SolarCity’s big challenge: Prove that energy bills can fall

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Not many companies have dared make a full-frontal assault on the decades-old business model of energy utilities. That’s because no-one had a disruptive technology or a disruptive game plan. SolarCity says it has one, which is why its IPO will be viewed with great interest, including in Australia.

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For all the talk about the plunging cost of rooftop solar panels, and the multiple failures of solar manufacturing companies, the development that energy utilities are watching with most concern is the emergence of new companies that find ways of delivering those products to the mass market.

That’s what makes the float of US solar company SolarCity, so interesting. Amid the carnage at the upstream end of the solar industry, and the failures of Solyndra and Australia’s Sliver technology, SolarCity is setting out to prove that there is money to be made, and a solid business model, at the downstream end.

It may only be seeking to raise $200 million, a drop in the ocean in a trillion-dollar global energy industry, but its potential impact will be much greater than its size.

The regulatory filings of SolarCity are intriguing because it articulates some of the game-changing concepts that are proposed by the solar PV industry. Put simply, companies such as SolarCity exist because they can offer customers a means to pay less for electricity. That is not a promise that the incumbent utilities feel inclined, or capable to make. And that is the game changing nature of their proposal.

SolarCity was formed in 2006 by the Rive brothers, Lyndon and Peter, who just happen to be cousins of Ebay founder and Tesla electric vehicle maker Elon Musk, who is chairman and has a 30 per cent stake.

Their model has been to tap into deep pocketed investors to fund a leasing package for consumers – offering them the opportunity to install rooftop solar at little or no cost, and benefit from the reductions in the electricity bill. It’s based on the premise that while renewables may not yet be able to compete with 30-year old coal-fired gas stations at the utility-scale, solar panels can deliver cheaper electricity to the consumer than the current grids. Hence, the term: Socket parity.

“We believe that a customer’s decision to buy renewable energy from us is primarily driven by their desire to pay less for electricity,” the company says in its IPO filings. And it says there is a big enough market to target.

Out of a total retail electricity market in the US of $368 billion, around $58 billion is sold at retail prices of 15c/kWh or more, SolarCity says. That’s its target market. But it says this market will likely to grow to $170 billion in the next five years, as the cost of grid-based electricity rises (notwithstanding some of the fanciful and mistaken assumptions about the impact of gas on the US electricity market).

This graph below highlights the savings that it says it can deliver in three of its key markets –  Arizona, California and Hawaii. Note how the retail electricity prices compare with those in Australia – little wonder that some of those firms such as Sungevity are targeting Australia, and that Yingli sees Australia as the biggest mass-market in the world.

 

So far, the company has raised $1.57 billion from the likes of Credit Suisse, Google, and Bancorp to use for leasing products to customers. It has a portfolio of installed and contracted capacity of around 200MW on 33,000 rooftops, and still has some $648 million of that to spend. It is also expanding into electric vehicle charging stations and energy monitoring software, and into on-site battery storage.

Of course, things can go wrong. A prospectus in Australia is usually a glossy affair about why everything will go right, with a small chapter on the risks. The regulatory filings in the US are a detailed list of everything that could possibly go wrong, and with SolarCity’s model, there is plenty that can.

Someone might come up with a killer technology that delivers electricity at a cheaper cost than rooftop solar; rising interest rates; or an oversupply of electricity. But the biggest risk is in regulations, and whether local authorities will impede the rollout of solar to protect the interests of the incumbents.

SolarCity notes that in California, for instance, the rollout of net metering solar PV is limited at 5 per cent of aggregate peak demand. If that and other states don’t raise these net metering limits, then its demand will be limited.

SolarCity sees the traditional utilities as their biggest competition. “We compete with them on price, predictability of price and the ease by which customers can switch to electricity generated by solar systems,” it says.

A 2.6kW SolarCity installation in Bedford, Massachusetts

“We have disrupted the industry status quo by providing renewable energy directly to customers for less than they are currently paying for utility-generated energy. Unlike utilities, we sell energy with a predictable cost structure that does not rely on limited fossil fuels and is insulated from rising retail electricity prices. As retail prices for electricity increase and distributed solar energy costs decline, our market opportunity will grow exponentially.”

Bloomberg New Energy Finance analyst Anthony Kim said the SolarCity filing could be a “game-changing moment for the solar industry” because it shows “how plummeting component costs benefit a company operating on the downstream side of the solar business.”

Still, the stock is heading to market at a lousy time for renewable and clean energy stocks, and it has accumulated losses of $70 million over its five years in business. But it notes that traditional providers of electricity are facing rising costs. In comparison, the cost of solar panels when SolarCity launched its business in 2006 were 472 per cent higher than they are now.

This graph below, sourced from Bloomberg New Energy Finance, highlights the fall in panel prices.

And this graph from the Energy Information Administration shows its (the EIA’s) outlook for retail prices over time.

SolarCity’s SEC filings provide two examples of how customers can benefit.

The first was a homeowner in Maryland who could install a solar energy system with a normal all-inclusive cost (including labour), of $18,276. Under the leasing scheme, the homeowner will pay $29,746 is leasing payments over 20 years, with a net saving of $8,305 compared to his projected utility bills. Clearly, if a homeowner can afford to buy the system outright, the savings might be greater, but the leasing scheme targets those who do not have the money, or the desire, to pay upfront.

The second example cited is that of Walmart, one of tis major corporate customers. It says Walmart has contracted to purchase solar-generated electricity at 169 locations throughout Arizona, California, Colorado, Maryland, New York and Ohio. It says its solar energy systems typically offset between 10% and 30% of each Walmart location’s total electricity usage.

