Green Energy (Solar PV): A Cost or a Value?

[jebatty]

Focusing primarily on economic payback for Green Energy ignores a very important principal of what motivates people to act: People act more on what they value than on what something costs.

In a recent post I provided a financial analysis which showed that Solar PV is not a cost but pays from an economic perspective. Solar Electric - 6.5 kw system The economic payback is long term. In fact, I may not live long enough to experience the economic payback, but I expect if my house is sold, the price of the house will reflect an earlier payback because the new owner will continue to receive the economic benefits. Some argue that payback must be much shorter, perhaps in the 3-7 year range, to motivate people to install solar PV. This argument is based on solely considering solar PV a short term cost and ignores long term investment return.

But an even greater fallacy is that cost is less a motivation for human action than is perceived value.

Who buys a car for economic payback, furniture, or even a house? or who has children for an economic payback (cost per child about $250,000), or goes on vacation, or does a myriad of other things for economic payback? All of these things are true costs with no economic payback. Life is lived for things we value, not for what they cost. And for the things we value, people willingly pay a huge cost with no monetary payback whatsoever.

Solar PV has high value (and it also pays back). I think solar PV as a value already has become part of the culture in some states (California) where homes are devalued if they do not have solar PV. My house may not have a "Great Room" or state of the art kitchen, both probably highly valued by a home purchaser, buy I do have solar PV which just sits there and pays me for that privilege while likely erasing my electric bill for the rest of my life. That frees me to put my money towards other things which cost and which I value, like a vacation in Costa Rica, for example; or my wife's new (used) Toyota Avalon, so we can take our driving vacations in added comfort. None of these pay me for that privilege.

 

[bmblank]

The main thing is cost is a universal thing. Value is personal. For me there isn't a whole lot of value in putting solar on my roof. The upfront cost and length of payback is the main driver that keeps the value low in this case. Cost and value aren't mutually exclusive, they're just not the same thing.

 

[jebatty]

Cost and value certainly are a mix. I guess it's part of the reason people don't save/invest money. They find value and pay the cost, often a very high cost, for things now which are very temporal, meet a want (not need) for satiation and gratification, and provide no future.

 

[bmblank]

I think there are many other ways to invest in one future, too. I invested alot of money in my wood boiler system, which should pay back for years and years and years.
Many people don't look to the future, but many do. Some would even say that vacations and the like are an investment. You can't spend it when you're dead, so enjoy it when you can. The payoff is at the end you can look back and not wish you had enjoyed more of the little things.
Again, many people throw everything away, but there are more investments than just in energy.

 

[woodgeek]

I think about this a little differently. Getting PV is not like getting a car (where payback is not considered). The decision is between two things that in the end, appear fungible with each other, PV panels or no, you have electrons coming out of a plug running stuff the exact same way. With two different cars, you can choose one or the other based upon different features. With PV versus grid, the ends use is indistinguishable. For me the environmental thing puts it over the top, but not so for most people.

In these latter kinds of cases, often folks break it down to money/cost, because there is nothing else for them to use. The 5-7 year payback requirement (15-20% return), IMO, is a reflection of 2 facts....poor people are carrying debt, often at 10% or higher, and are not going to spend (or borrow to spend) on something that doesn't pay back a good deal more than that....rich people are investing their marginal dollars, and (at least hope to) make 10% returns, so anything that pays back slower looks like an opportunity cost....and many middle class people remember being in debt at 10% and dream of investment returns of 10% in their future, so they aren't interested either!

 

[bmblank]

I totally look at cars the same way. Assuming I'm going to have a car either way, both cars have the same end result... They get me to and from work. I can get a car that has %50 better mileage than my current car, so now instead of paying $200/mo. I'm paying $150/mo. Principle cost is the cost of the car, return is what you get back cost-wise, and then dividends would be anything other than that, like having a nice comfortable car to drive. In PV case, principle is the cost of the panels and installation, your return is what you are saving by not using the grid, and your dividends are feeling that you're doing what needs to be done to help mother earth.

 

[jebatty]

Only partly true, the part that relates to "need" transportation, not the part that relates to transportation in excess of need, and I'm recalling as a facetious example in this regard the Chrysler adds of the past touting the number of cup holders in their minivans. I'm not advocating that comfort, style, being the right kind of person, living in the right neighbor, wearing the right clothes, etc. don't have value. I am saying that relegating the solar PV analysis solely to short term economic payback is a fallacy.

