Robert Bryce explains in an editorial at the Wall Street Journal on 4/18/17 the lousy economics of rooftop solar panels: Thanks for Giving Me Your Tax Money.
Mr. Bryce appreciates each of us for giving him our money. Of course, it was done through the tax system so it wasn’t much of a gift. Anyone who did not go along with funding his lark would have to spend some time in jail.
He explains he installed a 8,540 watt solar system on his roof. That means the 28 panels generate 301 watts each.
I have been wanting to see financial results from an actual rooftop installation. Mr. Bryce provides a set of actual numbers.
Here is the breakdown of the actual cost:
- $7,758 – federal tax subsidy
- 6,593 – subsidy from city owned utility
- 18,100 – his out-of-pocket costs
- 32,451 – total cost
That means you and I covered 44% of the cost.
He says his system is generating about 12 mWh MWh of electricity a year.
Hmm. That would be about 32.9 kWh a day. For a system with 8,540 watt capacity, the potential, or faceplate capacity is 205.0 kWh each day. So what’s the capacity production on his system?
16%
Sixteen percent.
Let’s look at cost per capacity
- $2.12 / watt installed, his cost – (18,100 that he paid / 8,540 watt capacity)
- $3.80 / watt installed, actual cost – (32,451 actual cost / 8.54 kW capacity
- $23.75 / watt actual production – ($3.80 / watt for the 16% actual production)
Is this affecting his electricity bill?
Yes, quite nicely, thanks to all the other consumers in his area.
He is getting paid for the electricity at four times the wholesale rate.
- $106.00 /
mWhMWh – what he is ‘earning’ for all production he doesn’t use - $ 24.62 /
mWhMWh – average wholesale price in Texas
Breakeven
Breakeven is the point at which a project recovers all the cost. Until that point, you would have been better off not undertaking the project. After the breakeven point, you are making money.
What does Mr. Bryce calculate as his breakeven?
Fourteen years.
Even with the massive subsidy from the feds and state for construction and the massive subsidy from other consumers for whatever his system produces that he doesn’t use, it will take him 14 years to make back his $18,100.
14 years.
Let’s toss in the up-front subsidies of $14,351.
If it takes 14 years to get breakeven on $18,100, it would take another 11 years for breakeven on the subsidies. So when does society hit breakeven?
25 years.
Wealth transfer to the wealthy
Article says the California PUC reports that people who install solar systems have household income 68% higher than the average in the state. That means these subsidies are wealth transfer going from average people to wealthy people.
How does Mr. Bryce feel about this? He says…
I’m a prime example of the “green” economy: I’m socializing the costs of my scheme and privatizing the profits. And I’m feeling virtuous while doing so.
What a deal!
Other than with a rooftop solar system, how else can you:
- Transfer to society the costs of your project.
- Take the financial rewards for yourself.
- Be allowed to feel smug and self-righteous while doing so.
Update: There is a lot of traffic coming to this post. Welcome! There are also a lot of comments compared to what is typical for my blog. Just a reminder, all comments are moderated. I will approve all comments that are civil. Just so we all know what the rules are, I am the sole source for determining what is civil.
Update 12/18/17 – This post has received over 2,700 views during 2017. That makes it the fourth most viewed page on my blog for the year. Thanks for reading!
This appears to be exactly as I expected, however; I find it strangely sickening to see in print. It is as if the phenomenon of wasting resources under a false “green” economy was not really happening until I saw my own suspicions echoed in Mr Bryce’s example. I suspect that many adherents to the current RE ideology will ignore these numbers and dismiss any and all criticism based on them.
Hi Robert:
There are plenty of illustrations of the poor economics around. I’ve not seen one this clear before.
Jim
Mega has an uppercase M. Milli is lowercase m.
Hi:
I stand corrected.
Megawatt hours is abbreviated MWh. Kilowatt hour is abbreviated kWh.
Corrections made above. Thank you for taking the time to point that out.
Jim
Who on earth would pay 32,000 dollars for a 8.5 k watt solar system.
I paid $3k for my 3000 watt system. Saves me close to $1300 per year. Around 40% return on investment. Without subsidies, it would have cost about $5500.00. Still a good return.
Hi Mike:
Unsubsidized cost for your system is $1.83/kW. From the few data points I’ve seen, that is a great price.
The challenge, and the reason I highlighted Mr. Bryce’s article, is the lack of actual data. The general pattern he describes is vaguely comparable to a few of the cost structures I’ve seen in the promo pieces in the US.
Thanks for taking the time to share your situation, which provides another data point.
Jim
Mike, hi again:
That is a great deal you have. Would you be willing to provide more details in public on your system? There are about 650 views on this post, which is really high for my blog.
Saving close to $1,300 a year is close to $3.56 a day.
