Arizona Solar Job Losses = Arizona Productivity Gains

2011 was a tough year for US and European solar panel manufactures. The following companies declared bankruptcy or closed their solar divisions; BP Solar, Evergreen Solar, Solar Millennium, Solon SE, Solyndra, SpectraWatt, and Stirling Energy Systems. Pressure from low cost Chinese panel makers has forced many long-time solar manufacturers to exit the field, and many employed in the field have lost their solar jobs as a result.
 
These job losses are no doubt causing hardship and we all hope they can quickly find new work in the free market. But there is a silver lining to the story. The positive side is that the new work they find can actually provide goods and services we need to make life better. Unfortunately what they had been doing had little economic value since the financial return of on-grid solar is only marginal. Overall, the cost of on-grid solar is still about 4-5 times too high to be viable as a free market energy alternative for on-grid applications. So this activity had an economic utility of about 20% of a real free market activity.
 
In the free market, labor, materials, land and capital are combined to create things worth more than the sum of the inputs. But with on-grid solar we invest $1 in inputs and produce a device worth only about 20-25 cents. In a way, you might say solar jobs are only 20% of a real job. This whole activity has been a drain on the economy and taxpayers. But once these people return to the real work force, making needed goods, we will all have more; real wages will increase and/or prices of the goods and services we want will decrease. It really is a win-win for us all. And the sooner this happens, the sooner the economy will be more productive.
 
I just hope the transition is short and without much anguish. The drama and pain is no fault of the workers, it is the fault of those in the solar industry that created this bubble via subsidies for this non-viable market segment called "On-grid solar." They have been and continue to plunder money from taxpayers and ratepayers to sustain this unsustainable industry.
  • On-grid solar:
  • does not reduce oil imports,
  • does not create real jobs,
  • destroys free market jobs,
  • is not cost effective at reducing C02,
  • will not significantly reduce the need to build new generation equipment, and
  • stifles entrepreneurs from developing real energy solutions.
 
Solar should develop under free market forces and government should regulate pollution and tax externalities.
 
It might not be obvious why these solar jobs, which have low economic value, are not helpful to the economy. For many, a job is a job, so why does it make a difference what is actually accomplished. Sometimes the complex nature of the economy makes it difficult to clearly see the effects of policies, so consider this simplified analogy.
 
Imagine a small island of 100 inhabitants. Assume they were all productive in producing food, building homes, making clothing, etc. Now assume the island government takes 10 workers away from their usual jobs and makes them dig holes. The overall productive output of the island will drop. This means that there will be less goods and services available. There are still 100 inhabitants, but now only 90 are productively working. So everyone has less. Either prices increase or wages decrease, but the result is the same. Everyone can now afford less of what they could afford before the 10 workers were ‘misdirected.’
 
This is similar to what is happening with solar subsidies. As money is taxed away and spent on solar, free markets contract and the solar industry expands. The result is that workers are displaced from normal productive free market activities to marginally productive subsidized activities so overall useful output drops.
 
The economic loss of subsidies for solar jobs might be justified if solar actually viably contributed to reducing pollution or providing energy independence, but those arguments are flawed.
 
But the island example does not capture the full penalty of the situation. Compelling the economy to manufacture non-economic PV panels is not only a waste of labor, but a waste of other valuable raw materials such as copper, aluminum, steel, land, and even finite working capital.
 
So now reconsider the island situation, but instead of just digging holes (wasting labor) the misdirected laborers were building homes, which are then bull dozed down. So they are also consuming raw materials such as wood, concrete, copper, etc and then wasting them. Wasting these materials drives up their price in the balance of the island market place. Wood, concrete, copper, etc is now more expensive because this activity is wasting those materials in non-economic projects.
 
So not only does the island have less productive workers, but raw materials needed for other goods are now more scarce and expensive.
 
So when you hear that some solar company has closed its doors and 1000 employees have been laid-off, it is more accurate to view it as 1000 people which had been sidelined are now available again in the real economy to produce goods and services. Further, the raw materials and other valuable resources used (wasted) in making the solar panels for the on-grid market are now more available and less expensive.
 
Stopping this non-productive activity is a win-win for everyone, except for the short term pain of those who must find new work and whose recently developed skills are not potentially useful in the real market.
 
A WORD TO OTHERS WHO WORK IN THIS ARTIFICIAL SOLAR JOB MARKET: You might keep an eye out for another opportunity. Hopefully the subsidies for this uneconomic activity will end soon and you can join the rest of us in the free market work force. We will all have more goods and services when you do. Please join us as soon as you can!

Just Deserts

Does anyone else find it hypocritical that the US solar industry is upset with China, because China might be averting market forces and selling solar products below cost?

Market forces that the US solar industry is happy to avert by using mandates and subsidies to stimulate sales of uneconomic products they just happen to manufacture?  They lobby congress to pass laws forcing the taxpayers to subsidize their products and thereby transfer wealth from the pockets of the citizens to the accounts of the solar corporations.  Now they are upset China is undercutting them in price?

I call that just deserts. After lobbying for a decade to plunder the public coffers they are now dropping like flies (bankruptcies) because China also sees the huge artificial market and wants to play.  So maybe they are 'cheating."  The taxpayers are now actually benefiting from lower cost, if not "below cost" on the solar panels they are being forced to purchase thanks to the lobbying efforts of the solar industry.

As a citizen, taxpayer, and ratepayer the only thing I have to say about the US Commerce Department trade case against China is "Thanks China!"

Solar Subsidies: Misdirecting Consumers and Industry

"Solar subsidies are a placebo which is giving the general public a sense of security about our energy future and is robbing the motivation of those entrepreneurs that could actually address our energy problems."

In a recent Economist on-line debate, the affirmative motion “This house believes that subsidizing renewable energy is a good way to wean the world off fossil fuels” was surprisingly defeated. In his closing remarks, the moderator softened his strident opposition to the negative case, even admitting that "subsidizing renewable energy, is wasteful and perhaps inadequate [to address climate-change concerns].”

Beyond the Climate Debate

The debate, indeed, reopened the question whether anthropogenic greenhouse-gas forcing was a serious planetary environmental concern. But such focus short-changed what I think is the more important question for The Economist.  Not only are the renewable-energy subsidies (such as for solar) wasteful and potentially insufficient, they are outright diabolical if indeed there is a looming environmental crisis.

I am not evaluating whether anthropogenic global warming is real and potentially cataclysmic; I’m arguing that if there is a valid concern about the enhanced greenhouse gas effect, not only will the subsidies not solve the problem, but may very well prevent or postpone a legitimate solutions.

Grid Solar: Radically Uneconomic, Intermittent

I've written before about why on-grid solar power is absurdly uneconomic and has almost no hope of becoming a viable alternative to current generation technology--or even competitive with other more viable renewable technologies. I’m asking the reader to accept this position for the sake of understanding the potential implication of my claim.

I think it is safe to say that public opinion towards solar is very positive, and there are many in the field claiming that on-grid solar is at or near grid parity.  But it only appears this way because of massive governmental subsidies/ratepayer surcharges for installing and using solar PV.  In reality, it is hopelessly inefficient from an economic sense to be a fix for our CO2 concerns.

The Real Problem of Subsidies

So here is the real problem with the subsidies. Subsidies make solar appear viable today, so where is the motivation for an entrepreneur to risk money, or even focus on developing real energy alternatives when solar is “almost” there? How can an inventor justify striving with the effort it takes to really develop something great when he is competing against a straw man technology which can provide power at almost the same cost of traditional power sources today? But of course it really doesn’t.

The answer is he can’t justify the effort, so the next great thing is not developing, at least not with the sense of urgency it should be. Why enter a contest when you are competing against someone with an unfair advantage? You may be the faster swimmer, but your competitor is using flippers.

Solar subsidies are a placebo which is giving the general public a sense of security about our energy future and is robbing the motivation of those entrepreneurs that could actually address our energy problems. Subsidies are much worse that just wasteful, they’re diabolical. They lull us into thinking we have almost solved the problem and they hinder us from seeking the real solutions.

An Analogy to Leprosy

“Necessity is the mother of invention,” and it’s fairly easy to see this is often the case. Need is a great motivator. We need to feel the pain of our situation to really challenge and change it.

