent on your PV system, you could have bought grid power, and put the savings into carbon credits to offset not just your own power use but the use of many other homes. Now many poeple feel the prices should be higher, and they are higher in europe, but that just reduces the number of homes you could offset.

Scott wickham

Sun, 2007-05-27 10:02

It was very disappointing to find out that people have been lying about economics of solar power. It was gratifying to see that you want through the calculations too. For a while I was sure I was missing something but it another example of people not doing their own math. And just repeating what they heard.

Solar John

Tue, 2007-05-29 11:29

I wouldn't argue that buying electricity from the grid is cheaper, but folks generally go to PV when it's too expensive to run power lines, or when their grid service is unreliable. I agree that it would be more cost-effective to add insulation and switch to energy efficient lights and appliances, but what do you do after you've done that? I also agree that you'll probably get a bigger return on your investment with mutual funds, but what fun is that? If you continue to burn fossil fuels you are contributing to several problems; global warming, the destruction of mountains in Appalachia, poisoning of rivers, streams, and air, etc. So why not try this:

Once you've completed your energy efficiency upgrades, and have secured your retirement with a significant investment portfolio, why not do something that will benefit your children and future generations.

And by the way, not everyone lies about the economics of solar power. The folks on the discussion forums I visit always try to avoid overstating the capabilities of the systems being discussed. I typically get more from my system than it is supposed to produce. Additionally, it really came in handy on several occasions when the grid power failed for extended periods of time.

John
http://solarjohn.blogspot.com

brad

Tue, 2007-05-29 12:59

My goal in this article is to try to bring people on track about what really works and what isn't yet viable, so we understand what we're doing as we experiment with better sources of energy. People can put in solar to be greener, but they should not be misled into thinking it saves money until it actually does. They should be aware of their decisions, and the whole would should become aware when it finally does cross the line.

In addition, in many cases a good credit trading system is the answer -- buy the cheap power and then buy carbon credits, for example. That puts the money where it will remove the most pollution for the dollar.

Michael S. New

Tue, 2007-10-02 22:03

I guess this is old, but I must ask, since you are using the current cost of electricity in the analysis, how long will it take for that cost to " payback" How does one compare 20 years+ to NEVER? How does free after x or xx years compare to NEVER, NEVER, NEVER? And where is the interest you lost by not investing the monthly electrick bill? Lets see $XXX.00 @ 10% invested every 30 days for 20 years Hmmmmm
Also your " better" math seems to ignore the resale value of solar systems (even uninstalled) which is stunningly high, much better than any other home gizmo.
A little financial knowledge is a dangerous thing (trust me I have proven that one)
Thanks
Michael

brad

Wed, 2007-10-03 00:28

There is no interest on money "lost" by "not investing the monthly electric bill."

The comparison is as follows. You take $10,000. You could either put it into a solar
power system, or the S&P 500 (Annualized 11% return over its history.)

Put it into a 2000 watt solar system ($5/watt installed) and you will get about 4,000 KWH of power in a year here in California. You get those kwh without paying the $520 you would typically pay at 13 cents/kwh to the power company. However, you make no money. At the end of the year own a solar panel worth perhaps $9,500 (5% depreciation.)

In the stock market, at the end of the year you have stocks worth $11,000. You take out $520 and buy electricity from the power company. You now have stocks worth $10,480. (I have simplified this, payments are actually every month slightly reducing things but the main point remains the same.)

So two situations. One you have a non-liquid asset worth $9,500, and in the other you have a more liquid one worth $10,480.

After two years, with the solar panel you own a panel worth $9025, or you have stocks worth $11,113.

Do you see where this is going? The solar panel never "pays for itself" compared to putting the money into the market and buying off the grid, unless the grid goes way up.

Now if you don't trust the market, there's something far simpler, which is to consider your mortgage. Paying that down returns 7% guaranteed, though I am not counting for mortgage interest tax deductions which alter that.

A solar panel is an investment like any other. It "returns" the value of the electricty it generates, and it depreciates in a slightly harder to predict fashion. But even if it doesn't depreciate *at all* it still only returns the value of the electricity it generates.

Now there are complexities which change this equation, involving predictions of changes in the cost of grid power, taxes and rebates, and predictions of changes of the cost of solar panels. (If panels get cheaper, your panels immediately lose a lot of their resale value, perhaps almost all of it if the new tech obsoletes the old.) So no model can be perfect. But generally solar isn't there yet. It's getting there, and is close to being there with rebates and tax breaks. Indeed, it is there compared to California Tier III electricity rates and/or for corporations who can use all the tax breaks. It is not nearly there for ordinary home-owners paying anywhere near the USA average electricity rate of 9 cents/kwh. But it will be, some day.

Anonymous

Mon, 2007-12-03 13:41

Hey folks, generalizations are great, but the main understanding that everyone is correct about is that people need to do their own math. Their own markets, their own situations, their own usage needs to be taken into account by anyone thinking of "paying to save".

For instance, my situation allows me to purchase a Prius purely based on the gas mileage savings (30-40K mileage per year @45 MPG with 2K tax break at a 4K initial purchase premium) versus buying a comparable model without the mileage/break. I do agree that the money wasn't the only influence over the price (I would like to encourage car manufactures to think a bit beyond looks and "power").

Just remember that the key point should be not be what technology is best, but to actually equipping others to determine the "whys" of a technology benefit in the future.

I would propose that the most costly liability of life is ignorance and dependence on others' ignorance.

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