A good friend of mine had his 19.2 kwh PV go active last week, and I can assure you that the long term perspective was not a negative and that the environmental benefit was not the sole positive. I think WoodGeek that you will appreciate that in installing this system the friend was being ready for the all-electric car that is the friend's sights.

 

[bmblank]

For sure, it will continue to pay back. And it will continue paying even after it's payed for itself. In my situation, the upfront cost and length of payback is prohibitive. The thing that drives me more towards things like a car would be the other benefits. Payback for a new car is probably roughly the same timeframe as PV., but with a car I get to enjoy some perks while waiting. There aren't perks like that with PV besides the good feeling you get.
As much as people don't like it, the world is a very materialistic place these days. I just try to balance my needs and wants with time so that I can continue with just enough of what I want to keep me satisfied.

 

[woodgeek]

Another issue is liquidation. If I put money into an interest bearing account, I can make a return, and still get my money back out. If put my money into a PV array or other fixed investment, I can't liquidate it easily and get my full principle money back.

Of course I understand that lack of liquidity is not really a cost. But I think it feels like one psychologically to most people. ITs like the monkey trap where the monkey can't release his hand when he is holding the fruit. Turning liquid money into non-liquid fixed hardware feels like spending even if it is investment, and most of our monkey brains don't get it. And we sit, trapped, with our hands around a legacy fossil-fuel boiler, etc.

 

[EatenByLimestone]

I just don't think the return is there for me. If I used more electricity I might be able to justify it. The electricity portion of my bill is less than $60 and I expect to significantly cut that back, well the actual usage side, in the next couple months. I imagine there are economies of scale with a project like solar and if I use less than 300 kWh per month now what would the cost per watt and time to break even be? Next summer I figure I'll be using around 200 to 230 kWh per month.

 

[STIHLY DAN]

I would love to have solar. But at the expense now it is not worth it, forget about batteries for storage. PV is awesome but to dam'n expensive. If the utility options did not have so much influence in government things would be different.

 

[jebatty]

PV is awesome but to dam'n expensive.

That may be true to the extent that a person looks at PV as a cost rather an investment. With net metering in MN, I look at PV as an investment that provides a 5%, tax free, inflation hedged return. If I spent the same money for a 2-year CD as I spent for the the PV, I would receive current 1.25% taxable return, and the current US inflation rate is 1.7%, for a 0.45% loss plus the tax expense on the interest. The 5% PV return paid my electric bill at the same rate the utility charges me and is therefore inflation hedged: as my rate goes up, so does my return.

My system "cost" $22,400 and will produce $1,150 worth of electricity. At the end of one year a CD purchased at $22,400 plus accrued interest (ignoring taxes) would be worth $22,400 + $280 interest = $22,680 x 98.3% (inflation adjustment) = $22,294, for a net loss of $106.

My $22,400 PV system provided me with $1,050 real return, and if I should sell my home, I would submit to a buyer that the $1,050 return has a value of $84,000 because $84,000 at 1.25% interest = $1,050 (ignoring taxes), and therefore that the PV raised the value of my property by $84,000. My $22,400 investment now has a current value of $84,000. True, I can't take that money out of the bank and spend it, but the value is there in my home and will be realized upon sale of the investment.

We can quibble over whether a buyer would pay an extra $84,000 for my home, but a knowledgeable buyer certainly would pay a premium for my home, and I do have good grounds to get a price well in excess of my original $22,400 investment.

The bottom line again is: PV has value and is an investment, and regarding PV only as a cost is misguided.

 

[woodgeek]

I'm a quibbler.

I think a buyer would currently value your PV system at 'x' such that his/her mortgage rate (say 5%) and payment 0.05*x would equal array revenue. In your calculation, that would bring the value of the array right back to your install cost (5% mortgage rate == your return %), or about $22k. So you would be close to 'whole' if you moved today. If I recall, you factored in a proper lifetime and maintenance costs into your 5%, so I won't quibble there.

