Subsidies = Taxes

Which sounds better?

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


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.

Commuter Electric Vehicle

In my post titled "Triage" I explained why I thought we should focus efforts on reducing our dependence on oil. Here is a way to take a big step in that direction.

Create a CEV class of electric vehicle (Commuter Electric Vehicle) which:

1) Has a maximum speed of 45 mph,
2) Can be driven using a restricted driver's license,
3) Does not require mandatory liability insurance, and
4) Has reduced safety feature requirements.

We should consider letting people that have lost their licenses drive these cars, mainly because at the reduced speed and weight, they are not nearly the road hazard as typical heavier and faster US cars.

This would be an ideal car for many young people. I like the idea that my kids are in cars which only go up to 45 mph and have limited range.  Using lead acid batteries, these vehicle should cost less than $10K.

Given this new vehicle class, these vehicles would fly off the sales lots, and this would make measurable progress towards reducing our dependence on oil.  Notice that this policy requires no direct subsidies, but encourages EVs by removing government administrative restrictions which apply to our current cars.

The Energy Opportunity Cost of Non-Energy Inputs

This is a tough concept to grasp, but very important in understanding the economics of renewable energy. Many in the PV industry like to claim that the energy payback of the PV panel is quick, but this is misleading since the value of the energy opportunity costs of the non-energy inputs is ignored. Let me try to explain. I hope you can take the time to understand this concept, I had to hear it a few times before it sank in to my thinking.

The non-energy inputs required to make a solar panel can include; aluminium (frame), glass, copper, labor, and capital. But all of these non-energy inputs could be used to make or save energy in other ways. The aluminum in the frames could be used to make vehicles lighter and save fuel. The labor making the panel could be used to change an air filter in a car or air up its tires, or add insulation to a house. The copper could be used to increase the efficiency of an electric motor or reduce the electrical losses in a transmission line.

When non-energy inputs such as labor, materials, capital, and land are used to make PV panels, they are no longer available to be used to save energy in other ways and their opportunity to make or save energy is lost. This is the energy opportunity cost of non-energy inputs.

The next logical question is "how can all the inputs be used in a more energy optimal way?" Should we use the copper in an electric motor or in wiring? An engineer might be tempted to calculate the marginal efficiency gain in the motor or in the wire and determine which is more optimal, and she might be correct. But maybe the analysis forgot to consider copper's use as a conductor in a heat exchanger to improve the efficiency of a refrigeration system, or even copper's use as a decorative object? How is this trade-off made? The answer is surprisingly simple; who will pay the most for the copper? This determines its optimal use.

So how does this apply to solar panels? If the sum of the costs of the inputs to make a solar panel are less than the value of the power it produces, a market should develop for producing solar panels. But what if the return is negative, which is the case with PV panels without any subsidies? Then the numbers tell us the labor, copper, aluminum, glass, energy, capital, and other resources used to make the panel could have/should have been used to save or make more energy had they been allocated to other activities, like making compact fluorescent light bulbs, or wind machines.

The other result of this logic can be the most disturbing, that is we will deplete our resources of oil and put more CO2 in the air faster by making panels than if we did not. Or even worse, given the negative net present value of PV systems not including the cost of the panels, we would be better off having made the panels to simply take them directly to a land fill rather than using the additional resources to actually connect them to the grid.