Leprosy maims it’s victims by robbing them of their sense of pain. The leper can put his hand on a hot surface and not feel the heat. He can twist an angle and will keep walking.

In the same way, on-grid solar subsidies will allow a homeowner to continue using much more electricity than he can afford (or the planet can sustain) and he will not know it. If he felt the pain of the real cost, he would use less power. But he does not feel it, since subsidies hide the pain, like leprosy.

Summary:

Subsidies defeat market forces on both sides of the equation. They reduce potential supply by hindering entrepreneurs from developing new energy supplies and they increase demand by artificially keeping the price of energy down. There could hardly be a more cleverly disguised means of exasperating a potential climate issue.

If solar PV does not develop into a viable alternative, which I believe it won’t for many decades, not only have we wasted billions of dollars, but far worse, we defeated normal protective market forces which would have better prepared us for a potential necessary change in energy use. So in the near term, perhaps our bigger concern is anthropogenic energy policy.

Green Jobs

Some solar advocates talk about solar energy projects in terms of how many jobs are created. They say subsidies for solar create jobs.  But what is not visible to the untrained eye is that subsidies also destroy jobs, and in sum, they are a net loss for the economy.

Who do you think pays for these subsidies?  The answer is taxpayers and ratepayers pay for the subsidies given to the solar industry. 

So what happens to these tax and ratepayers as they are forced to pay more in taxes and electric bills?  Of course, they can now spend less in other segments of the economy.  There is no free lunch.  Their reduced spending will directly cause economic losses and job losses in the balance of the economy.
 
So on net, the solar subsidies just shift jobs from one activity to another.  But we are worse off.  The new solar jobs don’t have much economic value.  If they did the market would have already employed people to install solar electric systems.  But the jobs that were lost were more productive, since they were created by real demand.  So on net, we shifted people from more productive activities to less. This causes lower overall economic output and lower aggregate wages. 


Imagine a small island of 100 inhabitants.  Assume they were all productive in gathering food, providing water, building homes, etc.  Now assume the island government takes 10 workers out of the job force and makes them dig holes.  The overall output of the island will drop by 10%.  This means that there will be 10% less goods and services available.  There are still 100 inhabitants, but now only 90% the output.  So everyone has less.  Either prices increase or wages decrease, but the result is the same.  Everyone can now afford only 90% of what they could afford before the 10 workers were ‘redirected.’ 

This is very similar to what is happening with solar subsidies.  Workers are moved from productive activities to less productive activities so overall output drops. 

So the next time you hear someone say, this or that solar company employed 100 people, it is more accurate to see it as 100 productive workers are now unproductive and we will all have less goods and services to go around.

But it is easy to be fooled by the jobs myth.  When the solar jobs are created, the number of jobs are easy to see and report in a news article.  But when spending drops in the balance of the economy, the job losses are diffuse and difficult to count.  You will see shirts with solar company logos, but no one laid-off in the restaurant business will wear a shirt that says “I lost my job do to solar subsidies.”  But they did just the same.

The economic loss might be worth it if solar actually contributed to reducing CO2 or providing energy independence, but those arguments are just as flawed. 

SimPlanet

Imagine a computer game in which a planet is struggling to reduce CO2 levels and failure to do so will result in total annihilation of human life on said planet.  You are in charge of the planet's eco system and are given 1 billion tons of aluminum to use in a manner which reduces the most CO2.  The game is set-up such that if you use it well you will save the planet, but if you squander it, you will doom the inhabitants.

Where would you use it?  You are given lots of choices. You could use it as a substitute for steel in cars to reduce weight and increase gas mileage.  You could put it in electric transmission lines to reduce transmission losses.  You can also use it to make frames for mounting solar panels.  The game also allows use of 1 billion tons of copper, which could be put in electric motors and generators, reducing their internal electrical resistance and increasing the output of hydro, wind, or geothermal generators.   Likewise labor is available and can be used to install insulation; capital can be used to finance energy efficiency projects with multi-year paybacks.  In real life, all of these valuable resources can be and are used to save energy every day.

So to make the decision about where to use the resources in this game you will need to consider the relative potential of each resource to save CO2.   If you decide to use these resources in an application which has a relatively low return for reducing CO2 emissions, you will lose the game.  If you use 1 lb of aluminum to save 1 lb of CO2 when you could have saved 10, you wasted the resource.  And that resource is now not available for the wiser use.  This is the concept of the energy opportunity cost of non-energy inputs.  Aluminum is not energy, but could have been used to make or save energy (and therefore reduce CO2).

I can tell you with certainty, that if you use these resources to make on-grid PV systems, you’ll lose the game and doom the planet.  This is known because one can easily calculate the CO2 savings from PV and the number is $150/ton, ignoring any embedded CO2 in the productions and installation.  We also know that CO2 trades on the EU market for $20/ton, meaning that someone, somewhere in the EU can reduce CO2 for a cost of $20/ton.  So there are much better (less expensive) ways to reduce CO2 than installing solar panels on homes already connected to the grid.

PV is a very expensive way to address CO2 and might even have the effect of increasing CO2 when the energy opportunity cost of PV is considered.  Using resources for PV crowds out the use of those resources in better applications.  Using copper for PV will reduce the efficiency of electric motors.  This may seem strange or non-connected, but PV systems consume copper and this will drive up the price of copper and result in less copper being used in the next generation of electric generators.  The market is warning us not to install on-grid PV, but we are ignoring price signals.  Sometimes ignoring price signals is the correct action, but one must be very careful when charting a course which ignores prices.  Price signals are by far the best way to determine were resources are optimally used.  When price signals tell you that using aluminum in transmission lines is more valuable than using it in PV, then that is a reliable answer.  Today the market is screaming to stop using resources for on-grid PV, but we can’t hear the screams because solar subsidies have almost silenced the cries.  Installing on-Grid PV systems  is a terrible misuse of these resources and may cause us to lose the real game.

Robb'n the Hood

Our country has a progressive taxation system; the more you earn, the greater percent of your earnings are taxed. In fact, the top 1% of taxpayers pay about 40% of all taxes (http://ntu.org/tax-basics/who-pays-income-taxes.html). Whether or not this is fair I don't know, but certainly the wealthier should pay more than the poor. But this is not true with solar subsidies.

The utility rebates which pay for the on-grid solar PV systems you see on housetops around town are paid for by a fee on your electric bill. For most houses in Tucson this fee is a flat $4.50/month or $54/year. Every house pays it, rich or poor, the same amount. This is a regressive tax. The poor pay a higher percent of their income on this fee than the rich. This is unfair and unjust by almost any taxation philosophy.

And if that is not bad enough, it is also more likely that you will find an on-grid solar system on the house of a well-off Tucsonan than a poor one. The poor are disproportionately paying for these systems and the rich are benefiting. This is a clear case of the rich robbing the poor, but in a "legal" way.  If you think it should stop, then you need to contact the Arizona Corporation Commission. If we can stop the solar subsidies and the renewable energy mandate in Arizona, it would boost our economy, since every house would then have $54 more to spend each year and businesses would have lower cost since their solar fees (about $200/yr for the average small business) would end.  Solar could still count on the 30% federal subsidy and the $1,000 state subsidy, both of which are collected progressively.  Let the richer citizens pay for their own solar systems, don’t make the poor do it!

Arizona Corporation Commission emails:
newman-web@azcc.gov
burns-web@azcc.gov
pierce-web@azcc.gov
stump-web@azcc.gov
kennedy-web@azcc.gov

Levelized Cost of Energy

The US Energy Information Administration (EIA) recently published an excellent report on the projected cost of electricity generated by different technologies: coal, natural gas, nuclear, and various others, including renewables. Their Levelized Cost of Energy (LCOE) calculation combines upfront cost with recurring cost to estimate the average cost of power produced by these technologies. Here is the EIA cost data for coal, natural gas, and solar PV.

CLICK TO ENLARGE
At first glance, it looks like PV could be competitive with coal or natural gas plants if the PV cost were to drop below 10 cents/kWh. But there is an important difference between PV and the traditional technologies which makes this simple cost comparison invalid.