Of course, if you were selling a 20 year old array, the buyer will see it as less valuable, not expecting it to last the 30 year term of his/her mortgage. Instead, I think he/she **might** value your array at $22k less depreciation of at least 5% a year. So, if you sold in 19 years, I think the most a buyer would value it would the be the outstanding expected returns on the balance of array life. In which you are still roughly whole.

Alternatively, and more likely in a 20 year future scenario, a buyer would value your array at the replacement cost of the array at that time (which might be a fraction of $22k) or even more likely the depreciated future replacement cost (a fraction of a fraction of $22k). IOW, if you did a super expensive bathroom remodel 20 years before I bought your house, I don't care if you did it cheaply DIY, or got shafted and paid way too much for it. I am going to price it at some fraction of what it would cost me to get it redone, less depreciation reflecting how long since you did it.

So, you might optimistically in 20 years get a buyer to see the array as having a face value of its 10 terminal years assumed production, say ~$10k in 2014 dollars, but more likely it would just be one more white elephant lost in the usual haggling process.

For example, the PO of my house spent a bundle on oil heat, replacing the boiler 10 years before sale was the only major maintenance expense he did not defer (and he got a cr@p install I might add). He was haggling me after we settled on a price to pay him for the residual oil in the tank. Of course I paid him for it ($60 I think), but the whole thing seemed much bigger in his mind than anything else in the process, because he had bought the oil the previous year and was still seeing big $$-signs. I found out later that when HHO had gone from <$1/gallon to $1.50 shortly before my purchase, he started heating the place to 50-55°F 24/7, and living with his girlfriend elsewhere in the winter. He also shut the boiler down all summer, and just fired the boiler on the rare occasion he wanted hot water. And yet he still saw that system as a major asset for the house, and insisted that I reimburse him. I should have seen this as a warning that there was something fishy about the system....that the first year usage of that cr@p system, heating DHW full time and maintaing 68°F in winter was 1400 gallons of HHO.

 

[jebatty]

Time will tell. I expect our home will continue to be owned by me or family for a long time to come, and during this time the investment return pays well.

 

[CaptSpiff]

Are these PV systems covered by your home owners insurance?
If an inverter fails, like a larger "string" type inverter, are you covered or is it like an appliance?

edit: I'm wondering because the Fed & State credits probably won't be there to offset 50% of the product.

 

[Where2]

Time will tell.

Much like purchasing a new car, installing a PV system on my house was a roll is the dice. Would the panels made by a bankrupt company continue to work for 20+ years? Would the second generation micro-inverters I chose for my system continue to work past their warranted lifetime? Would the balance of system components I chose continue to function for 20+ years?

Time will tell.

In buying a PV system, I paid for ~20+ years of electric energy up front. After 1 year, I've received 6MWh at 2013 prices.

Are these PV systems covered by your home owners insurance?
If an inverter fails, like a larger "string" type inverter, are you covered or is it like an appliance?

Inverters are generally covered by a manufacturer warranty, should you require it. The challenge is guessing which manufacturer may still be in business should you have an issue in the future. As I mentioned with my panels above, the manufacturer was already bankrupt before I bought the panels. I chose to self-insure them against failure and assume the risk at a greatly reduced purchase price over similar panels available at the time.

Like the new windows, new electrical panel and new metal roof on my house, the PV system on the roof is covered by my homeowners insurance should the house burn down or suffer a catastrophic wind storm event. The PV system was permitted and built to all applicable building and electrical code standards and requirements in place at the time of permitting.

 

[JP11]

I guess it goes with the old saying.. beauty is in the eye of the beholder.

I personally like my house. I think it's privacy is priceless. The security and sustainability of having enough woodland to forever heat the place is fantastic in my eyes. The large garage to house my toys, I mean TOOLS is fabulous. The PV panels that supply the power for the foreseeable future is very valuable.

BUT... to the soccer mom that wants to live in the cul de sac neighborhood.... my house is crazy! It's 15 miles from local schools. Who wants to mess with dirty firewood?even if it's in the garage and once a day. Solar.. Ok, tough to argue with that, as it's hands off. But some might say it's one more thing to maintain.

We all want different things in life. I did the things to my land and house to suit MY tastes. I always said.. I built it to live in, not to sell.

