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    Is Subsidized Solar Power A Bargain For New Jersey And Pennsylvania?
    By Hank Campbell | November 9th 2012 03:00 AM | 11 comments | Print | E-mail | Track Comments
    About Hank

    I'm the founder of Science 2.0® and co-author of "Science Left Behind".

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    Energy companies in New Jersey and Pennsylvania are required to buy some solar power each year. 

    They are required to overpay for that solar power.

    In return for overpaying, they get Solar Renewable Energy Certificates (SRECs) which let them  pass the extra cost onto local families and taxpayers. 

    An analysis by a consortium of solar companies and advocacy groups has determined that somewhere in there it means "ratepayers in the region are getting more than a two-to-one return on their investment in solar energy," according to Dennis Wilson, President of the Mid-Atlantic Solar Energy Industries Association (MSEIA),  "Although the current SREC prices are unsustainably low, our analysis indicates that SRECs can increase in price, deliver net benefits and still support strong solar growth.   Solar power has proven it can deliver value that exceeds its cost by 50% to over 100%.   This net positive benefit will only increase as solar technology continues to drop in cost."  

    That's some government math right there.  The lower costs will expire but costs will stay low due to magic rocks. So what if Japanese and American and Chinese businesses have not been able to make current solar power technology viable for the last 50 years? We're Americans, dammit, we will throw another $72 billion at it and it will work or we will keep throwing money at the problem until it does. Global warming is too important to waste time doing basic research to come up with something that will work. 

    Since they are an advocacy group, all taxpayer subsidies are called "investments". We see these claims once a month - every taxpayer dollar spent on X invariably results in a net return of 1.3X or so.  It's amazing we have a deficit at all with so many taxpayer-subsidized projects that are somehow profitable. We should give all our money to these groups and we would have a budget surplus.

    What numbers are they so excited about?  Their examination of the market claims that solar power is sold for $256 to $318 per MWh (25.6 cents to 31.8 cents per kWh). The 'premium value' - remember that is the rate all those unemployed people have to pay - is 15-20 cents per kW, above the value of the solar electricity generated. The SRECs in New Jersey currently cost about 6 cents per KWh and in Pennsylvania they cost about 2 cents per KWH. 

    So taxpayers are getting that 2:1 'return' on their tax investment though they are paying for it when they buy the energy.  If you smiled at 'jobs saved or gained' numbers and chuckled that "cash for clunkers" was called a success when it cost taxpayers $25,000 per car you will go into an apoplectic fit of laughter at the idea that, because taxpayers only spent 2-6 cents per KWh on the front end and then pay 15-20 cents per KWh at their homes, they are getting double their investment back because they pay one of the energy companies paying the solar companies that happen to be in the MSEIA.

    If you are a resident in those states, do you buy electricity from a group called Vote Solar? Hint: You don't. But they are among the ones selling this statistical wobble.

    Now, I am a Californian, we have no business at all making fun of anyone else's economics. We just passed a new law to constitutionally mandate money for education so we could use the old constitutionally mandated education money to pay for government union pensions - and we have plenty of poor people in East Compton who subsidized solar installations that went to rich people in places like Malibu.

    But Pennsylvania is supposed to be smart.  Okay, maybe they are.  They haven't bought this hype about increasing their solar 'investment' in the past, they have stuck to overpaying only exactly as much as the law forces them to overpay.  The MSEIA wants to change that and their study is the evidence - unless anyone has a calculator.

    "For the first time the solar industry can show the quantitative benefits of implementing solar energy technologies specifically in Pennsylvania and New Jersey.  For more than three years we have been unsuccessful with enhancing our solar share requirement in Pennsylvania, largely because solar was perceived as only a cost to rate payers.  But this study concludes that the value of solar far exceeds the costs to both the rate payer and taxpayer," said Ron Celentano, President of PASEIA and Pennsylvania VP of MSEIA.

    New Jersey is America's second-largest solar market with 900 MW of capacity. They generate 1% of their annual electricity from solar power. 52% of their energy comes from nuclear power. The tiniest nuclear reactor in America, at Ft. Calhoun, Nebraska, generates 478 MW, half as much as the entire state of New Jersey's solar industry and with no 'premiums' paid by working people to subsidize the latest feel-good fallacy.

    Pennsylvania is much farther behind than Jersey in solar because, since the 1950s, they discovered this thing called science and science shows that natural gas is cheap and clean and therefore we can use more of it without forcing poor people in Newark to overpay.