But first, take a look at the cost of electricity from a coal plant. The total cost is projected to be 9.5 cents/kWh per the EIA study. About 6.5 cents of this is capital cost[1] and about 2.5 cents is the cost of the coal. Looking at the natural gas plant, one can see the capital cost is about 2 cents, and the fuel cost is about 4.5 cents. Solar has no fuel cost element but significant capital investment.

But here is the rub. If you plan to power a city with PV, it is not sufficient to simply build a large PV array, because PV only produces power during the day. At night and during cloudy weather, a back-up power source is needed since there is no practical way to store the PV energy. So the city must also build a conventional coal or gas plant, which will sit idle on many sunny days. The real cost of the PV is not just its cost, but also the cost of the back-up plant. Coal and natural gas plants do not need back-up like PV does.

So what is the real value of PV? It is principally the fuel savings which occur when the traditional plant can reduce output during sunny days. Or stated another way, PV is worth avoided fuel cost. The main point is that PV is not competing against the LCOE of coal or natural gas plants; it is competing against the variable operating cost of these plants, which is 2-4.5 cents. Here in Tucson, we use coal and the fuel avoidance value is less than 3 cents. For PV to actually be cost effective today, it would need to have an LCOE of about 3 cents. Since it is currently about 21 cents, it has a long way to go before it makes sense for the citizens of this city, despite industry propaganda and political pandering.

But to further demonstrate how nonsensical this technology is, even if PV manufacturers drove the cost to $0/watt for PV panels, the cost of the aluminum mounting structure, copper wiring, labor, inverters, and maintenance result in a LCOE around 10 cents. So even with free PV panels, the total system is still 3 times too expensive to be viable. The economic case for grid-tied PV is indeed quite hopeless, and the sooner we stop the misguided subsidies the sooner we can focus on actually addressing our legitimate energy and environmental concerns.

Installing grid-tied PV is not just a waste of time and money, but a waste of copper, aluminum, labor, land, and capital. We are neither ahead nor green. This wasteful activity is unsustainable, mining the materials used in these unnecessary systems is damaging the environment, and the entire endeavor is a burden on the economy. There is hardly a clearer case of special interest run amok, besides perhaps ethanol subsidies.

PV is fantastic for people that live where there is no access to the electric grid, but it is wishful thinking to believe it can replace conventional generation methods or even be cost effective for on-grid application. Other renewables-- geothermal and biomass-- will likely become viable before PV because they do not require back-up power. But today, conservation is by far the best way to economically reduce pollution and CO2 emissions.

The economist Paul Krugman missed this concept and was forced to make a retraction.

Krugman: I’ve been getting some pushback from people I respect on today’s column, not so much for what I actually said as for what they fear readers may take away from it. So a bit of clarification.

Some of it involves questioning the cost data, but the main point, I think, is that even if solar power’s price per kwh matches coal-fired, it’s not going to take over the market right away, and maybe not ever. The sun doesn’t shine at night, and often doesn’t shine during the day. Intermittency is a big problem, and I probably should have made that clearer.

Ref: http://www.eia.gov/oiaf/aeo/electricity_generation.html

[1] EIA includes a 3 percentage point cost of capital increase for coal-fired plants without carbon capture and sequestration equipment to represent the difficulty in getting coal-fired plants permitted today. That 3 percentage point increase in the cost of capital for coal-fired plants makes the capital component larger than that of current coal-fired projects.

The Perplexing CO2 Problem


The US produces only 16% of the global CO2 emissions, so even if we aggressively restricted CO2, it would do very little to reduce global levels.


Two good articles on this by Chip Knappenberger can be found here:
http://www.masterresource.org/2011/12/us-co2-cuts-math/

December Op-Ed in the Arizona Daily Star

David Bergeron Special To The Arizona Daily Star
Posted: Thursday, December 9, 2010 12:00 am

The solar industry has asked the American taxpayer to make a considerable investment in subsidies for deploying solar photovoltaic (PV) systems in the hope these subsidies will drive down the price of PV to a point where subsidies are not needed.

Taxpayers have supported this on the promise that it will provide energy security, benefit the economy and help the environment. I'm writing today because I believe this good will is being abused. These systems are not as economical as the industry suggests.

But to see this, one must be able to look past the financial benefit to an individual homeowner and look at the economic effect of solar subsidies on the entire community. Subsidies have made solar electric systems appear attractive to homeowners that aren't sound for our state and country.
For clear thinking to prevail, we must learn to think in terms of the actual cost to the community versus artificial savings for the individual homeowner.

We are suffering from a myopic view of the cost and benefits of installing solar electric panels, and the industry is willing to wink and nod as these misconceptions spread.

Industry promoters have hidden the real cost and exaggerated the benefits of solar electric systems in an elaborate scheme of subsidies and net metering laws that give the illusion that solar is much more viable than it really is.

Here are the subsidized and unsubsidized figures for a 3 kW system in Tucson.

• Subsidized cost: $4,550 ..................Real cost:$13,500
• Apparent savings: $538/yr .............Actual savings: $132/yr
• Artificial payback: 8.5 years ............Real payback: 102 years

About two-thirds of the cost of a system can be recovered from utility, federal, and state credits, which the community pays through higher taxes and utility bills. Additionally, net metering laws force the utility to pay full retail price for much of this home-grown electricity, when the local utility could have purchased the same power for about 3 cents per kWhr from other sources. Utilities pass this overpayment onto the community through higher electric bills.

In summary, the homeowner pays about one-third the real cost and is credited about three times the actual value, and even then, solar electric systems are only marginally attractive. The total subsidy is approaching 90 percent. We are making a big wager that solar electric panels will become economically viable, a bet that some in the industry are happy to make with other people's money.

As a solar professional, I say we need to be very honest about the cost of the technology and not misuse the public trust.

The installed cost needs to fall by a factor of almost 10 before it will be a viable alternative for homes and businesses already on the grid.

If we reduce the cumulative solar subsidy from the current 90 percent level to a very reasonable 50 percent and the grid-tied segment of the industry can't survive, maybe it shouldn't exist in the first place.

Besides, we have much smarter ways to reduce greenhouse gas emissions, stimulate the economy and reduce our nation's reliance on foreign oil, none of which solar subsidies do to any meaningful degree. A revenue-neutral carbon tax is our least expensive and most effective means to reduce carbon dioxide.

ABC15 Article

It’s Saturday, and I am at work testing a new solar powered vaccine refrigerator that uses ice packs rather than batteries to store energy and maintain cold temperatures. This is a key component of the distribution chain for vaccines and part of a global effort to eradicate polio and other preventable diseases. Solar energy is my passion, field of study, and occupation. For me it started when I was 13 and the US experienced the Arab oil embargo and subsequent long lines at the gas station. Only later did I realize that the long lines were caused by misguided government price controls.

Today, our government is likewise engaging in misguided policies to address similar energy concerns, policies that mandate inappropriate solutions, such as grid-tied solar panels, which fail to address our energy security or environmental concerns. These mandates will ultimately stifle creativity and generate false solutions to our energy dilemma.

Solar Photovoltaic (PV) electric panels are far too expensive to provide a sustainable energy alternative to homes and businesses already connected to the electric utility grid. The solar industry and solar jobs are artificial and only exist because of large government subsidies. The industry is similar in many ways to the housing market bubble created by easy mortgages. When the subsidies end, the solar bubble will burst and most of the jobs and industry will vanish overnight. This is because the underlying economics of Solar PV are not viable.

In sunny Arizona, the true cost of a typical 1000 Watt solar system is approximately $5,000. This 1000 Watt system will produce 1650 kWh/y and save our state about $65 per year in fossil fuel. This 77-year payback exceeds the life of the equipment and ignores the maintenance and eventual disposal cost of the hardware. Despite idealistic claims that solar PV can allow Arizona to avoid construction of new power plants, it will not. Solar is not consistent enough to meet the utility’s reliability requirements for dispatchable generation. In addition to intermittency, the peak output of solar panels is at noon, but the peak electrical demand is in the late afternoon. The bottom line is that solar cannot be counted on when power is needed most. So no significant reduction in generation or transmission infrastructure is possible by adding solar panels to the power grid.