To me.. a house purchaser would likely give you 'credit' for maybe half the cost of what you paid for solar. That, or they might value it as a reduction in overall costs to run, justifying them upping their purchase budget by the amount they won't have to pay for power.

Interesting conversation. I guess the only ones to really know would be realtors, and it would be very location specific. I had an appraiser admit she understood nothing of my heating system ( at the time.. it was a plain old oil boiler I had modified a TINY bit to run biodiesel) She couldn't decide if it was an asset or a liability. Despite me telling her that I could just fill the tank with heating oil... like any other house.

JP

 

[renewablejohn]

Its not until you read this thread you realise how lucky we are in UK that the government provide a guaranteed income stream for 20 years for installing solar. I will shortly be installing a 30kw system on a new barn the payback period is estimated at 4 years. It will provide a useful addition to my pension portfolio for the next 20 years.

 

[STIHLY DAN]

I'm wondering if it would be like a pool. Because of maintenance make the house worth less. I still want pv, but payback is not there yet in NH.

 

[jebatty]

I understand what you mean. For some levity, and as to maintenance, all I have done for this first year 1) is go outside and look at it, and 2) open my electric bill envelope and see that I owe nothing. And if that's not enough to tire a guy out, I expect to have to open a second envelope to take out the check from the electric company for the unused credit earned during the year. Whew! Time to go back to bed.

 

[EatenByLimestone]

If other states paid for excess electricity it might be a game changer. I don't think ny will pay for excess production.

 

[jebatty]

MN requires the utility to pay for excess production at the average retail rate for systems up to 40kw. This is the same rate that I buy electricity from the utility: I buy from the utility at $0.108 and the utility buys from me at $0.108. The law also allows a rate payer to install up to 40kw of solar per rate meter. I have one meter on the house, so I may install up to the 40 kw, I have installed micro-rated output of 6.5kw. My system is estimated to produce about 10,000 kwh per year, my annual usage is around 12,000 kwh per year. Clearly, a 40 kw system might produce up to about 61,000 kwh, which I could install, and the utility would be required to pay me for the substantial excess production.

 

[peakbagger]

Homeowners covers replacement of PV panels and equipment just like any other permanent fixture on the house if they are damaged by an external event. An external unplanned event like lightning, hailstorm, windstorm, etc. An inverter failing due to old age or poor workmanship is not covered just like a stove or washing machine. Most inverters come with a 5 year minimum warranty and most offer and extended additional 5 years for additional dollar. The generally recognized lifespan of an inverter is 10 years but like solar panels which were regarded as having a 20 year life, many folks get longer life. With regards to inverters, in my opinion the typical installer approach of installing more panels then the rated input and running them near 100% load is a factor in reduced life but expect far more inverters dies because of high ambient temps and poor ventilation

 

[jebatty]

Ground mount panels with full air circulation would help to keep the temps down for the inverters.

 

[CaptSpiff]

I have yet to pull the trigger on home PV or an EV. I definitely see both in my 5 year future, and info on this site has really kicked off my learning.
With my electric bill running around $100/mo, and only expecting to be in this house another 8-10 yrs, the PV is not a top of list.
The EV Leaf I test drove was a hoot. I really wanted it, until I pulled up next to a Yukon SUV at the red light. I was looking directly into the wheel well, not confidence inspiring.
So both are in my future, but I've got some personal "things" to overcome.

MN requires the utility to pay for excess production at the average retail rate for systems up to 40kw. This is the same rate that I buy electricity from the utility: I buy from the utility at $0.108 and the utility buys from me at $0.108. The law also allows a rate payer to install up to 40kw of solar per rate meter. I have one meter on the house, so I may install up to the 40 kw, I have installed micro-rated output of 6.5kw. My system is estimated to produce about 10,000 kwh per year, my annual usage is around 12,000 kwh per year. Clearly, a 40 kw system might produce up to about 61,000 kwh, which I could install, and the utility would be required to pay me for the substantial excess production.

Now back on post: I'm glad you pointed out that Minnesota created a law describe above. No doubt it was based on the desire to promote home and even lite commercial PV. It sounds simple and offers relatively short payback period. A definite winner for early adopters, until the law is changed. That change won't come until some tipping point is reached, but it will come. How will that impact the "investment" is unknown. Those who did it for personal values are probably OK.