That’s the commercial market that has yet to take off in Australia. If it does, and if the leasing model can be applied in Australia, then this has the potential of becoming not just an interesting new business model, but to add a different perspective to the current political debate around energy prices and their solutions, an idea we raised back in April, when we wondered if zero-cost solar would be Gillard’s secret election weapon.

At the very least, it will be a wake-up call to those utility heads who, when asked in the current Senate inquiry if retail electricity prices could fall in the future, said: “No.” The solar industry begs to differ.

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23 Comments
  1. steve the sparky 7 years ago

    Thanks Giles, the SEC filing is a great read…. Enlightening!

  2. Scott Brooks 7 years ago

    On a previous post, wind half the price of coal, some twit challenged me about if putting PV solar on their roof wouldn’t work out. My beef is it should be done without RPS or electrical providers having to purchase any excess as it ends up on the consumers backs.

    Take away the subsidies and only those with deep pockets willing to exist off the grid can get by. Not on the taxpayers or consumers dime as it’s not grid viable. It ends up driving up the cost of electricity. Installing it shold be it’s own reward for those that want it.

    And I hate these sites that don’t have decent response time or not response options without subscribing, otherwise I would not be responding on a different article to the twit.

    • Dave Johnson 7 years ago

      I looked at your other comment, and you throw around quite the blizzard of macro-economic data, but that does not change a simple fact: some of us live in electric markets where solar PV is now cheaper than buying electricity from the conventional grid.

      My landlord and I recently did an analysis of this with respect to the building that I live in, and, even without factoring in various incentives, it appears that he can make a steady 3.5% tax-free return on the investment, while we tenants will see a lower electric bill. With some incentives it will be even more profitable, but the incentives only enhance the profit that is already inherent in the deal. They do not make the difference between profit and loss.

      Nor, by the way, are we “twits” about money.

      He has spent more than forty years in business successfully managing several different companies, and I have spent nearly as long as a software designer, and have built any number of accounting applications, among other things. We can definitely do elementary arithmetic, if really pressed.

      Despite your flurry of numbers, the economic principle here is dead simple. The price of electricity from the grid is rising relentlessly, while the price of solar is dropping even faster. Thus, at some point it is inevitable that solar will become cheaper than the grid, and I happen to live in one of many markets where that has happened already.

      So, sorry if I am too stupid to follow your logic, but if that makes me a twit then I guess that I will just have to live with it.

      • Scott Brooks 7 years ago

        Those numbers are not mine but the EIA (Energy Information Administration). And how much of the electrical rates are subsidized due to having intermittent solar installed, and how much of the revenue comes from taxing coal or oil producers for your power?

        And we’re comparing apples to oranges here as you live in Australia where they have a carbon tax???

        My observations come from experts like:

        David J. Bergeron is founder and president of SunDanzer of Tucson, Arizona, a leading provider of solar-powered refrigerators and freezers world-wide. He has worked in the refrigeration and aerospace industries for 21 years and holds key refrigeration patents used by his company:

        “PV would reach grid parity if the total installed cost plus the net present value (NPV) of the operations and maintenance cost were at or below about $1/watt. But given that the PV panels alone cost $1/watt, and the total system cost for utility scale PV arrays is still $3.75/watt not including the NPV of O&M costs, I don’t see on-grid PV as a rational bet. Unless of course, one gets to bet with other people’s money and can ignore the moral implications.”

        “You’re making a mistake by ignoring the capital cost of a PV installation. Amortizing this cost over the life of the PV system results in an electrical generation cost of about 15 cents/kWh. See DOE/EIA report on the LCOE summarized in the link below:

        http://www.instituteforenergyresearch.org/2009/05/12/levelized-cost-of-new-generating-technologies/

        You can only stretch a subsidized item so far. When outgo exceeds income then you run up deficits that leads to bad things like inflation and scarcity. Some where along the grid there’s a gas turbine generator to compensate for the intermittent nature of solar. So your solar has to be subsidized that throws extra electrical charges to cover that extra infrastructure.

        If every one went solar then electrical rates would go sky high and the producers could no longer be able to provide affordable grid power leading to brownouts and severe rationing.

        Just check out what’s happening in the UK and Spain. That’s where this nonsense of renewables is taking your country, Greece land! After Germany shut down some of it’s nuclear plants it changed from a energy exporter to a energy importer and is now importing coal from America. Things will only degrade from there.

        So don’t give me this baloney that your landlord is paying less for solar installed electricity. It’s like living in low income subsidized housing, others are paying for it. You might as well go fly a kit to capture lightening for your power!

        And solar panels are becoming cheaper due to a glut of Chinese manufacturers. Tell us, where did the solar panels come from, aka manufactured?

        • Dave Johnson 7 years ago

          Okay, so now I’m not just one of the twits, but a liar as well. Some debating style.

          A) As I said, our particular solar deal would be profitable even without subsidies, so, say what you will about subsidies, we don’t need them. We are entitled to some, but we don’t need them.

          B) I’m not in Australia, but New Hampshire, in the U.S., and there is certainly no carbon tax here, although there are gobs of subsidies for nuclear and fossil fuels, both of which are prominent in this particular market. Indeed, the ratepayers here are still paying for a nuclear plant that ran billions over budget when it was built 25 years ago. That is actually a big reason that solar is competitive here, and also a big reason that people like me love sticking it to the power company.

          C) Our system cost works out to about two dollars per watt installed, and grid-supplied electricity is sixteen cents per KWH, so, over the assumed 25 year life of the system, there is a nice profit. And that does not assume the very likely continuing rise in grid-supplied power.

