by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor, John Locke Foundation
Locker Room readers will recall the Sanford couple’s significant financial difficulties brought on them by installing rooftop solar panels out of the belief it would save them money.
I wrote about it under the title “Before installing rooftop solar to save on power bills, do the math.”
It’s bad enough when individual homeowners get taken in by false promises and numerical sleight-of-hand. But what about when the dupes are an entire state’s policymakers, and they use their political power to force their costly mistake on homeowners across the state?
All the more reason to do the math.
Steve Sexton, assistant professor of public policy and economics at Duke University, explains in The Wall Street Journal how California regulators used bad numbers to force a very bad policy on consumers. Some snippets follow:
The California Energy Commission, which approved the rule as part of new energy-efficiency regulations, didn’t conduct an objective, independent investigation of the policy’s effects. Instead it relied on economic analysis from the consultancy that proposed the policy, Energy and Environmental Economics Inc. Its study concluded that home buyers get a 100% investment return—paying $40 more in monthly mortgage costs but saving $80 a month on electricity. If it’s such a good deal, why aren’t home buyers clamoring for more panels already?
Sexton, who has studied the value of rooftop solar generation in California by zip code, explains how California’s math breaks down:
The Energy Commission is too optimistic about the cost of panels. It assumes the cost was $2.93 a watt in 2016 and will decline 17% by 2020. Yet comprehensive analysis of panel costs by the Lawrence Berkeley National Laboratory estimated the average cost of installed panels to be $4.50 a watt for the 2- to 4-kilowatt systems the policy mandates. That is $4,000 more than regulators claim for a 2.6-kilowatt model system in the central part of the state, where 20% of new homes are expected to be built. Berkeley Lab further estimates that costs fell a mere 1% between 2015 and 2016, far short of the 4% average annual decline the regulators predict. …
Residential solar generators are paid as much as eight times what wholesale generators receive, according to a grid operator’s analysis of publicly available data. Dozens of states are rethinking these generous subsidies, paid by ratepayers, because they shift the costs of maintaining the electric grid to relatively poor nonsolar households. The California Public Utilities Commission is set to revisit this regressive policy in 2019—before the solar mandate takes effect.
If the subsidies are removed, solar adopters would be in the red. This is why the electricity generated by the solar mandate should be valued at the cost of its replacement from the grid—not at the subsidized rate households receive. In a presentation at the National Bureau of Economic Research earlier this year, I estimated the value of rooftop generation for each of California’s ZIP Codes using one year of price data from the grid operator. The average electricity value of the solar mandate’s model system is $12.50 a month, far less than the $80 benefit the regulators claim.
A reminder: When MIT Technology Review did the math and considered what would happen to the financial picture of rooftop solar if states changed their highly generous subsidy structures, they began to warn that the supposed “solar boom” resembled a “solar bubble.”