solar Archives - Bankers Anonymous

One of the things I regularly fantasize about is free money. This puts me in line – at least in this small way – with the rest of humanity.

Alongside my free money fantasy, I also have a fantasy of producing surplus solar power that would plug into the smart electricity grid, allowing me to sit back, get paid for my home power-plant, while simultaneously recharging my homemade Ironman jet-pack suit. A boy can dream, right?

The traditional financial model of installing home solar panels – like I plan at my house – is that the homeowner pays money upfront to install solar panels on a roof, collects generous subsidies from local utility companies and the Feds, and then hopes that monthly energy-bill savings over the next two decades justify the original out-of-pocket expenditure.

As I mentioned, I think it will take me a about a decade to make my initial investment back, and to eventually earn the equivalent of an estimated 6.3 percent on my investment over the 25 year life of my panels.

But not everyone can reap that benefit. The limiting factor here is that not everyone has money to spend today, in the hopes of making it back over the coming decades. The point of the Solar Host is to provide all the upfront money for a homeowner who does not really “own” the roof panels, but rather serves as a ‘host’ for energy-producing panels.

Problems

Here are a few of the problems with existing solar programs in a nutshell:

Upfront costs limit the program to wealthier households and businesses. We are not all Tony Stark.
A limited amount of subsidy dollars at a utility can run out, after being taken up by those same wealthier households.
Households choosing to purchase their own panels may have sub-optimal roofs, in terms of shading, angles, and direction, but they collect the same level of subsidy from their local utility and the Feds. Which kind of wastes the subsidy.
Owning one’s roof panels means future maintenance costs are the responsibility of the owner, whereas ‘hosts’ do not bear those costs.

Enter Solar Host SA

In return for hosting – and zero upfront money – the homeowner or business owner gets a monthly rebate on future energy bills for 20 years at a fixed price.

The Financial Gains

The Solar Host program promises to reimburse solar panel hosts 3 cents per kilowatt hour, which – translation – means that a typical household panel array could produce $20 in savings per month on an energy bill.

Businesses – selected for their larger roofs and higher energy production – might expect to achieve savings on their bill of a few hundred dollars per month.

ironman — I’d rather have a solar-powered jetpack than boring old roof panels

None of this is going make any rooftop host Tony Stark level-wealthy but hey – free money is still free money.

Capacity Limits

One of the recurring problems of free money, however, is that the line for it can be long.

Because Solar Host is a pilot with local utility CPS Energy, the program caps out at about 450 households and business. Currently, Solar Host SA is not accepting new applications for the program.

The program selects for the most advantageous roofs – South-facing, the best angles, no shading – that will produce the most power over the next two decades. When completed, the rooftop arrays will act like a distributed solar power plant. Local utility CPS Energy has already agreed to pay a fixed price per unit for the energy this distributed power plant will produce.

Private financing

One of my ongoing pet peeves about the solar industry – previously expressed – is that it wouldn’t exist in a market system. Take away all the subsidies and the industry collapses to a niche. It’s ‘renewable’ in terms of energy production, but not ‘sustainable’ in a market economy.

Within that context, the following may matter more to me than anyone else, but I was pleased to learn these sort of elegant financing facts about Solar Host SA.

First, homeowners and businesses, as previously stated, do not pay upfront to host.

Even more interestingly, CPS Energy also doesn’t pay up-front money. They simply agree to buy solar-produced energy over the next 20 years.

Thirdly, the capital providers aren’t ‘green’ in any particular way except the green of money. Private investment finances the purchase and installation of rooftop panels. Private capital then finances the long-term running of the hosted panels and the ‘distributed solar plant.’

The only big subsidy employed here comes from the Federal government, in the same form of a tax break that all renewable-energy investment generates.

Not Just Money

People tell me that non-monetary considerations come into play with solar panels (really, there’s more to life than money?), so I should acknowledge that participants in Solar Host SA could also enjoy the happy feeling of contributing to the planetary movement toward renewable energy. That’s not exactly the same as recharging my Ironman jet-pack suit, but I understand different people have different priorities.

A version of this appeared in the San Antonio Express News.

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My Solar Panel Installation

Solar Subsidies – Like “Turtles All The Way Down”

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I plan to install a solar array on the roof of my house.

Prior to installation, I asked a local solar expert guy to provide specific architectural plans, for my house. He provided estimates on monthly savings I could expect, based on my past energy usage as well as the specifics of my roof.