          D) We have net metering, so we put excess production onto the grid, and draw it back in periods of low production with no cost or profit to either party, in the normal case. Solar electricity also appears on the grid during peak consumption, so, in principle, it saves the power company from making more expensive investments in other peak power capacity.

          E) If we cannot eventually make use of our excess power by drawing it back off the grid, then the power company gets to keep it at no cost. So, in that case we subsidize the power company. Not the other way around. They get the product of our capital investment, but they don’t have to pay for it. Nice work if you can get it.

          F) China may be subsidizing their manufacturers, but our government is slapping tariffs on those products for precisely that reason, so we are not necessarily seeing any bargains as a result.

          G) As for apples and oranges, you are talking broad generalities on a global scale, while I am talking a specific deal, at a specific time and place. Certainly many people in other markets cannot (yet) do what we are doing, but we can, and those who can are growing rapidly in number.

          H) Finally, I have a question for you personally. Namely, what is biting your butt so badly? For me this is just a financial and technical decision about the best place to get my electrical power, and solar is now both cheaper and cleaner where I live. So, what is the big hoo-ha all about?

          I) In particular, you seem to have a big stick up the backside about subsidies and other forms of community-wide cost sharing. Are you one of those folks who doesn’t want to pay for a fire department because your house is not presently burning down? All roads should be toll roads?

          J) My point here is that, if you are going to get ticked off about shared expenses for shared infrastructure, you should be completely honest about it, and forswear everything of that sort. Build your own house, using only tools you have made yourself, from iron ore you have mined personally, and so on. Grow your own food, using no inputs that you have not created yourself. When you need brain surgery do that yourself, too, on the kitchen table. That is the logical end of any argument against subsidies on the grounds that they are somehow inherently immoral.

          K) In short, human beings are a highly social species, which is a big reason that we are so successful. So, if you don’t want to pay your portion of the shared costs, you are perfectly free to resign from the human race, if you really feel that strongly about it. Certainly it would be no skin off my nose.

          • Scott Brooks 7 years ago

            Dave-

            So you have no RPS nor rebates nor tax breaks? People who install unsustainable energy just because certain politicians think it’s cost effective and generates some energy don’t deserve subsidies. And subsides are money grants not tax breaks which is what the oil and gas industries get just like any other business for operating loses. You don’t have a clue.

            The petroleum industry does not receive “subsidies” to produce oil and natural gas. It doesn’t even get “special tax breaks” or outright tax credits. What are falsely described in these terms are actually tax deductions for costs incurred by companies in the process of exploring, drilling, producing and refining the oil and natural gas that energize this nation’s economy and living standards.

            These tax deductions are equivalent or similar to deductions claimed by every US business, large and small, for things like facilities depreciation, equipment, utilities, payroll, and research and development. They are intended to ensure that businesses, like individuals, recover their costs and get taxed only on their net incomes. For oil companies those deductions include:

            * Geological and geophysical costs, for exploration to assess prospects prior to drilling;

            * Intangible drilling costs – equipment, labor, fuel and supplies associated with drilling expensive wells;

            * Expensing “tertiary injectants,” water and chemicals injected into older wells to keep them producing;

            * Domestic manufacturer’s deductions of up to 6% of income earned from extracting oil and gas (farmers, manufacturers and other producers can deduct up to 9% of earned income);

            * Percentage depletion allowance, allowing for gradual recovery of up-front investments in a petroleum (or iron, gold, limestone, et cetera) deposit that is gradually extracted and depleted. The allowance is no longer (since 1975) available to “integrated” companies that produce, refine and market oil.

            A- Deal, what special deal. Is that a deal every body can get in NH?

            B- Partially explained above, the nuclear plant is generating power 24/7 which neither solar nor wind can do, even in the near future. Sticking it to the plant? By the RPS charge mandate?

            C- You aren’t showing all the costs nor data. Special Deal?

            D- As I explained before this is not cost effective. Power companies can’t effectively compensate for intermittent power. It’s like driving a car in a city vers the highway. You don’t understand the grid, it goes on the consumers backs. Until you can go completely off the grid then you helping out the energy situation. It does little for peak power which generally occur during morning and evening hours which is the minimum output of PV solar at about 30% to nil depending on atmospheric conditions.

            E- Does not make any sense except on paper.

            F- Then the costs of solar production will go up. I have heard it proposed but American manufacturers have moved overseas for exactly that reason. If the Apple iPad was produced here it would cost over $5,000 and not 500.

            G- They are going in number due to rebates, tax break and RPS, not because it’s cost effective except thought dogma regulations imposed by the EPA which makes coal burning plants virtually unprofitable. But then Germany is importing coal regardless of it renewable efforts.

            H- That for those on a fix income, this sort of program will drive up the cost of electricity as efficient coal and gas are regulated out of existence. It’s not sustainable. It’s happened everywhere it has been implemented. And what will replace that nuclear plant you so deionized? As Germany found out it’s been coal and gas from Russia. It’s making electricity and gasoline very expensive while accomplishing nothing toward suppressing MM CO2 emissions, a plant food. So it would only benefit you for a couple of years until the Obama administration shuts down all the fossil and nuclear plants.

            I- Renewable subsidies are not cost effective. Again you are comparing apples to pomegranates in this case. Fire fighters and police are a necessity, renewables are not.

            J- So you want to regulate America to a third world status. Renewables are just a scam game dreamed up by ENRON and expanded upon by bureaucrats to extend their power and subsidized money schemes. Solar is so called subsidized 3.5x more then coal. And some enviros are just crazy loons on there initiatives, they hate real progress. Your perspectives are so narrowed minded.

