Next Generation Energy is managed and written entirely by Seed editors and expert guest bloggers. Read more about them If you want to encourage diversification of energy supplies, one of the first things you should do, in my never-took-economics-at-university-informed opinion, is remove one of the biggest barriers to the purchase of new, clean technologies. And that barrier would be the cost. And no, I don't mean abandon capitalism lock, stock and barrel. (Although that, too, might work, the hostility such a proposal would generate makes it a non-starter until things get a whole lot worse on Greenland.) I refer instead to the idea of transferring the burdensome up-front cost of solar, wind, geothermal, and similar carbon-neutral alternatives off the shoulders of the energy consumer.
That cost is more easily covered by governments and utilities. This is not a particularly revolutionary notion, seeing as it's not much different in principle from a little thing called the mortgage. Indeed, it's already being tried in a variety of locations. For example, in always forward-thinking Berkeley, Calif., the municipal government will pay the cost of installing photovoltaic panels on the roof of residents' homes. The idea is property owners...
...agree to pay it back with a 20-year assessment on their property. Over two decades, the taxes would be the same or less than what property owners would save on their electric bills. (SF Chronicle, Oct. 27, 2007Basically, your taxes go up, but your power bills go down by at least as much. Twenty years later, you own the array, and your bills and carbon footprint stay low. Sounds almost too good to be true, doesn't it? The reason a plan like that can work is cities qualify for lower interest rates on bonds than do individual homeowners seeking loans and equity lines.
That doesn't mean that solar electricity will be cheaper than fossil-fuel generated power — amortized over 20 years, and including replacement costs of damaged panels and worn-out batteries, it's still pretty expensive compared to what the market charges now. But that's not the point. The cost of electricity from coal, gas and nuclear plants doesn't reflect true costs today, anyway. Nuclear power plants, for one, don't have to pay liability insurance or worry about long-term disposal costs, thanks to what is in effect a federal subsidy. If they did, solar would suddenly look quite competitive, depending on how you calculate the risks from a nuclear plant, and the ultimate price of waste disposal.
No, the point is, we have but a few years to get our ducks in a row, and if we wait until a technology is cost-competitive, we'll probably miss our window of opportunity. So-called experts predict electricity generated from PV arrays will be cheaper than coal within seven years, but I don't think we should wait that long. Use what we have now. We can always upgrade later. We do it with computers, so why not power generation?
The same policy can be applied to anything with a high up-front cost. Retrofitting a home with new insulation, say. Anywhere clean tech is too expensive for the typical homeowner to afford, make those who can afford it cover the cost. Over on the other side of the U.S., Massachusetts just this month passed a new law that "requires utility companies to enter into 10- to 15-year contracts with renewable energy companies to help developers of renewable energy technologies obtain financing to build their projects." (Renewable Energy World, July 7, 2008).
This approach will almost certainly encourage diversification, so long as the regulations don't favor one clean technology at the expense of others, because the decision on what technology to use will be left up to the individual. In some communities, wind power will make the most sense, in others it will be PV or solar thermal, or geothermal. Even within communities, a house at upper latitudes with poor southern exposure may be less interested in solar panels even as the family across the street goes crazy with those new PV shingles.
There are, of course, many other complementary policies that go along with mandatory cost-transfers. All utilities should be required to buy back excess electricity through net metering. This is more and more common, although in some jurisdictions there are unfairly low maximums on how much the utility has to buy. On the other hand, if we're all going to start selling power through the grid, we'll have to share the cost of maintaining the grid.
The great thing about this particular policy is it will work within the existing, lightly regulated energy marketplace. One can still make a good argument in favor of nationalizing power generation, or at least imposing much more serious regulations on it. And there may yet come a day in the not-too-distant future when the people will have to take control if we are get our greenhouse emissions down to where they need to be (effectively zero). But cost-transfer is a good place to start, and it shouldn't ruffle too many shoulders.
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Comments
Of course there is a limit to how much of this sort of passed-through municipal debt the capital markets will absorb
Ultimately technologies like solar with upfront capital costs but no fuel costs will just be financed like a mortgage or car. There is a limit to how much the government can subsidize the expenditures and huge risks of rent-seeking by connected interest groups(look at what is happening to Fanny and Freddy right now) but "negative" subsidies such as surcharges on Coal and Nuclear generated power could be used to help fund these programs.
Posted by: bwv | July 28, 2008 2:19 PM
It would make more economic sense for Berkeley to put their money in a solar-thermal plant in the Mojave desert. They'd get twice or threee times as much electricity for the same money. Of course, they might have to wait 5 or 6 years to build it, but in the long-run and the medium-term, it still makes more sense. If it happens in four years that PV prices drop in half, which they might, then they could still spend the money on PV and get twice as much electricty for the same money.
This quick fix band-aid may look like a good idea, but it is misspent. If they want to throw money at the problem, then they should try insulation and other home and commerical efficiency improvements first. They're more effective economically and their price won't drop 50% in the next couple years.