For PV to be economically feasible, the “installed” cost would need to be equal to or less than $1/watt. This is the holy grail of the industry and consistent with the statements of Dr. Chu, the Secretary of Energy. Very large-scale PV systems are reaching $4/watt today, which is admirable, but still four times too expensive to be a credible solution.

Can we get to $1/watt any time soon? At present, solar panels are about half of the total system cost. The remaining cost is mounting hardware for the panels, the inverter to make AC power, wiring, labor, and permitting.

Therefore, even if it were possible to manufacture panels free, the balance of system cost is still about $2 per Watt and the industry would continue to be non-sustainable without substantial subsidy.

So why do we continue to subsidize solar power? There are many reasons, but mostly because of myths propagated by the solar industry and some naive public officials. Perhaps the most egregious myth is the claim we are helping our economy and creating jobs. This is false. Money for the solar subsidies comes from taxpayers and ratepayers. As this money is taken from us, spending for other goods and services must fall. This causes economic and job losses in other segments of the economy, such as in restaurants, stores, and service and manufacturing companies.

There is no free lunch, but it is easy to be fooled into thinking we are creating jobs. This is because the newly created solar jobs can be seen and counted. But the job losses in other segments of the economy are diffuse and difficult to see unless one knows to look for them.

Many politicians take credit for the solar jobs, but never mention the job losses caused by reduced spending in the balance of the economy. Even worse, the new solar jobs are not as productive as the jobs that were lost, because of the poor economics of solar. This is one reason why total unemployment remains high even with all the new solar jobs.

Another fallacy is that solar power provides energy security against interruptions in oil supplies. But using solar does not reduce oil imports because we do not make electricity with oil. We make electricity with coal, nuclear, natural gas, and hydro, all domestic energy supplies with more than 200 years of known reserves.

But the most ironic fallacy is the idea that solar is an effective means to help the environment by reducing CO2. Conservation and other technologies reduce CO2 for a cost of $20/ton. But saving CO2 with solar costs at least 150/ton. The writing of one respected economist strongly suggests that subsidies to renewable energy, on net, actually generate more CO2 than they save.

One day solar PV might be economical, and if that happens, we will still have great sunshine in Arizona and a competitive advantage. The market will come to us. But if we insist on subsidies to the industry on the hope it will drive the price of solar to $1/W, let’s at least ship the panels to developing countries where they are needed and would make a difference in the lives of millions. To install them here on our homes does nothing except makes us feel good and drains our economy of productive jobs.

So what is the future of solar in Arizona? The APS and SRP cut-backs were necessary because they burned through the annual budget for solar credits ahead of schedule. The budget will be renewed and spending for solar will continue. The real question is should it? If we are sincerely concerned about energy security, our economy, and the environment, the answer is no.

October Op-Ed in Tucson Paper

From inside, the fallacies of solar power

By David Bergeron, Special to The Explorer
Published: October-27-2010

It's Saturday, and I am at work testing a new solar-powered vaccine refrigerator that uses ice packs rather than batteries to store energy and maintain cold temperatures. This is a key component of the distribution chain for vaccines and part of a global effort to eradicate polio and other preventable diseases.

Solar energy is my passion, field of study, and occupation. For me, it started when I was 13 and the U.S. experienced the Arab oil embargo and subsequent long lines at the gas station. Only later did I realize that the long lines were caused by misguided government price controls.

Today, our government is likewise engaging in misguided policies to address similar energy concerns, policies that mandate inappropriate solutions, such as grid-tied solar panels, which fail to address our energy security or environmental concerns. These mandates will ultimately stifle creativity and generate false solutions to our energy dilemma.

Solar Photovoltaic (PV) electric panels are far too expensive to provide a sustainable energy alternative to homes and businesses already connected to the electric utility grid. The solar industry and solar jobs are artificial and only exist because of large government subsidies. The industry is similar in many ways to the housing market bubble created by easy mortgages. When the subsidies end, the solar bubble will burst and most of the jobs and industry will vanish overnight. This is because the underlying economics of Solar PV are not viable.

In sunny Arizona, the true cost of a typical 1,000-watt solar system is approximately $5,000. This 1,000-watt system will produce 1,650 kWh/y and save our state about $65 per year in fossil fuel. This 77-year payback exceeds the life of the equipment and ignores the maintenance and eventual disposal cost of the hardware.

Despite idealistic claims that solar PV can allow Arizona to avoid construction of new power plants, it will not. Solar is not consistent enough to meet the utility's reliability requirements for dispatchable generation. In addition to intermittency, the peak output of solar panels is at noon, but the peak electrical demand is in the late afternoon.

For PV to be economically feasible, the installed cost would need to be equal to or less than $1/watt. This is the holy grail of the industry and consistent with the statements of Dr. Chu, the Secretary of Energy. Very large-scale PV systems are reaching $4/watt today, which is admirable, but still four times too expensive to be a credible solution.

Can we get to $1/watt any time soon? At present, solar panels are about half of the total system cost. The remaining cost is mounting hardware for the panels, the inverter to make AC power, wiring, labor and permitting. Therefore, even if it were possible to manufacture panels free, the balance of system cost is still about $2 per watt and the industry would continue to be non-sustainable without substantial subsidy.

So why do we continue to subsidize solar power? There are many reasons, but mostly because of myths propagated by the solar industry and some naive public officials.

Perhaps the most egregious myth is the claim we are helping our economy and creating jobs. This is false. Money for the solar subsidies comes from taxpayers and ratepayers. As this money is taken from us, spending for other goods and services must fall. This causes economic and job losses in other segments of the economy, such as in restaurants, stores, and service and manufacturing companies.

There is no free lunch, but it is easy to be fooled into thinking we are creating jobs. This is because the newly created solar jobs can be seen and counted. But the job losses in other segments of the economy are diffuse and difficult to see unless one knows to look for them. Many politicians take credit for the solar jobs, but never mention the job losses caused by reduced spending in the balance of the economy. Even worse, the new solar jobs are not as productive as the jobs that were lost, because of the poor economics of solar. This is one reason why total unemployment remains high even with all the new solar jobs.

Another fallacy is that solar power provides energy security against interruptions in oil supplies. But using solar does not reduce oil imports because we do not make electricity with oil. We make electricity with coal, nuclear, natural gas, and hydro, all domestic energy supplies with more than 200 years of known reserves.

But the most ironic fallacy is the idea that solar is an effective means to help the environment by reducing CO2. Conservation and other technologies reduce CO2 for a cost of $20/ton. But saving CO2 with solar costs at least $150/ton. The writing of one respected economist strongly suggests that subsidies to renewable energy, on net, actually generate more CO2 than they save.

One day, solar PV might be economical, and if that happens, we will still have great sunshine in Arizona and a competitive advantage. The market will come to us. But if we insist on subsidies to the industry on the hope it will drive the price of solar to $1/W, let's at least ship the panels to developing countries where they are needed and would make a difference in the lives of millions. To install them here on our homes does nothing except makes us feel good and drains our economy of productive jobs.

Ocean Acidification

About 1/4 of the CO2 we emit into the atmosphere is absorbed by the ocean. Once absorbed, the CO2 forms carbonic acid and lowers the pH of the ocean. The linked paper provides a good overview of the issue.


Click on Image to enlarge



Dissenting views of the impact of ocean acidification can be found MasterResource & SPPI.

Water and Energy

Nuclear power and other thermal cycle power plants are often dismissed as impractical solutions for Arizona because of their alleged high water use. Here are the facts.

The Palo Verde nuclear plant produces about 1/4 of Arizona's electrical energy and uses about 1% of Arizona's water. More specifically, the plant consumes 65 million gallons a day of water and the state uses about 6.5 billion gallons a day.

The real water consumer in Arizona is agriculture. We use ~70% of our water growing plants in the desert.

Why not build 4 new plants and sell power to California, or use the low cost power to help transition our 'oil' powered cars to electric and save more CO2 and reduce oil imports as well?

But at a minimum, Arizona could go almost 100% CO2 free in electricity generation if we built 3 more Palo Verde plants which will use 3% of the state's water.

Are we not willing to trade a little less cotton or a few less golf courses for a nearly CO2 free energy supply?

Water and Energy, Continued

Artificial pricing and farm water subsidies greatly complicate the problem of choosing between water and energy discussed in the above post.