            K- People have been conned into giving up free choice for perceived government promises via more control. Yes it’s a question of socialism vers free choice, free from government draconian mandates and regulations. I don’t buy your form of society where a minority of a group benefit as many others don’t. We don’t like freedom sucking government control. It cheapens our lives not enriches them. History has proven that time and again. I’m just presenting my arguments against your twit ones. Wind and solar schemes have been around for over a century. Wind pumping is viable, passive solar and remote PV generation are also viable. Renewable grid generation is a farce like free energy. There’s nothing free about it when you go through the physics, something you fail to understand.

        • Ronald Brak 7 years ago

          Wow, you are really not thinking things through, Scott. You give a cost of $3.75 a watt for solar electricity in your comment, but you don’t seem to realize that gives a cost per kilowatt-hour that is less than Australia’s retail electricity prices. This makes solar cheaper than Australian grid electricity but then you say that it is baloney that solar electricity is cheaper than grid power. You’re contradicting yourself in your own comment! Why don’t you do the maths? If you don’t know how I can help you. But you might want to look up the actual unsubsidised cost of installing solar in Australia, as it’s now about 20% lower than the figure you give.

          And Scott, do you want to explain how if I put solar panels on my roof it requires the grid to build more infrastructure? I really don’t see how that works.

          Oh, and finally, I’ll mention that I live in South Australia where we get about a third of our electricity from wind and solar and we’re getting a 8.1% cut in what we’re charged for grid electricity due to wind and solar pushing down the price.

          • Scott Brooks 7 years ago

            Ronald.

            Electricity prices in Austria are high do to carbon capping and excessive regulation of CO2. It’s artificially jacked up to force the usage of renewables which further jack up the prices as they are so fossil or nuclear dependent. Like I mentioned before, how many solar or wind powered mining equipment do you see along with metal refineries? You just don’t perceive the levalized costs in you little green renewable fantasy world. You look at the end items cost and think that’s really competitive? What a sucker you are! What kind of subsidies did you get to get the cost’s down?

            It takes more infrastructure, in your case more peaking gas generators to compensate for the intermittentcy unless you going off the grid. You don’t understand the engineering nor logistics.. Power companies can compensate up to 5% for variable power till they need more fossil peaking plants. Wind is worse.

            What kind of living conditions do you live in, do yhou fire up the kerosene lamps at night?

        • Dave Johnson 7 years ago

          I see that I forgot to mention a point that I find quite interesting.

          You quote an expert as saying: “You’re making a mistake by ignoring the capital cost of a PV installation. Amortizing this cost over the life of the PV system results in an electrical generation cost of about 15 cents/kWh.”

          Well, the cost of grid-supplied electricity in this market is running a bit over 16 cents per KWH. So, given your own number for the capital cost of solar PV, it should not be surprising that we can make a profit by going solar. Even a penny per KWH adds up to thousands of dollars over a couple of decades.

          In point of fact, our capital costs work out to something less than 10 cents per KWH.

          In fact, it would be better than that if we were in a place that had more sunny days, but in wet, cloudy Northern New England it takes more panels to get a given amount of energy over the course of the year than it would in a place such as, say, Arizona.

          So, I concur with Mr. Brak’s comment: you might want to do the math (and especially so if you are going to call people liars).

          • Scott Brooks 7 years ago

            Smoke and mirrors over government RPS and Regs. If that where true Germany would not be importing power. And why does geenie progressive California pays the highest electrical rates in the nation?- And why does Denmark pays the highest electrical rate of the Euro Countries despite all it’s wind power, 20% to date?

            You are not being honest with the details. It’s doesn’t work out in the long run. Like medicare and social security are now underwater, just like many state pensions, they where exaggerated and administered at unsustainable levels. It won’t work out until they have effective power storage but even then they can’t beat the power density of nuclear, coal and oil.

            So enjoy your deal!

          • Dave Johnson 7 years ago

            Mr. Brooks, I’m going to let you in on a little secret.

            I knew in the first place that you were not possibly going to be open-minded about any of this, but you still created an opportunity for a couple of us to tell our stories in a manner that the other readers on this website might find useful. So I took advantage of that opportunity.

            That is to say, the editors of this site, and very likely most of the readers, are serious about checking out alternative energy sources, so most of us are genuinely interested in hearing each other’s stories.

            My story is only one data point out of millions that one might now study around the globe, but, still, it has been very interesting to have sorted out these issues with respect to my home, in this place, at this time, and I tried to pass on what I could of that for the benefit of others.

            And, whether or not you intended to do so, you have in fact facilitated that process.

            Specifically, you have faithfully parroted the arguments of an industry (and a social class) that are in real economic trouble as a result of their lack of foresight, rigid management, and fundamental greed.

            So, I wish you good luck with your conspiracy theories, but they do not change a simple fact: the conventional power companies are rapidly pricing themselves out of the market.

            Finally, I want to thank you for boiling things down to one simple number: 15 cents per KWH.

            Given today’s prices for solar PV systems, solar indeed becomes a good bet when conventional power sells for about 15 cents per KWH, and that is precisely my experience here in New Hampshire.

            Again, thanks for being a useful foil in the debate.

          • Scott Brooks 7 years ago

            Mr. Johnson

            Well here in NM the rate is 0.132 KWH and it was cheaper before the loony greenies and AGW alarmists started advocating wind and solar and other green bogus schemes. I gave you plenty of examples where this kind of mandating unsustainable energy eventually leads to higher energy prices for all. Europe and California are prime examples.

