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Solar-Empowered Property Owners
New purchase and lease options for solar-generated power are making the alternative-energy source more attractiveby Trang T. Nguyen and Michael D. Alston, Ph.D.
Innovation in the financing of renewable energy installations for residential and commercial property has lowered the hurdles facing property owners considering adopting solar energy. Long-term financing choices involving fiscal incentives not only make it cheaper for property owners to access solar-generated electricity, but offer more than one way to “go solar.” When presented with clear, customized, cost-benefit analyses of the tradeoffs of alternative energy installations, the rate of adoption of solar-energy systems by property owners will increase.
More rapid adoption of renewable energy will provide a number of economic, environmental and societal benefits, such as new job creation, steeper reductions in carbon dioxide emissions and reduced dependence on distant energy sources. In fact, installation of solar panels and improvements in energy efficiency within a structure can reduce electricity bills by 30 percent to 60 percent.1 Despite these benefits, most property owners in Southern California hesitate to adopt sun-generated electricity. Some barriers include a lack of clear information, the high up-front cost and the long payback period.
Exploring the Benefits
Perhaps the most compelling long-term reason for going solar is to fight global warming. Unlike coal-fired plants that produce toxic emissions and hydro-electric plants that disrupt the natural flow of water in rivers,2 the conversion of sunlight to electricity involves no operating pollution. Unlike some forms of energy, solar power is available the world over. Most other sources of energy production such as oil, nuclear and crop-based ethanol can lead to disputes between countries. Widespread adoption of solar energy can reduce conflict between nations over natural resources.
The adoption of solar-generated electricity will spur creation of more new jobs than the number of jobs lost by workers displaced from existing coal, oil and natural gas industries. According to an article in the journal Energy Policy, job creation from renewable energy sectors will exceed job losses by over 4 million full-time-equivalent job-years by 2030.3
Barriers to Action
City of Santa Monica, Office of Sustainability and the Environment
One barrier to solar energy adoption is a lack of knowledge about the resource. Education of adults, teens and kids through Web sites, the media and demonstrations can mitigate this barrier.
To make a decision to spend $20,000 to $30,000 on a residential solar power system, a property owner needs a customized property evaluation and reliable information on costs and benefits. Conversations with solar-empowered community members are also helpful. This service is provided by organizations such as One Block Off the Grid4, which forms groups of buyers to achieve economies of scale before contracting with suppliers for solar system installation.
Lack of capital for up-front costs, the long payback period and uncertainty with respect to energy savings are additional barriers. Many property owners do not know how long they will stay in their property or are unclear how long it will take for their energy savings to pay for their upfront investment. Hence, they may prefer other investments that project a higher or more immediate return.
From Obstacles to Solutions
Property owners can lower hurdles of investing in solar-generated electricity through innovative finance options. Residential or commercial property owners who do not have the money to invest in a solar energy system can lease it. Go Solar5 is one of the first companies in California to provide the option of leasing solar panels and using the electricity generated at no additional charge. Customers pay a monthly leasing bill and enjoy a reduced gas and electricity bill. SunRun6 offers a contract in which the customers agree to pay a fixed rate for electricity produced by company-owned solar panels installed on the customers' property.
Another option is financing through a municipal bond. With the BerkeleyFIRST Program,7 a home owner borrows money from the city’s Sustainable Energy Financing District to procure and install a solar energy system. Property owners pay the total cost over 20 years through a lien on their tax bill. Program participants and solar installers share the rebates and incentives associated with the system's cost. The program solves the problem of the high up-front cost and long payback period. Once the property is sold or acquired, the remaining tax obligation will transfer to the new owners. Additionally, a large portion of the repayments are tax deductible.
In another financing model, property owners lease roof space to an energy company that pays the upfront cost of installing solar panels. New digital residential electricity “smart meters”8 being installed by utilities, such as San Diego Gas & Electric, can track the surplus electricity generated by property owners. Surplus electricity could be sold back to the utilities or to the energy companies.
Utility-Owned vs. Consumer-Owned SYSTEMS
Case Study: Property owner with average electricity bill of $200/month
San Diego Gas & Electric is building the Sunrise Powerlink,9 a 120-mile high-voltage transmission line that will carry solar energy from the Imperial Valley to San Diego County. In this program, solar farms in deserts will capture the sun’s thermal energy. These large installations with rows of mirrors will use the heat captured to generate electricity. The electricity will then be transmitted to the consumer via the Sunrise Powerlink.
High-voltage transmission lines entail costs associated with towers and transformers. Storms and earthquakes can damage the lines and cause loss of service. In contrast, photo-voltaic systems on rooftops are quiet, durable and can withstand years of exposure to all types of weather.