The free market sets prices of goods and services so these resources are used where most needed. The question of where water is used; the golf course, the power plant, or for growing cotton can be answered in 2 fundamental ways.

In a communist country, government bureaucrats allocate the water as they deem best, or worse, where it buys them more political power.

In a capitalistic system, the willingness to pay determines the best use of the water. If the golf course is willing to pay the most, they get the water.

If we have learned anything from history and the study of communism and capitalism, it’s that free market pricing systems allocate resources far better than government can. One caveat is if there are costs of using a resource that are not reflected in the price, such as pollution. In this case the capitalistic system will over use the resource. The corrective mechanism is to limit the use or to tax the resource to account for the cost of the pollution. Taxing such externalities is a difficult job and is reasonably done through a centralized government.

But in the case of Arizona water and energy resources, there is no significant negative externality associated with using water, so the price system should work well. But in Arizona the price of water is highly distorted due to farm subsidies and tiered water pricing structure. If we are to let the market dictate the optimal use of water, as I suggest we should, then the competing entities should all be on a level playing field.

It causes an inefficient allocation of resources for the farmers to pay 0.1 cent per gallon, while the golf course or the power plant pay 0.2 cents per gallon (example numbers only). Both must have access to water at the same price for the market to function correctly. Otherwise, the farmers will use more than the optimal amount and the other industries will use less. This will cause the prices of goods and services to be higher than they otherwise could be and will make us all live at a lower overall standard of living. The lower price we pay for food or clothing will be more than off-set by higher prices for electricity and a round of golf.

I’m writing this post because I see too many things in print here in Arizona were communistic approaches are being discussed for rationing water between competing industries and we need to let the market decide, not the politicians, or worse, the lobbyist bending the ears of the government leaders. This non-sense economic approach is being used to dismiss the use of more Nuclear or solar thermal energy as though no substitution is possible between competing users of the water. This is absurd. The free market can allocate the water very well, if we can squelch the special interests.

Schools Wasting Tax Dollars on Solar

We read every day about a school installing solar panels to save money on electricity, but there is a huge error in this logic from the viewpoint of public good.

The cost of solar electricity is very high and the school is just hiding the true cost by pushing it on to the taxpayers through a back door. The credits and rebates they use are funded through higher electric bills and taxes. There is no free lunch. The Tooth Fairy does not pay this, we do.

There is no magical way to get around the simple truth that PV electricity is expensive and we will fully pay these costs in the long run. Maybe the school saves money, but collectively we pay more.

So the School is ahead by 2 cents a kWh, but we all pay the 20 cent premium for every 2 cents they save. So who’s ahead?

The best move is to fund the schools directly though the front door and cut out the solar middle man who is pocketing most of the public funds.

Dr. Joseph Kalt speaks to Tucson

Dr. Kalt, a native Tucsonan, Ph.D. economist, professor at Harvard, and someone with no vested interest in Solar technologies, recently recommended we focus public spending on making Arizona a desirable place to live in order to attract business. Education, basic infrastructure maintenance, and beautification projects were mentioned as ways to attract the CEOs that bring businesses to the state. Various subsidies and hand-outs to companies were not recommended and studies indicate these are ineffective means to grow the local economy.

So when a Harvard professor, Ph. D. economist, and native Tucsonan does not recommend, for example, subsidies for solar, why do we do it? Why not use the money for education or infrastructure maintenance as he suggests? Is he a wrong?  Is solar different?

I think he's right and we're making the mistake,  I also think that many of the law makers have been fooled by highly paid solar lobbyist. Solar Electric technology clearly fails any reasonable cost-benefit test, and is the worst option, dollar-for-dollar, to reduce CO2 among the major renewables; wind, geothermal, and biomass, yet the ACC continues to push it.

The failure of our system in this case is caused by two key factors. First, the ACC members do not have the technical and economic backgrounds to not be fooled, and second, the lobbyist are smooth enough to fool even fairly well trained lawmakers. But as it is now, the ACC has no hope to sort through truth from fiction and they’ve put us on a course of higher unemployment and long term damage to the state’s economy.

CO2 and Global Warming

The institute for Energy Policy has no expertise in planetary science and accepts the position of "An Open Letter to Congress from U.S. Scientists on Climate Change" dated Dec 4, 2009.

“Observations throughout the world make it clear that climate change is occurring, and rigorous scientific research demonstrates that the greenhouse gases emitted by human activities are the primary driver. These conclusions are based on multiple independent lines of evidence, and contrary assertions are inconsistent with an objective assessment of the vast body of peer-reviewed science. … If we are to avoid the most severe impacts of climate change, emissions of greenhouse gases must be dramatically reduced.”

We can only assume the effects will be extraordinary.

http://globalchange.mit.edu/
http://globalchange.mit.edu/files/document/LetterToCongress-ClimategateControversy.pdf

A 'Different' Gas Tax Proposal

Lieberman and Kerry have proposed an additional 15 cent per gallon federal gas tax. Currently, the federal gas tax is 18 cents and states, on average, add another 27 cents, for a total of about 40 to 50 cents per gallon.

By comparison, Europe’s gas tax averages more than $5 per gallon, and today they drive smaller, more efficient cars. The idea of such a large gas tax in the US is politically more difficult, but there is a win-win approach if it can be done.

Taxation is a means for government to raise revenue and to discourage certain behavior. With this in mind, it is unfortunate that we tax income as this, to some degree, discourages labor.

If the government were to put a $1/gallon tax on gas and reduce the payroll tax appropriately, it could be a revenue neutral move that creates 2 useful incentives, that is, to encourage earnings and to discourage imported oil and CO2 production.

Bloom Energy

Bloom Energy has developed a natural gas/air fuel cell. This is an important development if it can be made low cost and reliable. However, most reports covering this technology distort the benefits to the point of making it sound like some type of free energy machine, which it is certainly not.

Fuel cells are great technology because they can convert fuel directly into electricity at very high efficiency (60-80%). This is much better than an automobile engine (20-25%) or a power plant (40-50%). The down side is that the power is direct current (DC) and one needs an inverter to generate the AC power commonly used. This inverter costs about 40-50 cents a watt, so its cost cannot be ignored in a cost benefit analysis, nor the inverter or fuel cell reliability.

Assuming we get past all this and the fuel cell is low cost and reliable, the device becomes an attractive technology for homes or cars. A home can now use natural gas for heating AND electricity generation and may have a lower total bill. The bill should be lower as compared to a central utility burning natural gas for 2 important reasons. First, the fuel cell is converting natural gas to electricity at a higher efficiency. Second, the cost of the transmission lines from the utility to the home are avoided. This is distributed generation at its best. If cost and reliability targets are met, this fuel cell technology should have a very good market and will save a considerable amount of natural gas and utility infrastructure. But here is the down side:

This country only has 10 years of "known" reserves of natural gas and 234 years of coal. A significant investment in fuel cells to power homes and businesses will cause the price of natural gas to rise much faster than it would otherwise. Before long, the total cost to power a home could be higher with this fuel cell than by buying electricity from coal fired plants, since coal is very inexpensive. A homeowner might buy this product today and then regret the decision if the price of natural gas increases dramatically.

The other natural markets for this technology is in transportation or off-grid applications. A natural gas or hybrid vehicle using this fuel cell might achieve a remarkable "MPG." And the fact that the fuel cell produces DC power is no penalty in an electric or hybrid since its main bus is also DC. This technology would play very well with T. Boone Pickens' plan to use wind machines to save natural gas for vehicles, rather than burn it in power plants.

This is a great new technology and should help extend our natural gas resources and make biogas a more viable alternative. Best of luck to Bloom Energy in achieving a low cost and reliable product.

Henry Hazlitt's Wisdom

I started reading "Economics in one lesson" by Henry Hazlitt and found it to be amazing. Can you guess what year he wrote this?

The case against government-guaranteed loans and mortgages to private businesses and persons is almost as strong as, though less obvious than, the case against direct government loans and mortgages. The advocates of government-guaranteed mortgages also forget that what is being lent is ultimately real capital, which is limited in supply, and that they are helping identified B at the expense of some unidentified A. Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief in the long run they do not increase overall national production but encourage malinvestment.

