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We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

An illustration of the horrible economics of residential rooftop solar power

Wealth transfer to wealthy under construction. Image courtesy of Adobe Stock.

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 / mWh MWh – what he is ‘earning’ for all production he doesn’t use
  • $  24.62 / mWh MWh – 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.

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19 thoughts on “An illustration of the horrible economics of residential rooftop solar power

  1. 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.

  2. chrispenevan on said:

    Mega has an uppercase M. Milli is lowercase m.

  3. 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

  4. 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

  5. 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.

  6. Jenny Courtney on said:

    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.

    • Richard Challis on said:

      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

  7. Do the costs include batteries?

  8. 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

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