With a 3,000 watt system, the faceplate capacity is 72,000 watts, or 72 kWh a day. I will make a guess your system is seeing about 20% capacity, which would be 14.4 kWh a day. That puts the marginal price for electricity in your part of your country at around 24 cents or 25 cents a kWh.
Tier 3 here in California is $0.287/kWh, with $0.069 of that for generation and $0.218 for distribution. I’m only in tier 3 for a few months a year.
I am guessing readers here would like another actual situation. Interested in doing a write up? I would be willing to let you post an anonymous article on my blog, if that would grab your interest.
Jim
One of the important factors is the Latitude at which Solar is installed. In short if it snows where you live Solar is uneconomic.
Hi Tony:
Now ponder the vast amount of solar panels installed in Minnesota. The top of the parking structures are covered with solar panels, which are themselves covered with snow months at time.
Thanks for reading and thanks for taking the time to comment.
Jim
There is also 40 GW of solar in Germany. I am not a fan of solar but if you must install it put it somewhere useful like India, Africa, Asia where it will generate all year round.
Might also be helpful to put it somewhere that doesn’t get hammered by harsh winter storms.
Or violent hurricanes(Haiti, Texas), tornados, cyclones. It is a very limited resource. Here is a reference to the Australian Solar farms, it is worth a look to see how erratically and poorly they perform over time, note the worlds biggest battery is here as well, HPRG1 Hornsdale Power Reserve Unit 1.
http://anero.id/energy/solar-energy
I don’t see where you account for the cost of the electricity he would have paid for without the solar system. Solar panels are not yet very efficient but free trumps efficient in my book
Hi Dwight:
That is why my quick calculation was made the way it is. The commenter’s statement that he is saving close to $1,300 a year implies that he would otherwise be paying that much more to make up for the electricity produced by his system. Combine that with the size of his system means the implication is he would otherwise pay somewhere around $0.24 or $0.25 per kilowatt hour year round for all of what is now output from the system.
Jim
I guess my question is how many years will it take to hit breakeven on the money one spends using the current electrical grid? I have yet to hear anyone recoup those costs, ever. Perhaps there is someone out there who has found a magical way to get the power utiliy that services them to pay back money for usage.
Can never understand the economics – if the utilities buy at $106 and sell at $24.62 – who bears the loss of $81/mWh ( I understand utility companies in the US are private sector commercial companies )
Hi Jenny:
That is an incredibly wonderful question.
*Short answer: the utilities eat the difference.
*Long answer: As I understand, the shortfall works into the rate calculation that utilities submit to the regulators, which works its way into the per kWh electricity rate, which means that other consumers (the ones without rooftop solar) pay the difference.
*Blunt answer: people who do not have rooftop solar subsidize those who do.
If at this point your brain hurts because it doesn’t make any sense, you are catching on to the economic unreality of rooftop solar.
Thanks for taking the time to think this through and ask the question.
Jim
P.S. Your understand on the normative situation for ownership of utilities in the U.S. is correct.
The consumers who do not have access to solar pay. Generally the less wealthy. Poverty begets Energy Poverty
The utilities don’t sell energy at $24.62/MWh – that’s the price they can buy it in Texas (looks very low – I’m in Australia and utilities pay an average of around $80/MWh in a flexible market.)
They actually sell it to domestic consumers at something above $200/MWh. I’m not familiar with Texas prices but I pay up to 38c/kWh, which is $380/MWh.
It is true that the utilities could make more profit by sourcing energy elsewhere so to that extent, it is a subsidy.
Hi Jenny:
The $24.62/MHw amount is an indication of wholesale price, or what a utility might pay for a large amount of electricity. The $106 amount is what he is credited for electricity produced by his system which he doesn’t use. This is the issue included in the ‘net metering’ concept. So the utility is essentially paying him at a very high rate ($106) for electricity he doesn’t use, when megawatt hours could be purchased at a far lower rate ($24.62). That difference between what he is credited and what wholesale electricity is a subsidy, the cost of which is directly borne by the utility but essentially works its way back to other consumers.
Jim
Do the costs include batteries?
Hi:
No. That would put the costs far higher. Later I’ll add a link to some posts taking a quick look at storage costs.
Jim
Hello again:
Adding batteries would increase the cost dramatically. Here are a few posts where I pondered the cost of storage:
*5/1/15 – Going off-grid. Would merely triple what I pay for electricity.
*5/5/15 – More followup on the Tesla Powerwall home battery
*5/6/15 – Going off-grid. Would merely triple what I pay for electricity.
*5/13/16 – Minor updates on Powerwall battery
Jim
The numbers you are quoting seem strange, although I am not doubting the truth of this example, it highlights the poor decision making around solar. $4 a watt is exceedingly high as in nearly every other country in the world you can get solar installed , without subsidies for less than $2 a watt with $1.75 being easily attainable.
Faceplate capacity which I am taking to be nominal capacity x 24 hrs is meaningless. Here is the reality of the bare bones solar equation.