The first publication of this book was in nineteen forty-six and the last in nineteen seventy-nine. The rest of the book is equally 'prophetic' and has many insights that apply well to government subsidies for renewable energy projects. As he pinpoints errors in arguments for government subsidies, his terms are almost verbatim to the current pro-subsidy dialog. I'd swear he wrote this within the last 12 months. He has a great way to make clear the "unseen" results of government policies. This should be required reading for all government leaders! Click on the blog title to go to a website with the entire text of Henry's book.

Here's more great insight:

We remarked at the beginning of this chapter that government “aid” to business is sometimes as much to be feared as government hostility. This applies as much to government subsidies as to government loans. The government never lends or gives anything to business that it does not take away from business. One often hears New Dealers and other statists boast about the way government “bailed business out” with the Reconstruction Finance Corporation, the Home Owners Loan Corporation and other government agencies in 1932 and later. But the government can give no financial help to business that it does not first or finally take from business. The government’s funds all come from taxes. Even the much vaunted “government credit” rests on the assumption that its loans will ultimately be repaid out of the proceeds of taxes. When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business. Under certain emergency circumstances there may be a plausible argument for this, the merits of which we need not examine here. But in the long run it does not sound like a paying proposition from the standpoint of the country as a whole. And experience has shown that it isn’t.

New CAFE Standards

Here is a clear example of the government dictating a politically correct, but economically suboptimal solution to externalities associated with using oil.

Today the DOT’s National Highway Traffic Safety Administration (NHTSA) and EPA, establish increasingly stringent fuel economy standards under NHTSA’s Corporate Average Fuel Economy program and greenhouse gas emission standards under the Clean Air Act for 2012 through 2016 model-year vehicles.

Starting with 2012 model year vehicles, the rules together require automakers to improve fleet-wide fuel economy and reduce fleet-wide greenhouse gas emissions by approximately five percent every year. NHTSA has established fuel economy standards that strengthen each year reaching an estimated 34.1 mpg for the combined industry-wide fleet for model year 2016.

The EPA standards require that by the 2016 model-year, manufacturers must achieve a combined average vehicle emission level of 250 grams of carbon dioxide per mile. The EPA standard would be equivalent to 35.5 miles per gallon if all reductions came from fuel economy improvements.

The government’s stated purpose can be seen in the following statement from the press release:

The rules could potentially save the average buyer of a 2016 model year car $3,000 over the life of the vehicle and, nationally, will conserve about 1.8 billion barrels of oil and reduce nearly a billion tons of greenhouse gas emissions over the lives of the vehicles covered.

The economically optimal way to conserve oil and reduce greenhouse gas pollution is to tax it, but this is less politically acceptable. The political problem is that the tax is visible, but the regulation costs are hidden. Sadly, we will all pay more to meet this oil and CO2 objective with this new CAFE standard than with a direct tax. If everyone could easily assess the hidden costs of this regulation, then the tax would seem cheap and we’d all agree to accept it. But how can we make the hidden cost of the regulation more clear?

The other significant mistake of this policy is that the increased fuel economy results in consumers driving farther and more often so the savings are overstated. A report by the NAS pointed out many such unintended and suboptimal results of the 1975 CAFE standards.

Here is an excerpt from a 2002 AEI-Brookings Joint Center for Regulatory Studies which drew similar conclusions:

In particular, a long-run 3.0 MPG increase in the CAFE standard would impose social welfare losses of $5.556 billion per year and save 5.1 billion gallons of gasoline per year. This amounts to a hidden tax of $1.09 per gallon conserved. An 11 cent per gallon increase in the gasoline tax would save the same amount of fuel at a welfare cost of $275 million per year. The 3.0 MPG increase is thus 20 times more expensive than the gas tax increase. The marginal welfare costs of long-term increases in the CAFE standard amount to $1.26 per gallon and exceed by a factor of five recent estimates of the marginal societal benefits from avoided externalities. Increasing the CAFE standard is therefore neither cost-effective nor cost-beneficial.

Somehow we must find the political will to address our CO2 and oil concerns with cost effective policies (taxes).

Learning from Others' Mistakes

Here is the summary of an October 2009 report from the Rheinisch-Westfälisches Institut für Wirtschaftsforschung titled: "Economic impacts from the promotion of renewable energies: The German experience"

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Although renewable energies have a potentially beneficial role to play as part of Germany’s energy portfolio, the commonly advanced argument that renewables confer a double dividend or “win-win solution” in the form of environmental stewardship and economic prosperity is disingenuous. In this article, we argue that Germany’s principal mechanism of supporting renewable technologies through feed-in tariffs, in fact, imposes high costs without any of the alleged positive impacts on emissions reductions, employment, energy security, or technological innovation.

First, as a consequence of the prevailing coexistence of the Renewable Energy Sources Act (EEG) and the EU Emissions Trading Scheme (ETS), the increased use of renewable energy technologies triggered by the EEG does not imply any additional emission reductions beyond those already achieved by ETS alone. This is in line with Morthorst, who analyzes the promotion of renewable energy usage by alternative instruments using a three-country model. This study’s results suggest that renewable support schemes are questionable climate policy instruments in the presence of the ETS.

Second, numerous empirical studies have consistently shown the net employment balance to be zero or even negative in the long run, a consequence of the high opportunity cost of supporting renewable energy technologies. Indeed, it is most likely that whatever jobs are created by renewable energy promotion would vanish as soon as government support is terminated, leaving only Germany’s export sector to benefit from the possible continuation of renewables support in other countries such as the US. Third, rather than promoting energy security, the need for backup power from fossil fuels means that renewables increase Germany’s dependence on gas imports, most of which come from Russia. And finally, the system of feed-in tariffs stifles competition among renewable energy producers and creates perverse incentives to lock into existing technologies. Economic impacts from the promotion of renewable energies

Hence, although Germany’s promotion of renewable energies is commonly portrayed in the media as setting a “shining example in providing a harvest for the world” (The Guardian 2007), we would instead regard the country’s experience as a cautionary tale of massively expensive environmental and energy policy that is devoid of economic and environmental benefits. As other European governments emulate Germany by ramping up their promotion of renewables, policy makers should scrutinize the logic of supporting energy sources that cannot compete on the market in the absence of government assistance. Such scrutiny is also warranted in
the US, where there are currently nearly 400 federal and state programs in place that provide financial incentives for renewable energy.

History clearly shows that governments have an abysmal record of selecting economically productive projects through such programs. Nevertheless, government intervention can serve to support renewable energy technologies through other mechanisms that harness market incentives or correct for market failures. The European Trading Scheme, under which emissions certificates are traded, is one obvious example. Another is funding for research and development (R&D), which may compensate for underinvestment from the private sector owing to positive externalities. In the early stages of development of non-competitive technologies, for example, it appears to be more cost-effective to invest in R&D to achieve competitiveness, rather than to promote their large-scale production.

In its country report on Germany’s energy policy, the International Energy Agency recommends considering ‘‘policies other than the very high feed-in tariffs to promote solar photovoltaics.’’ This recommendation is based on the grounds that ‘‘the government should always keep cost-effectiveness as a critical component when deciding between policies and measures.’’ Consequently, the IEA proposes policy instruments favouring research and development. Lesser and Su concur with this viewpoint: ‘‘Technologies that are theoretically promising, but unlikely to be competitive for many years, may be best addressed under other policies, such as publicly funded R&D.’’ This reasoning is particularly relevant for solar cells, whose technological efficiency is widely known to be modest and, hence, should be first increased substantially via R&D.

Instead of a policy instrument that aims at pushing technological improvements, however, Germany’s support scheme of renewable energy technologies resembles traditional active labour market programs, which have been demonstrated in the literature to be counterproductive. It bears particular noting that the long shadows of this economic support will last for another two decades even if the EEG were to be abolished immediately.

Triage

You're an ER doctor and three patients enter the waiting room at once. One is having a heart attack, one has a broken arm, and one has the flu. Whom do you treat first?

If you think it's the heart attack patient, I'm with you.

It's time we face the fact that resources are limited and we must triage our energy problems in a logical order.

People talk about competing priorities in addressing the national energy situation; clean air, global warming, and dependence on imported oil. It's useful to look squarely at this issue first, and there appears to be an elephant in the room.

