Going renewable (part 2)

In my previous post I discussed what it would take for me to harvest the entirety of my family's energy usage on our own property using renewable sources. This resulted in the determination that I'd need to install 9,400 square feet of solar collectors at an approximate cost of $900,000. Clearly, this isn't a practical calculation for an actual plan. Nor was it meant to imply that photovoltaics are impractical or a waste. Rather, the point was that for the U.S. as a whole to be free of the need for fossil fuel, it will take more than panels on rooftops.



A reader (Mark) was kind enough to leave a comment. His point was that I'm being misleading in producing such figures. He also pointed out that using solar power in a grid connected system to produce more electrical energy than is used by a homeowner is a waste, at least in a financial sense, because the utility purchases such excess power at wholesale rates (tied to what they pay per kilowatt hour from their normal sources). Up to that point, they effectively pay the homeowner retail, since they utilize so-called "net metering" and when the system is producing more power than is being used, the meter literally spins backward.



In order to determine the figures for what I'd need to net out our household electrical use, I can use the figures from the post referred to above and my post on my family's total energy use. Using this data, I'd need 660 square feet of collector area (say 22' X 30') to supply a system capable of delivering about 8 kilowatts for about $64,000. Much more realistic, but I better goose it up a little bit because we're now talking about "practical" systems, and such systems don't convert sunlight at 20% efficiency today. Let's say a 10 kilowatt system for $80,000. Tax credits and other government inducements might cut this cost in half. So I could, in theory, free myself from paying for electricity by spending $40,000. Obviously, every single thing I can do to reduce energy usage will pay off massively.



Now, let's dig into the figures from part 1 a little more deeply. In my post totaling my family's energy use, I determined that we currently spend something like $35,000 per year on total energy costs. To offset that, I'd need to spend $900,000. Let's ignore maintenance costs and figure that a $900,000 investment would return $35,000/year for a system life span of 20 years. Finally, let's assume that my cost of capital is about 6.5%, about the going rate for a second trust deed (not that I have $900,000 in equity). So what's the net present value of using $900,000 at 6.5% interest to generate an income of $35,000/year? Clearly it's going to be negative since 20 times $35,000 is only $700,000. Thus, at current energy prices, it doesn't pay to go totally renewable, even if it were possible to do so.



Finally, let's figure what energy would have to cost in order for an investment of $900,000 to pay a reasonable rate of return. Let's call that rate 10.5%, that's a break even return on money that costs 6.5% with inflation at 4%. And we'll assume a lifespan of 20 years. The investment would have to return about $109,000/year. That implies that the cost of energy would have to increase by $109,000/$35,000 or a little over three times to make it "calc out." With the government offering to pay half my costs (sort of) it might only have to increase by 50%.



Of course, all of these figures are theoretical because my energy figures incorporate embedded energy in food and goods, all transportation costs, etc. And the $35,000 per year includes gasoline, coal burned and uranium decayed to make electricity for the house and factories, etc. all accounted for at a single rate of probably questionable accuracy. Nevertheless, the ratios are approximately correct, so the implied price increases of energy (or, inversely, the implied decrease in the cost of renewables) should be about right. It won't be long, since both numbers are heading quickly in the "right" direction.