            It may be your individual experience that you got some incentives to install solar which are covered quite extensively on this site:

            http://www.dsireusa.org/summarytables/finre.cfm

            So your price is probably subsidized since you won’t go into details. Solar and wind only works because of excessive subsidy support and for those who can afford the purchase of the equipment. It remains to been seen weather the price bubble will remain but it will probably pop as costs will eventually catch up with the subsidized price because trying to implement wind and solar generation on the grid is just folly. It is not very scalable and not on demand.

            But twits like you claim since you got a deal on it it’s good for all. It’s like those who go on Medicare, it’s a good deal now but increasingly becomes unsustainable as funds are not coming in to support it and it increasingly acquires more debt to maintain. It then collapses with all the politician’s promises.

            So too many renewable advocates are trying to paint a black horse white and claim it angelic. To many, ARM loans looked attractive until they lost their jobs or did not get the expected pay raises and costs went up. Same with green energy. The government subsidies it now with money to burn but as the unsustainable realities creep in the so called renewable green energy will turn brown like a suburban lawn lacking water.

            The energy that wind and PV solar is trying to harvest is too diluted to be viable, it’s like trying to mine gold from seawater.

            The best use for wind and solar would be to heat water in a water heater or a water heating system, not for electrical generation, unless you are in a remote location and can’t economically import power.

            But usually only those with deep pockets can afford that with a comfortable living standard. You can’t mandate it without very disastrous results. That is what is happening to every country that tries to push this type of power ignoring market forces and individual ingenuity. Governments have a bad track record of micromanaging economic growth and technology.

            So I say, enjoy your “deal”. I don’t find any evidence that it’s sustainable for all nor for you in the long run.

          • David Bergeron 7 years ago

            PV’s economics are hindered by the fact that it is intermittent. So you cannot compare the LCOE of a natural gas plant to a solar PV plant. Since PV is intermittent, one must still build a conventional “Dispatchable” energy plant to provide power at night and on cloudy days. If one must build the traditional plant, then what is the value of the PV? The value of PV is the savings in marginal operating cost of the gas or coal plant. This savings is about 2-5 cents in most places. But since PV is still about 12-14 cents (best case without subsidies) it is not economically viable and may not be for a long time.

            We can know the claims of grid parity are non-sense, because the industry is still very dependent on tax credits, Net Metering laws, utility rebates, and Renewable energy standards.

            It is also an error in logic to believe that when a home on-grid solar PV system produces power for 15 cents and the retail price of power is 15 cents solar is at parity. This is harder to explain. But as more people use PV, the utility will need to amortize its fixed cost over fewer kwhr and the electric rates will rise. There is just no way of avoiding the real cost of the fixed assets of the utility and the ratepayer will pay this full cost even if they are buying less kWhs.

            On the other hand, if the solar home systems were battery backed and the home could disconnect from the grid then that would be different. The utility would actually need less generation and distribution infrastructure and they would save money. But the cost/kWhr of a battery backed system is much higher than 15 cents, probably more like 40 cents when battery replacement is properly amortized.

            Australia is being bombarded with solar industry charlatans that are invading country after country till they are recognized and stopped, and they are very hard to stop. Mainly because people want to live in harmony with nature and solar sounds good. Normally governments can protect the citizens from industry plunder, but in this case, public good will towards green energy gives the industry excellent cover for their deeds.

            The other factor in the plunder can be termed “Concentrated Benefit” (for the solar industry) and “Diffuse Cost” (for the citizens). The concentrated benefit enables the solar lobby to spend money promoting solar, but since the cost to any individual is so diffuse, no one has sufficient incentive to fight back.

            On-grid solar is a perfect storm for taxpayers: concentrated benefits for the industry, diffuse cost for ratepayers and taxpayers, and a strong positive public sentiment for solar created by energy Malthusians.”

            I’m sorry to see them invading Australia. Good luck. They’ve done a great job plundering the US.

          • David Bergeron 7 years ago

            Mr. Johnson,

            1) I am not conflating wholesale and retail, I use them separately and intentionally and understand the variation in energy cost through the day and year.

            2) If Net metering were a good deal for the power company, then there would be no need for a law enforcing it, but there is.

            Net metering forces utilities to pay full retail price for power when they could have purchased that power on the spot market for much less. The over payment for power is levied upon the other homeowners who could have enjoyed less expensive power.

            Net Metering is a very significant part of the total subsidy for PV.

            3) You assume that using the grid as a sort of battery is free, but it is not. In a fair transaction, the power company would pay you wholesale when you sell to them and you pay retail when you buy from them, because they have the burden of maintaining the infrastructure and providing power to you on your demand schedule.

  3. Ronald Brak 7 years ago

    Scott, do you realize that you’re coming off as a raving looney? You know, you don’t have to be such a nutter. You do have a choice. You can actually look at the facts. If you looked up the facts you wouldn’t be trying to tell me that Australia’s electricity prices are high because of our carbon price. Do you think electricity prices weren’t high before the first of July when it was introduced? In fact, why don’t you go look up how much the carbon price has increased the average electricity bill in Australia. If you can tell me the answer I’ll take it as a sign that you are actually interested in facts and not just interested in ranting.

    • Scott Brooks 7 years ago

      Mr. Brak.

      I recognize that you are not forthcoming with all the facts like Australia is on a green mandated renascence on monies it got mostly from mining activities that supported China’s industrial explosive growth. But I see it will end up like Spain or even Greece with this sort of unsustainable mandating of wind and solar. You have not provided all the facts on how much was subsidized for your cost per KWH. Where I live electricity is $0.132/KWH off of a coal burning plant.