    In a recession, how important is 'merit order effect', where a report 'values' solar higher because, well, solar is awesome.   And part of their value metric is claiming that building solar generation plants is cheaper than building natural gas ones, without ever considering the ridiculously better energy density of natural gas. Naturally they also factor in the reduced emissions from solar and 'quantify' that in dollar terms too.   But it is all to make the numbers look better and increase their subsidies - sorry, 'solar share requirement'.  Solar power jobs are union too, so they get paid more and therefore pay more in taxes so it is even better investment-wise, wink-wink.

    I agree solar's potential is awesome.  I can't wait for it to get good.  But I know that making companies dependent on subsidies does not lower costs, it just sends them out of business when the subsidies run out, like what will happen with wind power in January of 2013, unless their lobbyists get both parties to honor the commitments politicians made when they were lobbying for Iowa votes last month - you can bet Republicans changed their mind about Iowa wind farms once the state voted for President Obama a few days ago. 

    Solar power is only marginally better than it was 30 years ago. That money they want for more subsidies would be better spent on basic research to find a real breakthrough in cost and efficiency for panels.

    So don't be fooled, Pennsylvania. And go Steelers! Jersey, you're on your own.

    Full text of their report here.

     

    Comments

    Another flak of the fossil fuel and/or nuclear industry.
    Keep your distorted view of energy in California, where there are plenty of sensible solar
    enthusiasts to decry it. Leave Pennsylvania and New Jersey make our own decisions.
    Solar energy is viable and economically feasible NOW, and anyone claiming otherwise
    is simply lying.

    Hank
    Really?  You went to 'Shill for Big X' on the very first comment?  Let me explain this thing called data - this study and its subjective metrics were created by shills for 'Big Solar'.  100% of them got paid to collate the findings and write the report and their goal is more mandated subsidies for...themselves. 

    On the other hand, I have ever been paid a penny by any energy company of any kind. So if money means spin, you should be criticizing all those people promoting solar to make themselves rich, not me.  I am spin-free.  You are basically accusing me of being a Flak For Poor People Who Should Not Have To Subsidize Feel-Good Fallacies to make you rich.
     
    That you are anti-nuclear also starts the crackpot alarm tingling.
    Greetings,
    Interesting points up to the one about the nuke plant in Nebraska and how their are no premiums that poor people pay for it. Their is lots of federal money that has gone to nuke plants over the decades. Take them away and you take away the industry.
    Sure solar is expensive, it has come down in price due to less expensive modules, more competition, less expensive balance of system components, and yes efficiency is a lot less expensive than both solar and nukes.

    Hank
    Good point.  I don't get into it here but I regard energy as a strategic resource, just like food, so while I wish we would undo some of our kookier agricultural subsidies I am not a free market zealot who thinks we should make people reliant on international competitors to eat. We can't outsource our food or energy or science, we can only augment and that means not everything will be profitable.  Taxpayers will lose a lot of money on farming this year but it is better than losing farmers.

    All energy companies are subsidized - the problem is we have wasted as much money on alternative subsidies in the last 3 years as we spent on nuclear and fossil fuels subsidies and credits combined for the last 50. 

    I am optimistic solar is part of the future but the bankruptcies we have seen show that we are doing a very dumb thing by taking a $400 million industry segment and artificially inflating it to $40 billion.  If solar were only as 'bad' as nuclear or fossil fuels, energy companies would not be forced to buy it at a premium and then forced to charge customers more for it.  And solar companies would not be trying to force higher mandates and subsidies using junk statistics.
    Hank,
    Actually, that is a well written article on solar. None of the typical extremist slantings that are normally discussed in these types of things.

    I understand the frustrations...I installed solar panels on my roof myself...a large installation by residential standards, so I can tell you what the EXACT costs are and EXACTLY how much energy is produced and you decide if solar is a good deal.

    Thirty months ago, I paid per watt...$1.95 for panels, $0.40 for inverter, $0.20 for racking, $0.10 everything else. It was a 9660 watt system. Total un-subsidized cost was $2.65/watt before federal tax credit.

    Prices are dramatically different now...here are actual current prices...$0.69 for panels, $0.30 for inverter, $0.20 for racking, $0.10 everything else. Total un-subsidized cost is currently $1.29/watt before federal tax credit.

    This time next year panels will likely be less than $0.60 for panels and less than $0.25 for inverter as Chinese are starting to manufacture inverters. Total un-subsidized cost will be less than $1.15/watt before federal tax credit.

