Apr

17

The op/ed page of yesterday's local rag noted that our utility company, a well-run organization with a penchant for developing alternative sources of power, would install solar panels to light a downtown park. These are not your run-of-the-mill static panels, they're axially mounted, so can articulate to capture max sunlight. Pretty nifty.

The utility company will pick up the entire $25k-$30k tab, including the install, operation and maintenance. Sure, they admit this is pocket change for them, it will promote the company and its mandate of developing cleaner energy sources, and they hope the visibility in a prominent location will inspire private enterprise to invest in other similar projects.

On the other hand, estimates are the city will save between $550 and $700 per year in lighting costs. Always cool to save some money, but in this case, the city pays the utility company less because of a system the company installed and paid for. So, by investing in the solar system, the utility actually loses money up front and on an ongoing basis. Sounds like health care economics.

But, let's assume for a minute we don't care about who pays for what and do some math. Rounding for convenience, we have a $30k cost divided by $600/yr in savings, i.e., the breakeven is 50 years.

Whoa! Fifty years! As a guy who learned 'guns and butter' the first day of Econ 101 and has lived by that principle almost religiously ever since, I'm trying to wrap my arms around this.

It's kinda like trying to justify the purchase of a Toyota Prius. No matter what, over the life of most cars, if one buys a vehicle of average cost that gets reasonable mileage, you can't make up the difference in purchase price with the savings from reduced fuel consumption. So, you pay more up front and less in the long run, but your reward is psychic, 'cause overall, you're paying more to get around than in a conventional vehicle.

The state of technology today is such that, two years ago, I turned in my expensive 21mpg leased SUV, bought a low-mileage off-lease 33mpg upscale wagon w/ a certified warranty for less than half the price of a Prius, and haven't looked back. I figure an immediate 50% increase in mileage and concomitant 37% decrease in fuel costs are pretty good returns. Reduces my operating costs and I get to help with the problem of limited oil resources without doubling my cap cost to buy a Prius, which would leave me with much less to blow on other goods and services. So, the choice was a win-win for me and a win for the greater good.

Thinking on, one begins to wonder why we are willing and able to justify spending exorbitant amounts of money on luxury items that are essentially meaningless, when we're not able to justify the same sort of over-expenditure on an item that might actually produce a return of some sort, like the solar install in the park.

Take Rolex watches, for instance. It makes absolutely no sense to me to spend $10k on one of those when it does not tell time one iota better than does a Seiko Premier with a $375 street price. And, I know better to accept the argument that it has an automatic movement [Seiko Premier's kinetic mechanicals are some of the best around for the price], that it's hand-made [Rolex makes a million watches per year. Handmade? Sure, some of their very best are, but these are not all individually hand-crafted items to be sure], or any other of the standard technical arguments.

The truth is, when one buys most any second tier luxury watch, more than half of what one pays for is hype. And good bit of the remainder is simply the jewelry value of the watch.

And, there it is. The whole deal in a nutshell. It's about value. We spend our money on what we value. Some value glitz. Others value cleaner air. Both fair propositions. Frankly, I value a fat bank balance far more than I do stuff. If I'm going to spend, I'd rather spend on seeing some part of the world I haven't seen yet and on making a memory than on hard goods. And, I'm almost always happy to exchange a physical asset for $$$$. Not everyone's built that way, but that's what makes the system work.

What's more is that system is capitalism. Capitalism it isn't about Ayn Rand. It isn't about heroes and villians, nor about big business versus the common man. It isn't about government interference, taxation and sharing the wealth.

Capitalism is about our ability to value the capital we have and exchange it with another for something else we value. A free market enables each of us individually to define what that value is and exchange it unencumbered. It's capitalism that allows us to spend or overspend if we choose, and it's what gives a utility company the ability to spend $30k for a $600 annual return inuring to someone other than itself and a 50 year breakeven if that's what it chooses.

Unfortunately, the simple idea of capitalism is too often intermingled with the ignominious behavior of high-profile market actors and con men, giving the impression the system itself is undesirable or so flawed as to require a heavy hand rather than an invisible one. But that impression is simply misguided.

What's wrong with capitalism is the same thing that's frequently said about democracy……."it's messy." Yeah, it is. And, it's imperfect, but all things considered, it works pretty well and it's just too damn grand for words.

Stefan Jovanovich writes:

In my not so humble opinion, David has explained beautifully why the authors of the Constitution had an explicit prohibition against direct taxes. Allowing the tax code to favor particular transactions over others undermines liberty itself.

Henry Gifford writes:

The numbers in the article are probably not accurate. In my experience, solar electric systems have an ATR (Average Truth Ratio) of about 10. That is, actual payback is about 10 times reported payback.
For panels that do not move to follow the sun, the cost (according to sharpUSA, claimed largest supplier in the US) is about $9 per installed Watt of capacity. What is a Watt of capacity? One Watt at solar noon, less at all other times. Maps of annual noon-equivalent sun hours stopped being published about 30 years ago, but for the 48 states, 1,200 hours per year is a rough optimistic value, yielding about 1,000 hours when losses in wires and electronics are subtracted. Utility companies call one Watt for 1,000 hours a KiloWattHour, and sell it for 9 cents (2007 US average), yielding a 100 year payback.

But, this is not even realistic, as it assumes perfect angle and perfect orientation and zero shading.

Real world, imperfect installations have much longer paybacks.

And, the above figures are for estimated production, with measured production typically at least 20% lower, even if installed perfectly. Finding data on actual measurements is almost impossible.
Some well known and frequently photographed systems had problems being connected, and were never even connected electrically, yet still produce grant money and publicity year in and year out.
Fancy systems that move to track the sun have mostly been abandoned as even more costly and too complicated and unreliable, although the claimed yield is higher.

Back in the real world, solar thermal systems that make some, but not all of a building's domestic (faucet) hot water have much better paybacks, and an ATR of perhaps 3 to 5, although assessing yield is much more complicated, as it requires assumptions regarding hot water use volume and patterns.

 


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