I love my spreadsheets (who doesn’t?) so I had fun calculating my ‘return on investment’ for a planned solar panel installation. I’ll mention the financial ‘return on investment’ I expect to receive a little further on in this column.

Having mentioned that I plan to install solar panels, there’s a real grumpy part of me that kind of hates the solar industry. Let me explain.

Solar Subsidies

I don’t know how much sense these industry subsidies make.

I start with an aversion to public subsidies for private gain, especially when the private gain will probably be captured by higher-income homeowners, because they are the ones who can afford to make multi-thousand dollar optional improvements to their home. Solar proponents will reply that the public gains broadly when we move toward sustainable energy and away from non-renewables. Financially, however, private households capture the monetary gain from the public subsidy, so it rubs up against one of my principles of private gain on the public dime.

Maybe even more worryingly, I have a pet theory that all the local and federal subsidies over the decades are actually inhibiting solar innovation. It’s relatively easy to read about all the ‘innovative’ solar technology coming down the pipeline. But I also kind of feel like we’ve been hearing about all this innovation since the Nixon administration, and residential solar still isn’t a good financial choice for households, if we removed all the government subsidies.

Some industries over the past forty years – think of advances in telephony, software, or computing power in that span – relentlessly innovate in a competitive market and produce stunning breakthroughs and extraordinary cost reductions. Solar power was not-quite-competitive with non-renewables in the 1970s and it’s still not-quite-competitive with non-renewables in the 2010s. Why is that? I can’t prove this, but I have a sneaking suspicion that an industry built around government subsidies will attract a different set of talents and mindsets than an industry built around market competition.

Which kind of begs the question: Are all the subsidies – in the long run – helping or hurting a faster shift to renewable energy?

I don’t mean to be overly harsh on solar power. Obviously, I’m installing it at my house. In general, I’m in favor of boosting our mix of renewable energy usage versus non-renewables, because that just makes sense. A billion years of future solar power versus even a few remaining centuries of oil & gas certainly argues for using more of the former and less of the latter.

Sustainable?

I’m a markets guy, however, and when an industry can’t become market-competitive over the years, it tends to just remain a niche player. Solar power is not yet – in a real markets sense – “sustainable.” As a markets guy I want to put on my Inigo Montoya accent to remind solar proponents who talk about solar power as “sustainable” to say “You keep using that word. I do not think it means what you think it means.”

The punchline

Ok, but can I make money installing panels at my house? I estimate that the annual return on my initial investment, after twenty-five years, would reach 6.3 percent. Theoretically, I could earn more than that, if I kept the panels installed for more than twenty-five years. On the other hand, I’ve learned the expected lifespan of the system is about twenty-five years, so it doesn’t make much sense to expect it to last longer than that, in my model.

Is that enough?

What do I think about a 6.3 percent return personally on investment in renewable energy?

It sounds about right, as a private incentive to invest my money. 6.3 percent easily beats what I can earn in a wholly ‘safe’ investment, like a bond or a money market account. It’s also a return on money above what I pay on my mortgage, so that it makes theoretical financial sense to outlay the money for solar panels, rather than just pay down my mortgage principal faster. 6.3 percent is below historical long-term returns from stock investments, but that seems ok too. With any more federal and city subsidy, my “private return on capital” might seem excessive.

Like any model, a large number of assumptions go into calculating a financial return on solar panel installation.

Assumptions

These assumptions include the following:

I get my local utility rebate following installation as promised, which looks right now to total about 30% of the cost of installation.
I get my 30% federal income tax rebate next year, as promised by the IRS.
The solar production of the panels I install generate as expected.
I use similar amounts of electricity in the future as I do now. Specific to my model, my energy needs only increase 1% per year.
The price of energy (essentially the rates my utility charges me) only increases by 1% per year.
The effectiveness of the panels in generating energy only degrades at 0.5% per year
My costs of maintenance on the panels only runs about $120 per year.
I stay in my house enough years to reap the benefits of installing panels. Specifically for my ‘annual return’ estimate, I stay in my house for twenty-five years.

If all those assumptions hold true – admittedly a pretty large set of ‘ifs’ – I’ll reap a pretty good private return on my capital.

A version of this appeared in the San Antonio Express News

Please see related posts:

Turtles All The Way Down

Natural Gas Revolution in South Texas

Oil companies – This Makes No Sense

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