If one compares the total known reserves of oil in the U.S. to our rate of use, we have about 20 billion barrels of known reserves (source EIA), and we use about 20 million barrels a day. So, we have about 1000 days of oil reserves (2.7 years) if we were forced to supply all our daily need with only our current proven reserves. The same calculation for natural gas yields about 10 years of known reserves (BP Review of World Energy 2009) but we have a whopping 234 years of coal!



We have lots of coal and not a lot of oil or gas. Now consider what we do with coal, oil, and gas. In very general terms, we use oil to run our transportation system, and we use gas and coal to make electricity. We are critically low on the fuel needed to operate our planes, trains, and automobiles, but we have lots of fuel to make electricity.



So what problem is more important to work on first, electricity or transportation? I vote for the transportation/oil issue. I trust you agree.

So why are we spending a lot of money in subsidies to promote the use of expensive solar power to make electricity? I'm not sure. It seems to me that electricity is not the problem and if it were, solar is not the answer (See post titled "Grid Tied Photovoltaics") We have enough coal, nuclear energy, and hydro to make electricity for centuries to come. Our electrical problem is like the patient with the flu. Our pending transportation trouble is like the guy having the heart attack. I'm concerned about the guy with the flu and the guy with the broken arm, but let's treat the problems in a logical order. Transportation first, then electricity. Am I not concerned about CO2 from burning coal? Yes, but we have a bigger near term problem that left unaddressed will cause us much more pain and suffering. If our oil situation becomes desperate, we will collectively cast off any concerns for the environment in favor of simple survival. So let's steer clear of those rocks.

As our oil supply depletes, oil prices will rise, potentially in a disruptive way. Policies that anticipate the pending oil/transportation paradigm shift would be wise. But subsidies to make electricity with PV are treating the wrong patient with the wrong medicine.

Cost of Various Electricity Options


Click on chart to enlarge

This analysis has a few important caveats. First, a CO2 penalty was imposed on the cost of the coal and gas technologies. The penalty was applied as a 3-percentage point increase in the cost of capital. The report stated this was equivalent to a $15/ton cost for CO2. Why not just add the CO2 penalty directly to the fuel cost? That would be easy to grasp and analyze. Why increase the cost of capital?

Second, the fact that PV and wind energy is worth less due to its intermittency is NOT captured in the cost data.

In summary, solar PV is shown to cost about 3-4 times more than traditional generation methods, but without the CO2 penalty on coal and with a correction for the intermittency of PV energy, the real price of PV is about 10 times more than traditional alternatives and several times higher than other renewable alternatives.

A more intuitive and fair comparison, would include externalities clearly and separately. The structure of the analysis, makes it difficult to apply the lower value of intermittent power. Perhaps a simple $/kWhr would be a better approach, if clarity on the cost of renewables is an objective.

PV Vs. CFL Bulbs

Someone is given $10,000 to spend on either a grid-tied PV system or on compact fluorescent lights. Their goal is to save energy, reduce CO2 output, and delay the building of more power plants. Which option is better, PV or CFL?

Here are a few assumptions. The CFL is replacing a 75W incandescent light which runs, on average, 4 hours a day. Also assume that the CFL draws 15 watts, 1/5 the power of the incandescent bulb for the same lumens. Finally, assume that you install the PV system in sunny southern Arizona with a net production output of 1,650 kWh/y for each kW of installed rated power.
With the $10,000 one can buy a 2kW grid-tied PV system ($5/w), which will produce about 3,300 kWh/y of usable power. If the PV energy is offsetting energy from a coal plant (like in Tucson), about 3.3 tons of CO2 will be saved a year. But it will not help reduce peak load much since the utility can't count on its availability with the level of certainty they demand. (see post "Grid Tied PV and Peak Demand").

If one chooses the CFL, then the $10,000 will buy about 5000 lamps. Each lamp saves 60W for 4 hours a day (75W - 15W). 60W x 4 hr x 365 days x 5000 lamps = 438 MWh/y. This reduced CO2 by about 438 tons a year. But also very important, efficiency gains reduce peak load requirements and can delay or avoid the construction of a power plant.

So the CFL options saves 132X more energy, reduced 132X more CO2 per dollar, and easies the burden on the utility grid and generation loads.


So why don't utilities give away free CFL bulbs to anyone that asks rather than subsidizing grid-tied PV?

The point is that there are many things which can and should be done in the areas of energy efficiency before one spends any significant money promoting grid-tied PV. But it is not happening and the reason is a mystery.

Grid Tied Photovoltaics Economics

The cost of a typical grid-tied PV system is about $5/watt installed (for a large system). Such a system located in sunny southern Arizona will actually generate power for about 1650 net sun-hours a year. A 1kW system will produce about 1,650 kWhr/year. This system will cost about $5,000 to install. So what is the value of the electricity it produces?

If 100% of the power could be used real-time by the end user, then one might say it’s worth the real time retail rate (See post titled “The town of Coalville” to appreciate the pitfalls of such an assumption). In my town I pay about 11 cents/kWhr. So making 1650 kWhr * $0.11 = $182. This has a simple payback of 27 years. But what if I can't use the power during the day when it is being produced and I have to sell it back to the utility?

In Arizona and in many states there are 'Net Metering' laws which require the utility to buy power back from the end user at full retail rates. This is unfair to the utility and is a subsidy for the PV user (which we all pay in the form of higher utility rates and fees). It is extremely important to have a firm grasp on the concept of "no free lunch." It is very easy to confuse real economic returns with artificial returns in a heavily subsidized environment.

Forcing the utility to buy back power at retail rates is unfair because they are required to provide power 24/7, install and maintain generation equipment and transmission lines and provide service and billing. The actual value to the utility of this intermittent power (PV) is much closer to the fuel avoidance cost.
For reasons explained in the Coalville post I think the value of homeowner produced PV is close to the fuel avoidance cost which is about 2.7 cents/kWh in my area. So the real payback of PV is about 111 years.

But what if PV costs fell substantially? Well it has, especially in the last 18 months. The $5/watt figure is based on the new current lower prices (Mar 2010). But what if they fall more? How cheap do they need to be to make systems break even without subsidies. If PV panels were available free, the cost to install the panels, including the inverter, wire, breakers, enclosures, conduit, and panel mounting structure would be about $2.50/watt. So the free 1 kW panels would cost $2500 to install and connect to the grid, and will produce about $45 worth of power a year, for a 56 year simple payback.

Grid Tied PV and Peak Demand

Does installing grid-tied PV really reduce the power company's peak generating or transmission requirements?

I often hear that PV can be used to delay or even avoid building a new power station.

In my town we have our highest annual electrical loads in the mid to late summer. We also have some great afternoon thunderstorms. We call them monsoons. In the last 3 of 5 years, at the moment of peak annual load, our town was covered by clouds. You may think this is impossible. If there are clouds, then the electrical loads (air conditioning) should be lower. I admit this sounds a bit bazaar.

But the real world is often stranger than fiction. In our case, we were having a typical hot sunny day. Then in a 10 minute period of time, our town which is about 10 miles by 10 miles square was overshadowed by one of those great monsoon rain clouds. The interesting part is that the electric demand of the town continued to rise for 15 more minutes. It seems that there is a delay between the time the building get shadowed and when the ACs respond to the lower load. Or maybe everyone just started turning on their lights. It does get dark when these clouds roll in.

So this actually happened 3 of the last 5 years! For the power company to depend on a power source like PV, their reliability guidelines only allow 1 such event every 10 years. So this means they must build in the generation capacity for the case that the PV is cloud covered when the annual peak demand is occurring. It happens too often for them to ignore it. The only relief the PV offers is that even under dark cloud cover it can still produce 10% of its rated output.

One last point. Your town might have much different weather patterns than mine and distributed PV might have a better chance to be illuminate at the moment of annual peak power demand 9 of 10 years or whatever the utility demands for reliable service. The drawback is that peak demand occurs at 4:30 to 5:00 pm where I live and it might be the same for you. This is several hours past solar noon. PV output is down 30-50% by then. You can face the panel more southwest to try to synchronize the peak PV output with peak energy demand, but you then lose in total energy output and burn more fossil fuels annually. But all this can be a fun optimization problem.

