Tuesday, October 16, 2012

Solar economics

Been having an interesting exchange with my bother over the response to the small reknown his net-zero house has generated.  The critics came out from under their rocks and he found himself trying to justify his investment in solar panels.  You can see some of the exchange here.  We also had a small gripefest about the problems of explaining a solar investment in an age where the only "legitimate" economic virtue is driving up a stock price.

I was explaining all this to a friend who has been to Germany and is thinking about putting solar panels on his roof.  He was quite interested in my brother's story and started quizzing me about the economics.  Now friend is a pretty committed environmentalist in a 60's worship-mother-earth sort of way.  But he also went to Harvard and was a Barron's newsletter subscriber when we first met.  He knows the difference between a put and a call—along with rest of the managing-your-trust-fund wisdom that you probably pick up by osmosis simply walking across the Harvard Yard.

By contrast, my brother is a real blue-collar hippie.  He owns a pusher motorhome and has long had state-of-the art TV—he had a satellite receiver when they were huge, cost thousands, and sat out in the yard.  He has owned some absurdly fast cars like a Pontiac GTO and a 350 LT1 Camaro.  He owns practically every imaginable power tool related to building construction or vehicle maintenance.  He would have think long and hard to name all the internal combustion engines he has owned.  Yet he is the one who has the solar-powered hot tub.  He's the guy with the net-zero house.  And he's the guy who has to explain why he spent $37,000 for solar panels.

So yesterday, I am scrambling to explain solar issues like feed-in tariffs to a Harvard man who wanted to know if my brother had calculated the missed opportunity to invest the $37k in something else.  It was at that moment that I understood why "educated" economics is so different from the considerations that informed my brother's decisions when creating a net-zero house.  Such as:
  • The payback time for the panels at today's energy prices is something like 14 years (and NO, I haven't asked if he included missed opportunity costs.)
  • $37k isn't the sort of number you even think of as an investment.  As my brother said, "My neighbor paid almost $50k for his last pickup."
  • Going to net zero is part of his retirement planning.  For a modest upfront investment, he is able to predict his energy costs until he dies.  In today's economy, there are damn few investments for old age so reliable and wise.
The point here is that solar economics makes good sense.  It just has different rules and a different vocabulary from conventional economic discourse.  We need to remember that when the dismal science tells us we cannot afford a sustainable future.  They are wrong because they have chosen to be the bean-counters from hell.

Or as my brother might say, "So I spent $37k on something I wanted.  So sue me."  He might also add that his net-zero house gives him credibility as an energy rater—an intangible but very real business asset. It also makes him look smart on the Internet—something good for the old ego.  Right there, his solar panels have a higher payoff than a Beemer.

I am toying with the idea that instead of calling myself an Institutionalist or an Evolutionary Economist—both descriptions almost guaranteed to draw blank stares anyway—I should call my collected economic assumptions "Solar-powered-hot-tub" economics.  I am still working on that.

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