1. The sun emits more power to earth in one hour than the whole world uses in a year. It is an inexhaustible supply of virtually unlimited clean green renewable power.
2. Even with current technology we would only have to cover 1% of the earths surface to supply mans entire energy needs.
3. It is already economically equal or superior to grid supply, although this does vary with local grid supply rates. I understand in the US it is typically 11 cents per kWh, which is about break even, and in Australia between 18 and 50 cents per kWh.
4. Amortizing the system cost over 20 years looks something like this
8.5 kw x 1.75 = $14,875
8.5 x 4 (effective sunlight hours per day ) = 34
34 x 365 x 25 = 248,200 kWh (Ignoring both degradation and the 10 plus additional years the system will work)
$14,875 divided by 248,200 = 5.99 cents per kWh
Even if it supplies only half your power it will
save money,
not hurt the environment,
increase independence,
reduce infrastructure expense,
extend the life of fossil fuels…….
I understand the inconsistency of production and the current expense of storage, however solar power generated and consumed on site is viable and every daytime business should look at the huge benefit they can derive from generating their own power with the grid a a seamless backup.
In Australia we can rent a system to a business where $2 in rental equals $3 in savings…..so given all the above why not?
Hello Raymond:
Thanks for taking the time to provide another, quite detailed, description of the cost structure.
For those doing the math at home, the formula for point 4 says 25 years, but the result of 248,200 lifetime kWh is calculated on 20 years.
Do you have any idea why the costs are so much higher in the US than elsewhere? The prices Mr. Bryce cites are in the ballpark of what I’ve seen when I’ve glanced on the sales page of several solar installers.
Thanks again for your comments. I do appreciate the time to walk through an illustration.
Jim
Is this all to say that there is really no benefit to rooftop solar? There has to be some incentive along the way, besides feeling good about yourself :/ I looked at some websites and used the “Savings calculators” they provide, and they all seem to show some kind of benefit. I realize that these sites may eschew giving any kind of negative factors, but these systems wouldn’t sell at all if people didn’t make out on it
Hi Jim:
There is a benefit to an individual consumer. As Mr. Bryce points out, this is possible because there are large subsidies from the taxpayer and utility at the front end and large subsidies from other consumers during the life of the panels.
Even with those subsidies Mr. Bryce calculates a breakeven term of 14 years. That means it will be 14 years before he is better off with the panels in terms of cash flow than if he didn’t install solar. Adding in the front-end subsidies means there is a 25 year breakeven point.
One of the economic risks is making a 25 year bet on this year’s technology, regulatory structure, and environmental rules. What happens if any of those many factors change? For example, what if we as a society decide at some point in the future that those rooftop panels contain horrible minerals that must be disposed of at end-of-life at a high cost? The life-cycle economics would change substantially.
Seems to me the biggest payoff for an individual consumer is to install just enough capacity to eliminate most or all of the tier 3 consumption. The risk is making a 14 year (or 25 year) bet that the state regulators will not change the relative pricing between tier 2 and tier 3. If that ever changes, the economics (UPDATE economics for an individual consumer) collapse.
Thanks for taking the time to comment.
Jim
Thank you for clarifying Jim. Makes more sense when you put it like that. Those were factors I had never considered.
Hi Jim:
Thanks for taking the time to read and comment.
Jim
I think I get the “I don’t want to be a socialist” sentiment, but shouldn’t we factor in the subsidies and land-giveaways to the fossil fuels industry and the environmental degridation with extraction and exploration and delivery of those fuels? And the power lines, pipelines, biodiversity losses and landscapes compromised by the power sources currently powering our lifestyles seems like a serious omission here. I know it’s a simple example – but it’s so incomplete as to be misleading.
I also think the headline of wealth transfer in light of the ongoing wealth augmentation of the rather well-to-do energy segment of our economy (note wages vs profits over the last 50 years). By separating out the calculations so as to exclude impacts of pollution (tainted water, air etc) and their exaggerated impact on lower income families and people of color sort of misses a big factor in this example.
Additionally, the subsidies while imperfect at best, are in fact meant to give a leg up on an industry that holds more promise than fossil-fuels ever has.
Thanks for the post… I love the example data for what it is, a single, clean, specific, data point.
Hi Scott:
Thanks for your thoughts. Feel free to offer any calculations you come across that incorporate the additional factors you mentioned.
Please provide links to any analyses you encounter which add those comparable factors into the cost of intermittent energy sources as well, particularly the rare earth metals mined, transported, and used in manufacturing of solar panels. Also please advise on the technology that will be used to dispose of solar panels at the close of their useful life and the future cost thereof.
Thanks for taking the time to comment.
Jim
Oh, Scott, regarding the opening of your comment, if we are looking for a label to put on the overall plan described above, what economic system is it which takes money from everyone and transfers it to people with above average income and above average wealth?
Jim