    My 9660 watt system produces slightly more than 14400 kWh/year. Retail electricity is roughly $0.10/kWh. The warranty on the system is 25 years, but may last double that...maintenance is truly zero. I produce 10%-15% more electricity than I consume and the panels are not even optimally placed.

    Consequently, current costs with 30% fed tax credit is .7*1.29=.903. Roughly $900/kW installed. Roughly $145 electricity produced annually. Payback=6.25 years...maybe a 11% ROI.

    Next year costs roughly $805/kW payback would be 5.6 years...maybe 17% ROI. Assuming 25 year timeframe total energy produced would be 1440 kWh *25 = 36000 kWh. Cost to produce solar = 805/36000=$0.0224/kWh=$22.4/mWh.

    Wow. That's cheaper than wind, gas, coal or nuclear and is inflation proof. Of course labor in this scenario is zero and I am not counting for time value of money, or electricity market rate increases, etc. but you get the point...over a 3.5 year period cost of solar has dropped from $52mWh down to $22.4mWh.

    We can easily that solar is an incredible deal now if you have no labor expense, but in another 4 years when the fed tax credit expires the industry should be in excellent shape to compete head on with fossil fuels.

    Hank
    That is a terrific analysis.  And it shows why a big chunk of what the federal government is doing is flat out wrong.  

    To clean up the atmosphere, it will cost money. It doesn't matter if it is penalizing fossil fuels or subsidizing alternatives, it is going to cost, so the rebate is fine.  But the material costs are coming down because, in defiance of Dr. Chu's predictions at Energy, the Chinese have cut their solar panel prices in half, without subsidies, and he predicted they would go up as demand did.  

    We cannot and should not be competing against the Chinese, who have no labor unions and no environmental restrictions, to manufacture what will need to be a commodity. Yet a large chunk of our taxpayer dollars are not going to rebates, they are going to companies who can only compete with the Chinese if we underwrite them.  That is irrational nationalism and slapping giant tariffs on China's solar panels because they made the Energy Department look bad is even worse. No one stops buying iPhones because Asia makes chips cheaper than we can and we don't subsidize chip foundries to compete with them.

    What we do know is that rebates are not enough because, let's face it, you have to have the money in the first place.  If we took the money we are wasting on solar company subsidies and devoted it to making apartments and buildings in cities more energy efficient, we would be way ahead environmentally.

    Giant installations are not ready yet, for reasons beyond this article or what I can cover in a comment. I devoted a big chunk of a whole chapter to it in Science Left Behind.  I am a fan of solar but not a fan of wasting time and money. If, as you predict, solar power can make it with reasonable subsidies, a billion dollars a year or something, in four years, I am all for it. But Siemens is getting out of that business because even heavily-subsidized Germany can't make the numbers work with today's technology.
    Hank, the future for solar is nothing but positive. In the near term it will very likely be the least expensive form of energy.

    I'm not sure why you are so down on it? How can you not be excited that the soon to be cheapest form of energy is so clean and uses no water?

    I know. You are worried about the expense and effort involved to develop the technology and change the world. It is that attitude that allows china to eat our lunch. We invented the technology, we produce a good percentage of the world silicon supply, but then we abandon it due to political pressures and status quo powers.

    Imagine if the US had abandoned the transistor, airplane, oil, aerospace, computer, medical, Internet, cell phone industry, etc. I will tell you what...we wouldn't be half the country that we are today. Each of those industries were explicitly developed and supported by the government. Without that support, we would not reap the benefits that we do so today. Our government picked the winners and the losers. Be aware, not every industry our government supported vigorously succeeded...for example the nuclear industry...whether it is energy or warheads, we don't make money selling the technology. Like aerospace, it has been a money pit, but a necessity toward progress none the less.

    The renewable energy industry is the next revolution. A massive money maker. We gave up on it years ago and gave it away to the Europeans and Asians. Super stupid. Why did we give up on it? Answer: because it displaces an existing, successful industry. That existing fosil fuel industry has bribed our politicians, media, citizens in thinking that this technology is unproven, useless, overly expensive...all to prevent from being displaced.

    With your statements above, you are working for that industry. For what? Because you think it is a bad investment? Because you think it has no future? It is precisly that attitude that destroys the future of this country, obliterates innovation and wipes out investment. Is that what you really want?

    Hank
    Don't fall prey to either/or thinking, that is the mentality that prevents real progress. It's why we don't get climate change efforts - we get told if we don't accept bad cap and trade laws we don't care about the environment. 

