Then, last week, just two days after I posted my own review of Zehner’s book, the New York Times published a perfect case in point of green illusions. It came in the form of an op-ed entitled “Solar Panels for Every Home,” by David Crane, President of NRG, an energy company involved in both conventional and renewable energy, and Robert F. Kennedy, Jr., a senior attorney for Natural Resources Defense Council and president of Waterkeeper Alliance. Their article pushes for more home photovoltaic (PV) systems as a way of avoiding disruptions of electric service like those recently caused by superstorm Sandy. Unfortunately, many of the claims the authors make are, at best, highly misleading.
Claim No. 1: Your rooftop solar system can keep you cooking when the grid goes down
Crane and Kennedy write,
we believe there is a better way [than gasoline backup generators] to secure grid independence for our homes and businesses . . . Electricity-producing photovoltaic panels installed on houses, on the roofs of warehouses and big box stores and over parking lots can be wired so that they deliver power when the grid fails
Not really—not unless you hide a lot in that phrase “can be wired.” Here is what I learned when I had a 6.3 kW photovoltaic system installed on the roof of my barn three years ago. I asked the engineers who designed the system whether it could be used for backup power when the grid went out. “Yes,” they said, “you can do that if you install battery storage.” Unfortunately, they told me, battery storage would add $10,000 or more to the cost and might require settling for a smaller system. Even then, I would have enough backup power to last only two or three days, not nearly enough to get through a Sandy-sized outage.
Why can’t the panels be “wired” so that my neighbors and I can draw power directly from the panels, at least during daylight hours, if a tree knocks down a power line farther up the street? The answer is safety. If everyone’s home panels continued to feed power into the lines, repair crews (not to mention children playing among the downed branches) would run the risk of electrocution even after the local utility threw its cutoff switches. To avoid that, home systems must be designed to shut off automatically when grid power goes down.
Claim No. 2: Home PV is already cost-effective
Crane and Kennedy write,
Solar panels have dropped in price by 80 percent in the past five years and can provide electricity at a cost that is at or below the current retail cost of grid power in 20 states, including many of the Northeast states. So why isn’t there more of a push for this clean, affordable, safe and inexhaustible source of electricity?
Based on my own system, which is in many ways typical, that claim is highly questionable. My system cost $45,000 and is designed to produce 7,000 kWh of power per year. (So far it has produced just a bit more than promised.) With a design life of 30 years, it should produce some 210,000 kWh before it fails. Dividing $45,000 by 210,000 kWh gives a cost per kWh of 21 cents. That is about the cost of electric power in New York City, but according to data from the Energy Information Agency, only Hawaii has a statewide average rate over 20 cents per kWh. And, even the figure of 21 cents is misleading.
First of all, the 210,000 kilowatt hours in question are produced over span of 30 years. Thirty years of power at 21 cents per kWh is worth $45,000 only if you assume zero cost of capital. Suppose we apply a an inflation-adjusted cost of capital of 3 percent, and assume that the cost of electric power rises at the same rate as general inflation. In that case, you have to value the power at 33 cents per kWh (in today’s dollars) to pay for the system.
Furthermore, this 33 cents assumes no maintenance costs. The panels themselves are supposed to be almost maintenance free, but the weak link in the system is the inverter. An inverter for a system my size, installed, costs about $3,500. The one that came with the system has a 10 year guarantee. If I have to replace it twice over the life of the system, that will add another $7,000 or so. That puts the break-even value of power over 40 cents per kWh.
It is true that the numbers change in favor of PV if we assume that the cost of electricity will rise faster than the average of other consumer prices—a point we will return to shortly. That expectation, however, does not bear on the authors’ claim that that the cost of PV is below the current cost of electricity in twenty states.
It is also true that the cost of panels is dropping so that a new system would cost less than what I paid five years ago. Still, a drop of 50 percent or even 80 percent in the cost of panels would not mean the cost of an installed system has dropped by that much. The panels account for only about a third of cost of a system, and as panels get cheaper, that percentage decreases. The rest of the cost is accounted for by the inverter, wiring, roof racks, other materials, labor, and permitting costs. Even if the panels were free, the cost of rooftop PV power would still exceed the cost of power from the grid in most states.
Why, then, isn’t there more of a push for this clean, affordable, safe and inexhaustible source of electricity? Because it’s not so affordable after all.
Claim No. 3: Germany gets half its power from rooftop solar
Crane and Kennedy write,
More than one million Germans have installed solar panels on their roofs, enough to provide close to 50 percent of the nation’s power, even though Germany averages the same amount of sunlight as Alaska.
