Dumb Green Energy

The California Energy Commission wants to force new homes to use solar energy :

California moved a step closer Wednesday to requiring solar panels on new homes and low-rise apartment buildings starting in 2020, the first such mandate nationwide and the state’s latest step to curb greenhouse gas emissions.

This clean energy revolution comes at a price:

The commission estimates solar panels would boost construction costs for a single-family home by roughly $10,000.

To be fair, as the commissioners point out, with the median California detached single-family home already costing over $500,000, this is a relatively small cost that is unlikely to have much of an affect on market. But it will have some effect, especially if their estimate of the cost is low.

They also argue, less convincingly, that generating your own power from the sun will reduce your utility bills enough to pay for the cost of the panels:

The move’s supporters insist the solar homes would save their owners money by slashing monthly utility bills. That savings could be worth $16,251 over the 30-year life of the house, according to the commission.

The first thing we should ask ourselves when we hear claims like this is if the savings from solar power are so great, why would California have to force homeowners to make the investment? People spending hundreds of thousands of dollars on homes routinely make these kinds of decisions all the time. Reduced energy costs should be an easy selling point for new homes.

One likely reason is that it’s not clear how the commission arrived at the figure of $16,251. This description makes it sounds like they add up 30 years of utility savings, which is an awful long time to wait for a return on an investment, resulting in a pretty poor 1.6% rate of return. In the commission’s explanation, which doesn’t include this savings figure, they estimate related numbers using a net-present-value method, which would be a lot better, if that’s how they arrived at the number.

Of course, the validity of that number also depends on the details of how the calculations are done. US Berkeley economics professor Severin Borenstein thinks they used the wrong numbers for current electricity costs, and I wonder how they accounted for volatility in fossil fuel energy prices. Lower-than-expected oil prices in the next few decades could wipe out all the savings. As could the arrival of some other cheap energy source.

That cheap energy source could turn out to be somewhat ironic. Solar electricity generation used to be extremely costly, but as usage has grown, economies of scale have made it much less expensive. The long-term cost of solar photovoltaic electricity generation has been declining, and the trend is expected to continue. However, even though residential PV generation costs have declined 70% in the last 10 years, the greatest economies of scale are expected to come from utility-scale generation, which could be provided at between 1/2 and 1/3 the cost of residential generation. If power companies bring solar photovoltaic generation online any time soon, people who put solar panels on their roofs may end up paying a higher lifetime cost than their neighbors who get solar energy from the electric company.

Of course, the cost to homeowners should not be the sole deciding factor in an environmental policy. In the absence of a meaningful carbon tax, the metered cost of electricity does not reflect the environmental costs of generating power from fossil fuels. Each individual homeowners pays only part of the cost of using fossil fuels, with everyone else suffering the environmental costs. So while the savings may not make sense for individual homeowners, when you take the fossil fuel costs of pollution and anthropogenic global warming into account, the much greater savings might make sense for the planet as a whole.

But that still leaves the problem that the California Energy Commission is trying to pick winners in the market by forcing people to use residential solar power generation, even though utility-scale solar power would be much less expensive. If we’re going to spend billions of dollars to reduce carbon emissions, shouldn’t we pick the technological path that allows the greatest reduction per dollar? Instead, the commission has chosen an expensive feel-good path — which also probably funnels money to politically influential construction interests — that may reduce residents’ need for utility power, thus actually discouraging utility companies from investing in greener power generation.

Transforming our energy production is a huge undertaking. We need to be smart about how we go about it.