      Why don’t you provide links as to why electrical rates are so high in Australia. I strongly think it is due to government policies that make it high or it may be to resource conditions like China has with a lack of oil resources.

      The full impact of your government carbon taxing scheme is yet to be realize as it has not been implemented long enough to expose the total impact.

      http://en.wikipedia.org/wiki/Solar_power_in_Australia

      http://en.wikipedia.org/wiki/Carbon_pricing_in_Australia

      But I know that every state or country that has gone down this road has seen a poorer living standard. So like Johnson may be you got this good, onetime deal; but in every country or state that has gone down this road the deals become monetarily less or evaporate. It’s all over the web to research and I have provided some links and facts. You can’t sustain something that is inherently unsustainable.

      I hate to see the truth come out in a bad way.

      • Ronald Brak 7 years ago

        No, you’re still coming off as a nutter, Scott. But at least you’ve shown the ability to access wikipedia. Can you see where it says how much our carbon price is? Can you work out from that how much of my electricity bill it is? As I said before, if you can’t work it out it yourself, I can help you.

        • Scott Brooks 7 years ago

          Well Brak

          Dave Johnson says:

          “My landlord and I recently did an analysis of this with respect to the building that I live in, and, even without factoring in various incentives, it appears that he can make a steady 3.5% tax-free return on the investment, while we tenants will see a lower electric bill. Our system cost works out to about 2 dollars per watt installed, and grid-supplied electricity is 16 cents per KWH, so, over the assumed 25 year life of the system, there is a nice profit. And that does not assume the very likely continuing rise in grid-supplied power.”

          Missing the forest for the trees. The reason grid electricity is so high there is the over the top regulations on fossil electrical generation like they have in California. NM is a poorer state so they can’t do the same although the nutter enviros are trying hard to eliminate coal here which gives us $0.132/KWH. And coal companies don’t care much as they know how silly solar and wind grid power is, they will invest in gas powered peakers to compensate for the intermittentcy.

          I notice in your conversation with Johnson you mentioned battery back-up. What would that be, fuel cells, lithium, or the 100 year old lead acid cell? Lead acid is still being used in ICEs. The electric car is just a nitch alternative, they still can come up with a cost effective replacement for ICE for the masses. The other thing I notice is you confuse More’s theory from electronic consumption to power generation, a whole different ball game in physics.

          Government regulations on the Global Warming scare scam are making coal generated electricity obsolete while enhancing expensive, unsustainable solar and wind energy. The price drop will be only temporary if this fiasco of forcing to expensive PV solar and wind continue. The breaks won’t pan out and you will have an economic disaster as is happening in the Euro counties. It’s as flaky as the entitlement scam that has been pushed for years. It doesn’t matter that you got a subsidized price break with your bean counting to PV solar, Australia will eventually crash on its green mandated economy like is happening in Spain.

          And why is AGW a farce. Just go to icecap.us and read how bureaucrats are skewing the science.

          This is like the cash for clunkers program, it achieved no where near what Obama wanted and put the burden on the taxpayers for removing the so called big clunker carbon polluters. Many just replaced them with just a s large SUVs and trucks. Take away the mandates, carbon regulations and subsidizations and the industry will collapse back to more reasonable levels. Look what happened with the CFL mandate. The welfare caring politicos thought they could save some energy by mandating Incandescents be replaced by CFLs, a more expensive and risky subsitute. But technology went to LEDs and now they rival both in performance, costs and efficiency. And all the light bulb jobs went to China, same with LEDs. Shows you what fiascoes the government bureaucrats consistently come up with in their welfare- we care- scams. Arrogant bunch of clowns

          So both you and Mr Johnson would risk the future generation’s economy with a bureaucratic devised scam leading to the Spanish Fly effect of 50% unemployment of youth and government bankruptcy. This fiasco will only last so long when it will collapse on itself. Afterall, why is Germany now importing it energy fro nuclear France, gas rich Russia and coal rich US with all it’s renewable developments?

          You, Johnson and moombeam Brown are nutters.

          • Ronald Brak 7 years ago

            Scott, are you trying to convince me that you can tell what effect our carbon price will have when you appear incapable of working out how much of my electricity bill goes towards paying it?

  4. Dave Johnson 7 years ago

    Mr. Bergeron,

    There appear to be a couple of small, but important errors in your financial analysis.

    The first problem is that you conflate the wholesale cost of producing conventional base-load power – 2 to 5 cents – with its retail price at peak periods of the day, which is far higher.

    That is to say, the “value” of something is not what you paid to get it, but what you can get someone else to pay when you try to sell it.

    In addition, plants that are brought on line last during peak periods are always those that have the highest costs of production, and those costs are also typically far higher than those of the cheapest off-peak base-load generators.

    So, in fact, net metering of solar PV is a very good deal for the power companies. They get solar electricity at the very moment when they can resell it for the highest profit, and they get to pay it back with much lower-cost electricity at non-peak times of the day.

    Perhaps I am mistaken, but this sounds an awful lot like the classic formula for business success: namely, buy low and sell high.

    The other point to keep in mind is that this extra production capacity involves no capital risk for the power companies. The owner of the PV system is taking all that risk (or possibly sharing some of it with the taxpayers), and the power company can make a profit reselling the resulting energy in a largely risk-free manner.

    The power company does, of course, have to pay back that power at other times of day, but the capital risk on that equipment is considerably lower, because, as you noted in the first place, that is when they can use their lowest cost generators to meet the demand.

    Indeed, since they have already made that investment, they are actually reducing that portion of their risk as well, by increasing the use of that equipment. Any additional dollars that they can make using that equipment increases the ROI on that investment, and by the same token reduces the already accepted risk of the investment.