I have no idea where the “close to 50 percent” comes from. I hope it is just a typo. In any case, it is far from the numbers given by Germany’s Federal Ministry for the Environment, Nature Conservation and Nuclear Safety in a recent report that boasts of that country’s alternative energy leadership. Here are the official German government data for 2010:
- Share of renewables of all kinds in total primary energy consumption: 9.4 percent.
- Share of renewables of all kinds in electricity generation: 16.8 percent.
- Photovoltaic share of renewable electricity production: 11.8 percent. (The rest is from wind, hydro, and biomass.)
- Photovoltaic share of total electricity generation: 1.9 percent.
There is quite a gap between “close to 50 percent” and 1.9 percent. True, PV is growing faster than other renewables, and will probably continue to do so. A recent article from Bloomberg quotes Dr. Joachim Pfeiffer, a spokesman for the center-right Christian Democrats, who predicts 35 percent, perhaps even 40 percent, total renewable power by 2020. That would be nearly a four-fold increase from today. Still, even if PV dramatically increased its share, it would be hard to get it much above 10 percent of electric power output by 2020.
It is worth asking how Germany manages to produce even 2 percent of its power from PV, given that it has only as much sun as Alaska. The answer is that the German government subsidizes PV and other renewables through feed-in tariffs. Under feed-in tariffs, the government guarantees a price high enough to cover the cost of renewable energy, which is then fed into the grid and sold to consumers at a lower price that reflects the average cost of energy from renewable and nonrenewable sources.
Feed-in tariffs are an effective way to encourage production of alternative energy, but because they keep retail prices low, they do little to encourage conservation. In many cases, low-tech conservation measures, such as retrofitting buildings for energy efficiency, are much more cost-effective ways to reduce environmental harms than are PV or wind power. It appears that Germany’s enormous investments in alternative energy are yielding a smaller reduction in pollution than they could under a framework more favorable to energy conservation.
So, should you install a rooftop solar system?
By this time, you may be wondering whether I regret my own investment in rooftop PV. For several reasons, I do not.
One reason is that I’m a bit of a techno-geek. I think those sleek, silent panels are classy, and I love just watching the meter spin when the sun is shining.
Another reason is that my system is probably marginally more cost effective than average, at least for locations outside the sunbelt. Partly that is because of the ideal construction and location of my barn, and partly because I had some extra funds lying around in low-interest bank accounts, which kept my cost of capital low. Also, permitting costs and delays, which Crane and Kennedy mention as a major problem in some areas, were not a problem at all in my community.
Third, and most important, my installation was heavily subsidized:
- The federal government provided a 30 percent tax credit, worth nearly $15,000
- My local utility added a cash bonus of $4,500 for the installation.
- Under its net metering policy, the utility buys all my power at 7.7 cents per kWh, which is the local retail price.
- The state adds a cash subsidy of 15 cents per kWh.
- None of these cash flows is subject to income tax, unlike the earnings from most of the other investments I could have made with my idle funds.
In short, at least where I live, the subsidies are sufficient to make the returns on a home PV system competitive with interest rates on bank deposits, T-bills, or other low-yield investments. If you have idle cash, if your location is ideal, and if you think the panels improve the appearance of your property, then they are not a terrible investment.
What if you are worried more about saving the planet than earning a return on your investment? Is rooftop solar still a good idea? The answer, I think, is still a qualified “yes.”
One qualification concerns possible environmental damage done by manufacturing the panels. Reportedly, the Chinese companies that supply the panels for most home installations do not follow international best practices for disposal of toxic wastes. They should do so, and if they did, the panels would cost more, making home PV systems somewhat less affordable.
A more important qualification is that the American system of cash subsidies is not good public policy. Like German feed-in tariffs, our subsidies keep the cost of power low for the end user, so they do nothing to encourage conservation. The best policy would be not to subsidize the cost of PV, but to raise the cost of power from fossil fuels to a level that reflected the harm done by pollution. (See here for a fuller discussion.) Higher prices for fossil-fuel power would still encourage the use of PV while simultaneously giving a powerful incentive for more conservation. Rising prices for electricity from the grid would also reward early adopters of home PV by raising the otherwise modest rate of return on their investments.
The bottom line: Subsidies are not good policy, but if you take them as a given, you probably do more environmental good than harm by accepting them and installing your home system. However, if you really care about the environment, you should not stop at that. You should also campaign to change the policy to one that levels the playing field between fossil fuels and renewables by raising the price of the former rather than subsidizing the latter.
Above all, keep in mind that neither PV nor any other kind of renewable energy is a free lunch. Anyone who tells you that some magic technology will bring a future of clean, affordable, safe and inexhaustible energy, at no cost to your pocketbook or the government budget, is suffering from green illusions.