    I am a huge advocate for basic research in solar and critical of subsidizing companies right now.  And no, Fairchild was not subsidized by the government, they paid for chips, not taxpayers. The only time government subsidies of chips came up as an issue was in the 1980s when Asians started building foundries and we heard those exact same arguments - if we don't subsidize chips, we will lose ground, etc.  But we did not lose ground at all, we outsource the commodity part of it now and do the research work here.  No one says today if we don't subsidize chips we are going to lose technology leadership.

    So telling me unless I subsidize solar corporations I am a shill for fossil fuels is not constructive, because it is not the real world.  It is like telling unless I endorse sending a spaceship to Alpha Centauri today, I am against space travel.  No, I know if we research space travel for 50 years and then build something and send it, it will overtake the spaceship we send today and still arrive faster.
    There are lots of ways for your government to support a particular industry.

    Subsidies are one, removing subsidies of competitors is another, loan guarantees, purchase agreements, nationalization, exclusive contracts, tariffs, tax breaks, military support, trade agreements, regulations, even simply vocal support. Some of these cost nothing, some even increase revenues.

    Either way, renewable energy has a solid future and will make this country lots of money, but we as a nation do not support it. Even simply vocal support or regulatory support.

    My point is that with all the in fighting and arguing, it is the voice with the most money that is heard. Our only energy policy is and will be "drill baby drill." Makes me sad at the lost opportunity.

    The world moves ahead...we do not.

    Upon reflection I remember hearing about all those crazy laws on the books defiling cars in the early 1900's. People had to fire a pistol at the intersections, wave a flag, do the impractical all to the benefit of the buggy whip manufacturers. That what is going on here.

    Why is it that interest on the money invested is NEVER part of these solar payback analyses?
    Your system cost over $25,000, if you borrowed it, the interest on that money is $900 per year. If you took that money and invested in stock instead of buying panels, that money COULD have generated $1200 per year in dividends.
    Your system generates $1450 worth of electricity per year.
    That's payback income of $550/yr for year 1 assuming you borrowed the money on a home equity loan.
    At that rate, it will take 28 years to break even, forget about money taken from others in subsidies, this is the REAL payback.

    The lifetime of the system really is 25 years, output drops as your panels degrade from radiation damage, your inverters will die sooner. At the end of 25 years, your system will STILL not have paid for itself, and you would be facing a new investment to replace your panels. When the cost of money is included.

    You would have been better off taking your $25,000 and buying Conoco oil stock, with a dividend yield of $1200 on year one. Paying for your electricity with the dividends (and paying taxes on those dividends), at the end of 25 years you would have $19,000 in your investment money left PLUS the 25 year increase in Conoco stock value. Over the previous 25 years, Conoco stock has increased in value by over 10 times.

    So two paths to year 2037. One with old solar panels on your roof, NOTHING in the bank and uncoming bill to replace them, and one with $200,000 in the bank.

    If you want you could include the interest on the money invested. Interest rates are incredibly low.

    Of course, you would also want to add increases in the future cost of energy...this would reduce payback calculations.

    Also, you would want to include the fact that the energy savings are after tax savings...again this reduces payback calculations.

    Finally, you would want to include that fact that the solar panels raise the value of your home...again reducing payback calculations.
    -------------------------------------
    Just as an aside, when I installed the panels on my home, I got a $2.44 / watt rebate. The payback was about 26 months for the system...yea, I know, why such a big rebate...it's a private company...who knows...

    Given the experience, it is amazing how fast the cost of solar PV has decreased in such a short amount of time. One can actually see how in only a few years it will be more expensive to pay for power from the grid than generating it yourself. The future is really exciting.

    In my case, where I generate more energy than I consume, it is interesting how my thinking about energy has changed. The more energy prices rise, the more money I actually make. For some reason, I am compelled to save more. I am more conscious than ever of my consumption. I am even trying to eliminate natural gas bill. Heat pump water heater is my next move. Already converted the gas dryer to electric.

    The payback on those two projects is pretty fast depending on how you want to justify them. Haha.

    Anyways, it is all a good thing. It is easy to see how lots of people will be in my same position within the next ten years. Exciting stuff. Makes me think about how in the very early days of the Internet, you could see how it would change the world.

    Finally, not everyone does these things based on payback. If it was true, Lexus, Mercedes, etc. may not exist...did the us get a payback from NASA, or the war in Iraq? Intangibles make a difference.