    To put that a bit differently, the financial result of net metering for solar PV is that the power companies can shift their production from high-cost, high-capital-risk peak plants to low-cost, low-capital-risk off-peak plants.

    So, by two different and important financial standards, solar PV and net metering both increase the profits and reduce the risks for the conventional grid operator.

    Not the other way around.

    Thus, I don’t think the conventional power industry is arguing as they do in order to prevent alternatives from entering the market. Not at all.

    Rather, I think their arguments are designed to draw attention from the otherwise obvious opportunity that grid-connected peak-period alternatives actually represent for the incumbent industry.

    In fact, what they are demanding is that they be given a financial bonus by the public in return for having “conceded” to reduce their own operating costs and risks.

    That’s pretty effing brassy, if you think about it.

    Anyway, the real threat to their business, as you yourself imply, would be cheap storage.

    Not only would it become a no-brainer to leave the grid, if the total cost of solar generation and storage is less than the price of grid-supplied electricity, but the average ratepayer is highly motivated to do just that, as a result of decades of perceived abuse by arrogant, greedy monopolists.

    More generally, the fundamental threat to the conventional power industry is falling demand of any kind.

    And that is not limited to the possibility of ratepayers leaving the electric grid, but includes any measures that let the ratepayers avoid the cost of buying electricity, whether or not they stay connected to the public grid.

    For example, if a household replaces an electric water heater with a solar water heater, then that electric demand does not merely get shifted to some other time period, or to some other ratepayer, but rather leaves the grid altogether, and effectively forever.

    Note also that storage of hot water is done with extremely cheap, low-tech insulated tanks that any moderately handy person can build with readily available materials.

    Better yet are straight efficiency improvements such as LED light bulbs.

    LED bulbs are a high-tech product, which presently has a relatively high capital cost, but like solar PV panels, these bulbs are the product of the semi-conductor industry which is notorious for reducing the costs and increasing the utility of its products in spectacular fashion, and over relatively short periods of time.

    The result of these technological improvements is again to reduce demand for conventional power permanently.

    These efficiency improvements also reduce, by a dramatic amount, the electrical storage capacity that would make it possible to leave the grid and to rely entirely on local alternative electric generation.

    Also, in those situations in which a genuine backup power source is required, a cheap, one or two KW gen-set and a few pints of gasoline per day would be sufficient to get through the few days a year in which the sun were not shining or the wind were not blowing adequately.

    I should also point out that I personally suffer the most from a lack of electricity when the conventional grid operators have been taken down by bad weather. A couple of winters back we lost power here for about two weeks, because of an ice storm, so I have no reason to be impressed by the alleged technical and economic superiority of the conventional system.

    In fact, a great many people here already have gen-sets, even though very few are yet looking seriously at alternative energy sources. So, again, the ratepayers are already making capital investments to hedge against the inadequacies of the grid operators.

    Thus, making further investments in solar PV, solar hot water, LED lighting, and eventually batteries, is really just a continuation of a trend that has been going on for a long time in relatively quiet ways.

    Above all, however, these investments are consummately rational from the standpoint of the ratepayer. If done correctly they reduce the overall – i.e. cradle to grave – costs of the energy they use.

    More precisely, ratepayers who think like this do not generally see themselves as getting subsidies FROM the conventional power producers, but rather they see themselves as finally reducing the subsidies that they have always paid TO the power industry.

    We should also be very careful about conflating tax-payer subsidies for alternative energy development with the money that we spend on conventional electric bills.

    When the power companies argue against such subsidies, they are not trying to save the ratepayers money. Quite the contrary. They are merely trying to maintain their monopoly control of the electricity market. They want us to continue giving them our money instead of investing in any potential competitors.

    After all, taxpayers and ratepayers are effectively the same group of people, so when those folks choose to use their tax dollars to invest in alternative energy sources, they are just trying to get the most secure and cost-effective supply of electricity over the long term, and they have a perfect right to do this.

    Nor do they have any obligation, much less a moral obligation, to look out for the interests of the incumbent power industry, and the industry knows this quite well.

    That is to say, the power companies are private, profit-making enterprises, which have no inherent claim to represent the interests of the public.

    Again, the truth of the situation is just the opposite.

    The purpose of any profit-making company is to get the largest profit possible out of the pockets of their customers, and this is true of the conventional power companies as well.

    In short, their interests, by definition, are diametrically opposed to those of their customers, so, by obvious implication, any arguments they offer on this topic are bound to be in their interest, and not in ours as ratepayers.

    So, the argument that subsidies for alternative energy investment are unsustainable, or are fundamentally unfair to the ratepayers, does not really hold water.

    What is actually happening is that all ratepayers/taxpayers are encouraging some members of their group to do some experiments on behalf of all concerned. Two outcomes are possible.

    If those experiments work out well, then eventually everyone involved will benefit from lower overall energy costs, and a more stable supply.

    If they do not work out well, then the experiments will have been far cheaper than having everyone make a switch to alternatives on the basis of pure speculation.

    However, in any case, if you are paying more than 15 cents per KWH, it is now cost-effective to switch to grid-connected solar PV, even without tax incentives or other public subsidies.

    And one last time, the squeals of the power industry about net metering are hiding the fact that they get your power for free, sell it at the highest possible price, and then give it back from their lowest cost sources.

    As I said at the outset, Mr. Bergeron, there appear to be some small flaws in your argument.

    But, in any case, my landlord and I are expecting to make steady money from our little project.