The difference among these choices is not trivial. The problem is too important to spend money un-wisely.
Posted by: SeattleDave | July 28, 2008 2:50 PM
It may be that the majority of future distributed PV installations will be turn-key services by third party providers without the owner of the building owning the equipment.
This company:
http://www.sunedison.com/index.php
does this at a utility and commercial scale, it is not hard to envision a similar solution at the residential level where the homeowner simply pays service charges & a lower monthly electric cost rather than borrowing the funds to buy the equipment.
Posted by: bwv | July 28, 2008 3:26 PM
James,
What is the take-up on the Berkeley scheme?
Posted by: Grant | July 28, 2008 3:34 PM
Grant: it's still in pilot stage. My apologies if I left the impression it's at a more advanced stage.
Posted by: James Hrynyshyn | July 28, 2008 4:05 PM
This is an interesting idea for diversifying energy sources but I want to clarify two inaccurate statements about nuclear power. It is claimed that the nuclear industry does not "have to pay liability insurance or worry about long-term disposal costs."
In fact, in the United States, nuclear reactor license holders must obtain the maximum liability insurance available from the market (currently $300 million per plant). In the event of an accident, all license holders in the industry (including those not involved in the incident) will pay up to a total of $10 billion; it is only above this limit the federal government becomes responsible, and this limit has never come close to being exceeded, even after Three Mile Island.
With regard to waste disposal, consumers already pay 0.1 cents per kwhr of nuclear-generated electricity they receive to contribute to the Nuclear Waste Fund to cover the costs of disposal. To date, this amount with interest totals $30 billion, which more than covers current spending on such projects as Yucca Mountain. Granted, future disposal costs cannot be predicted with certainty but even the DOE believes this is a suitable fee. This fee is levied on ratepayers now, not on taxpayers later.
If these statutes are thought of as subsidies, it is certainly an odd kind where the industry is paying money to the government rather than the other way around.
Posted by: Erik D Johnson | July 28, 2008 9:40 PM
The suggestion to put a plant in the desert whist seemingl reasonable is, in fact, a very bad idea. The idea is to preaserve the enviroment and not destroy it. So using roofs is fine - they have no other function than to cover our heads. Using the desert would destroy a complete ecological system that is ireplaceable
Posted by: Philip Barnea | July 29, 2008 10:01 AM
I find it amusing that there's an ad running right now (7/29 9:30am CT) on this page talking of "wood chips for energy", yet a search of this blog using those two words turns up blank and clicking on the ad takes you away from the blog, not to any article discussing wood chips.
Posted by: Ian | July 29, 2008 10:29 AM
James,
Thanks for the clarification on that.
I wondered if it was like a lot of 'government' (various levels) schemes we see that are promoted and then the funding runs out with everyone wondering who signed up. It's difficult to know if they actually ran and sold out or had minimal take up and were pulled to the sound of 'success' publicity.
Other than buying a home most people would only want to commit to medium term finance investment on a relatively expensive depreciating asset with recurring maintenance costs. Think automobile for example. And even then that is based on a minimal loss risk (relatively speaking) if one wants to get out early.
I could see see a commercial operation considering the option. But on a personal level I would think such a deal would need some cost increase boundaries built into it. At the end of 20 years it would be start again time. Meantime signing on may make the property hard to sell should the need arise.
The another big difference with autos is that an auto, for many, is purchased based on their personal desires with a few purchased purely as a utility necessity. I can't quite see PV on the roof having the same desire driven motivation in the same proportions. Not for a while at least.
Still, no harm in trying to start somewhere and then see what develops.
Posted by: Grant | July 29, 2008 12:29 PM
My son (21yo) recently made a deliberately provocative comment which seems apropos: "Sustainability is a luxury".
Meaning, of course, that only the relatively well-off can afford to buy a hybrid car, a home PV system, etc.
Posted by: Eamon Knight | July 29, 2008 4:30 PM
"Sustainability is a luxury"
This is why calls for the wishful calls for some sort of global depression to stave off global warming made here are so absurd. People do not care about environmental issues if they are worried about where their next meal is coming from. The only way environmental issues get solved is in a rich economy with a legal system that adequately protects communal property rights
Posted by: bwv | July 29, 2008 5:47 PM
bwv hits the main point. Capitalism is our friend on this one. Private companies have indeed started to move into financing solar (and some other renewables).
One additional benefit is that the companies doing the financing are providing much more. "Turn key service" I think is the management speak. They will assess the options, offer analysis, and handle/coordinate installation and upkeep. They also keep up with the technology and laws, so will most often come reasonably close to using the 'best available'.
I have nothing against municipal and government getting into this. Hell, I tend to be pretty close socialist when it comes to utilities. However, the government can do more good by making the relevant laws better and improving the grid.
Posted by: travc | August 10, 2008 7:19 PM