So in my town, PV only marginally helps reduce peak generation requirements for the utility and if we grow and need to add more generation capacity, adding PV will not delay this much.

Chasing your Tail

In college, I made an important mistake and learned a valuable lesson. I was working on a solar thermal cooling system and made a cost/benefit analysis. I determined this technology would break even if the price of oil exceeded $50 per barrel. Adjusting for the CPI, this is $121/barrel today. Well, oil exceeded that recently, but this technology did not come to market. My error was that as oil becomes more expensive, so do solar technologies. There's a lot of energy embedded in the cost of things. When energy prices rise, so do the cost of these items. There is a multiplier in each product, such that a 1% increase in energy prices results in a fraction of 1% increase in cost. Some things are energy intensive (like food or aluminum) and some things are not. Although, at the moment, I have trouble naming anything that is not.

If something has an energy cost factor of 25%, it means that a 1% increase in energy prices causes a 0.25% increase in price. Imagine an alternative energy technology that can produce power for 20 cents/kWh at today's energy cost of 10 cents/kWh. Also assume the technology has an embedded energy cost factor of 25%. So when energy prices rise to 20 cents/kWh, the cost of the energy produced by the alternative supply also increases to 22.5 cents/kWh. So it's not quite at break even yet.

In general, the price of energy might need to rise more than one might think before alternative technologies break even, because these technologies have an energy content that increases in cost. If the energy content is too high, then you can chase your tail, so to speak, and not reach break even for a very long.

If you know any good papers about the impact of energy prices on food prices, please comment. Thanks.

Subsidies = Taxes

Which sounds better?

Subsidies and rebates are available to pay for much of the cost of your grid tied PV systems.

OR

If your neighbor installs a PV system on his house we'll make you and the other neighbors pay for most of it via higher taxes and higher electric bills.

Both statements are true and equivalent. The truth is there is no free lunch in this situation. Every dollar in subsidies and rebates is paid for with taxes and electric bill fees we will pay. It's a zero-sum game and creates what economist call "dead weight losses."

The point is that 'subsidies' sound good and 'taxes' sound bad, but they are just different sides of the same coin.

Taxation with a Purpose

We are big fans of Pigouvian taxes. Here's a great argument for one.

A Penny Saved

Ben Franklin once said a penny saved is a penny earned. It also applies to our current energy situation. A kWh saved is a kWh generated. In fact a kWh saved probably reduces more CO2 emission and is generally better for the planet than using renewable energy to make energy.

The problem is that saving is not sexy. At a recent solar conference a speaker was talking about a PV system he installed at his house and how he also installed a high efficiency pool pump. It turns out that he saved just as much energy with his pool pump as he made with his PV system but for a fraction of the cost. Everyone laughed, yet few left the room determined to focus on energy efficiency. Yet this is the low hanging fruit, and the fact that we don't diligently pursue efficiency instead of subsidies for grid-tied PV systems says something fundamental about our reasoning or possibly our motives. Are we really interested in using our resources wisely? Have we lost the ability to reason or calculate?

The Town of Coalville

There once was a town named Coalville. Each house in the town used exactly $100 per month in electricity. One day they elected a new mayor who promised to clean up the town. They passed a law requiring everyone to install enough PV on their house to cover exactly 1/2 of their electric use. Once everyone had done this what was the new household electric bill in Coalville?

This is actually a very complex question to answer. The answer is not likely $50.

Here are some reasonable assumptions one might make about the situation in Coalville and its implications to the new electric bills.

If 1/3 of the electric bill were fuel cost and 2/3 were fixed cost (not a bad assumption for many towns), the electric bill would only decrease by 1/6, since we cut the fuel use in 1/2, but it was only 1/3 the total cost. So the new bill is $83.33/month as long as the other non-fuel cost remained constant.

If however, if 1/2 of their electric bill was fuel, possibly because they were buying some expensive power from the neighboring town of Gasville, then they saved 1/2 of 1/2 of their bill, so the new bill would be $75/mo.

If however they were growing and they were on the verge of having to build a new power plant then the total savings could include both the fuel savings and plant capital cost savings. But can peak demand be lowered effectively by installing PV panels? Not in my town, see post "Grid Tied PV and Peak Demand"

This example is also meant to demonstrate that in the financial analysis of PV systems, even the power used "real-time" by the home owner is not necessarily worth retail price, because the utility may have to raise rates on everyone to cover their fixed cost. In my town, we are all starting to pay a noticable renewable energy fee on our bills. My home and office RE fee is aproaching $1000 a year.

It's tricky to consider the big picture. Net metering and subsidies really muddy the waters. Without net metering laws, each utility could consider it's marginal cost and price electricity appropriately. Areas with the highest marginal cost might have better economic justification for PV, while utilities with low marginal cost will not. Unfortunately net metering laws will encourage PV installations in all situations equally.

Energy Storage

The central problem of renewable energy is its intermittent nature, which leads to discussions of technologies needed to store renewable energy. These concerns are overstated, however, as this will not be necessary for many years. What is most needed instead are adaptive loads; the many significant common loads that can effectively use power when it is available, such as running the hot water heater, pool pump, dishwasher, washer and dryer, or even charging an electric vehicle. With thermal storage, even refrigeration, heating, and cooling can be done on a schedule compatible with an intermittent power source.

One solution is appliances that respond to a simple broadcast signal from the power company. AM or pager frequencies could be implemented quickly at low cost and allow electricity usage to more closely correspond to electricity supply. Such adaptive loads would also help manage peak power requirements. I'm unsure what the "Smart-Grid" guys have in mind, but all we really need is something simple with basic security protocols.

Solar and Wind

I often see articles about renewable energy where "solar and wind" are grouped as the main alternatives. This is misleading as there is a big difference in the underlying economics. Wind is about 5x more cost effective at producing electricity than solar PV. Wind has a real chance of making a meaningful contribution to our energy situation over the next couple of decades, PV does not. It's misleading to mention them together in the same sentence as though they were somehow equivalent.

Large wind cost about $1.8 per watt to install and will produce power (in appropriate locations) for about 9-10 hours a day. Solar PV cost about $5-6/watt to install and will produce power for about 5-6 hours a day.

A modest US home uses an average continuous power of about 2000 watts. Using wind, this will cost about $10,000. Using solar, this will cost around $50,000.


Plus the wind equipment is more reliable since it directly drives a generator, whereas the solar PV produces DC power which must be inverted to tie into our electric grid.

Solar PV has its competitive advantage powering off-grid loads, such as remote cabins or school crossing signs.

The point of this post is to try to prevent the baby from being tossed out with the bath water. Wind is viable and might get a black eye if it is too closely associated with Solar PV which is non-viable.

Solar Humor

How many tax payers does it take to install a solar panel?

Ten, 1 to install it and 9 of us to pay for it.

Sadly, the combined utility rebates, federal and state credits, and net meter subsidies make this about right.

Electric Cars and CO2

Some say that electric cars will produce as much or more CO2 as gas cars, but I doubt this is true.

It is true that much of the electricity used to charge electric cars will come from burning fossil fuels, but not all. Here is how we made electricity in 2009 in the US:

Coal: 46%
Gas: 24%
Nuclear: 20%
Hydro: 7%
Renewable: 3%

It will depend on what part of the country you live. The worst scenario might be it you lived were they burn mostly coal, such as my town, Tucson, Arizona. Here, my electric vehicle batteries would be charged from a coal burning power plant. But there are offsetting factors. First, the efficiency of a car engine is about 25%, were a coal power plant is about 40%. But storing energy in batteries means a storage loss of about 20% thus requiring more coal to be burned. But I think the most dominate effect will be the naturally higher overall efficiency of transportation for electric vehicles. Electric cars should be lighter, smaller, slower, and will probably all have regenerative braking so the effective "MPG" might be quite high. Also, because of the speed and range limits of electric vehicles, I think most drivers will drive smarter by combining trips and simply driving less.

If the electric vehicle drove the same speed and range as a gas auto, the CO2 output would be more level, but I don't think this will be the case.

So at the end of the day, I think electric vehicles in regions were power is from nuclear, hydro, or renewables will result in much less CO2 output, and even in areas were coal is burned, I think total CO2 output will be reduced as well.