  5. Dave Johnson 7 years ago

    One other point, Mr. Bergeron.

    The total cost of battery backup for solar PV is reduced dramatically if you do not try to store enough power for several full days of operation at full power.

    The majority of the time, there will be enough sunshine to run the system each day, and it is only a minority of days in which a solar PV system produces no power at all, or too little to be at least somewhat useful.

    So, rather than either buy electricity from the grid or pay for a massive battery bank, my solution would be to run a small gen-set for an hour or so whenever necessary to make up for any shortfalls.

    This would let me go off-grid forthwith, even though the power from the gen-set is neither especially cheap, nor very friendly to the environment.

    Then, over time, as battery costs fall and storage efficiency rises, I could add to my battery bank and reduce my dependence on the gen-set, the grid, or any combination of the two.

    In the end, the gen-set would be used in only the most prolonged periods of bad weather, and probably little more than it would have been used anyway to make up for the occasional failure of the conventional grid.

    The overall point of my entire argument is that most people seem to be thinking in black-or-white, all-or-nothing terms, but as an engineer I have long since learned to go for a series of small improvements that get me gradually from my current situation to the desired end state – without ever taking a big risk, or spending a lot or capital, much less in any short period of time.

    Also, I don’t need solar PV to make good use of battery storage. I just need time-of-use pricing from the utility, in which case I will charge the batteries at night, and then go off-grid during the peak periods.

    In short, the reverse of net metering.

    People are already talking about charging electric vehicles in this manner, and I see no reason not to run my home the same way.

    And, no matter what mix of technology I use, a cheap gen-set for ultimate backup will always make sense. So, that investment is a no-brainer.

    Thus, the overall strategy seems pretty clear.

    1) Reduce my demand as much as possible.

    2) Buy a small, cheap gen-set as ultimate backup.

    3) Make incremental investments in PV panels and batteries.

    Yet another advantage to this approach is that I do not have to be the owner of the building to make use of a gen-set or batteries. So, as a renter I still have some options that may be useful, even in the absence of a solar PV installation.

    Similarly, given my landlord’s existing plans to install grid-tied solar PV, I can augment his system with my own batteries and gen-set, as I see fit.

    The most flexible approach is to have both grid-connected PV with net-metering and some battery storage, all backed up with a gen-set.

    On sunny days, the output from the PV panels would go first to current demand in the building, then to charge the batteries, and finally any excess would go to the grid.

    When the sun is not shining, one would draw first from the batteries, then from the grid, and finally the gen-set would be fired up.

    However, given the poor planning and less than brilliant tactics of the people currently running the conventional power companies, I am actually not assuming that the grid will always be there, much less with attractive prices.

    Rather, my default assumption is that relatively soon they will either be out of business, or using a radically different business model, and in either case it will pay to have my own domestic generating and storage capacity.

    So, for me, alternative energy sources are not some pipe dream, but rather absolute necessities in the face of sustained idiocy on the part of the electric industry and their well-paid lackeys in the local legislature.

    If I want to continue enjoying the usual modern conveniences – never mind at a reasonable price – then I probably ought to be prepared to make my own power, at least some of the time.

    Finally, the philosophical beauty of all this is that we are all sovereign human beings, and therefore each of us is free to manage our lives as we see fit. I don’t need anyone’s permission, nor do they need mine. If I am correct in my judgment than I will be the one to benefit, and if I am wrong then I will be the one to suffer.

    That is to say, I am generally quite willing to share whatever I have learned, but I have no axe to grind, because, within very broad limits, I can do as I please, regardless of how others may analyze the situation.

    Of course, it is entirely possible that I have made analytical errors, but you can otherwise assume that I am telling you all what I think in a straightforward fashion. I have no need to do otherwise.

  6. Scott Brooks 7 years ago

    David Bergeron is spot on, he knows the solar industry better then you know the back of your pants. He is the CEO of a world renowned solar company.

    • Giles Parkinson 7 years ago

      David Bergeron may be an expert in solar powered fridges, but he doesn’t know much about Australia’s electricity industry.
      He said: “If Net metering were a good deal for the power company, then there would be no need for a law enforcing it, but there is.”

      Net metering changes from state to state. In NSW and Queensland, payment by utilities to households for exports to the grid are voluntary.

      He said: “Net metering forces utilities to pay full retail price for power when they could have purchased that power on the spot market for much less.”

      No, as mentioned above, they don’t have to pay anything. When they do pay, they pay 6c or 8c/kWh. Often you cannot buy wholesale electricity at that price in Australia at the time of day solar is exporting.

      He said: “The over payment for power is levied upon the other homeowners who could have enjoyed less expensive power.”

      Only when there is a premium tariff. When utilities pay the price they are now, they actually make a profit (which they accept and recognise), because they sell the same electrons to the next door neighbour at 3 to 4 times the price.

      He said: “Net Metering is a very significant part of the total subsidy for PV.”

      Only when it pays a premium tariff.

      He said: You assume that using the grid as a sort of battery is free, but it is not. In a fair transaction, the power company would pay you wholesale when you sell to them and you pay retail when you buy from them, because they have the burden of maintaining the infrastructure and providing power to you on your demand schedule.”

      You can argue all you want about that, but as long as utilities charge more for power at the socket than people can get from solar and batteries, then it is the utilities with the problem, not the customers. Interestingly, utilities now want time of use tariffs, charging even ore for power at peak times (2pm -8pm) – sggesting 40c-50c/kWh. That’s a tempting target for the battery storage people, and one that at least one utility here reckons they will take up with gusto.

      p.s. If you want to talk about “AGW” scams, please go to another site.

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