For property owners in sunny locales, such as Southern California, the decision to tap the sun’s energy locally versus remotely is a complex and politicized issue, which deserves careful analysis involving short- and long-term costs and benefits.
The Growing Competitiveness of Solar Power
According to the International Energy Agency, in 2030 the world demand for energy will be 40 percent higher, and approximately 1.3 billion people will not have access to electricity. This challenge can be addressed through a renewable, local, abundant energy source such as solar power.
Electricity costs from fossil fuels have risen 3 percent to 5 percent per year for the past decade.10 In contrast, the cost of solar panels has fallen 20 percent for every doubling of the installed base of solar panels. This cost reduction results from economies of scale and technology advancement in the production of solar panels. According to Harry Fleming, the CEO of Acro Energy Technologies, “A typical 5kW rooftop solar system has dropped from $22,000 after state incentives are applied ($40,000 without them) to $16,000 in the last 18 months. Prices are expected to fall to $13,000 by the end of the year ($25,000 without incentives).” If this trend continues, grid parity, the point when the cost of solar-generated electricity is on par with the cost of conventionally-generated electricity, will soon be reached. This is anticipated to be in the 2013 to 2015 timeframe for California, according to an article in MIT Technology Review.11
With a vast amount of money invested in seeking innovative technology to make solar more affordable, a significant proportion of solar panel production moved to countries with low labor costs. The installation cost of solar panels has been substantially reduced due to increased federal and state incentives.
According to Paul Linden, a professor of environmental science and engineering and chair of the Department of Mechanical and Aerospace Engineering at UC San Diego, in the near future, solar energy systems will pay for themselves. In fact, the increase in the conversion efficiency of rooftop panels will enable more solar panel owners to produce a surplus. Legislation is needed to enable home owners to sell electricity to the grid for a profit, like a utility. For instance, an enterprising home owner could sell surplus electricity to neighbors or to electric vehicle owners.
The sun’s light and warmth have been nature’s way of sustaining life for millions of years. We are hopeful solar energy will lead mankind toward sustainable, peaceful living for millions of years to come.
1“Renewable Energy...Is Capable of Meeting our Energy Needs” Public Citizen's Energy Program. Web. http://www.citizen.org/documents/RenewableEnergy.pdf Feb. 2010
2Eugene H. Buck. “Pacific Salmon and Steelhead Trout: Managing Under the Endangered Species Act” CRS Report for Congress The Natural Agricultural Law Center (University of Arkansas), 06 Dec. 2006 Web. http://www.nationalaglawcenter.org/assets/crs/98-666.pdf Feb. 2010
3Max Wei, Shana Patadia, Daniel M. Kammen. “Putting renewable and energy efficiency to work: How many jobs can the clean energy industry generate in the US?” Energy Policy 38.2 (2010): 919-931. Print
4One Block Off The Grid. Web. http://www.1bog.org Feb. 2010
5Go Solar Inc. Web. http://www.gosolar.com Feb. 2010
6Sun Run Inc. Web. http://www.sunrunhome.com Feb. 2010
7Neil DeSnoo. “Berkeley FIRST: Financing Initiative for Renewable and Solar Technology” Office of Energy and Sustainable Development. Web. http://www.ci.berkeley.ca.us/ContentDisplay.aspx?id=26580 Feb. 2010
8“Smart Meter: The New Face of Energy Use” San Diego Gas & Electric. Web. http://www.sdge.com/smartmeter Feb. 2010
9“Sunrise Powerlink” San Diego Gas & Electric. Web. http://www.sdge.com/sunrisepowerlink Feb. 2010
10Beach, William et al. “The Economic Consequences of Waxman-Markey: An Analysis of the American Clean Energy and Security Act of 2009” The Heritage Foundation. Web. http://www.heritage.org/Research/Reports/2009/08/The-Economic-Consequences-of-Waxman-Markey-An-Analysis-of-the-American-Clean-Energy-and-Security-Act-of-2009 Feb. 2010
11Kevin Bullis. “U.S. Solar Market to Double in the Next Year” MIT Technology Review. 08 Feb. 2010. Web. http://www.technologyreview.com/energy/24498/page1 Feb. 2010
Trang T. Nguyen (’10) earned her bachelor of science in financial services and corporate finance from San Francisco State University, where she graduated with honors and received the Departmental Honoree Award in finance. Nguyen, who was born in Vietnam, serves as president of the Asian Business Association at Rady School of Management and is a teaching assistant for the FlexMBA corporate finance class and intermediate accounting.
Michael D. Alston, Ph.D. (’10) earned a doctorate in electrical engineering from UC San Diego. He has worked in San Diego since 1983 for several high-technology companies beginning with M/A-COM Linkabit and is now a microchip designer at Rapid Bridge LLC.