I’ve come across an interesting dilemma during the last couple of weeks.
You may have seen Elon Musk’s announcement of the new solar roof tile product from Tesla. It’s just like an ordinary roof tile, but with a tiny solar panel built in. These tiles are now available for order in the US and are due to ship in the next few weeks.
It looks good, but should you invest?
Coincidentally, I’ve been taking a Harvard edX course on “Energy Within Environmental Constraints” – headed up by the famous Professor David Keith. It’s fair to say that he’s no big fan of domestic solar power, which he regards as less efficient, and much more expensive, than a solar farm.
These two men offer completely different visions of our energy future. In Musk’s, solar roof tiles could be the way that most homes are built. In Keith’s, solar roofs are an artifact of hidden subsidies in the energy system – with little role in an economically-viable energy future.
Who’s correct will dictate how you’ll get your power in a couple of decades. It also makes a big difference to whether Tesla is a stock to buy or to shun.
Today and tomorrow, these intellectual titans will fight it out in the Exponential Investor ring – or at least, their arguments will.
The first punch comes from simple economics. If solar roof tiles became cheaper than conventional tiles, then it’s difficult to see why people would go for the conventional option – provided they look OK. That’s Musk’s hope, and he’s clearly aiming for a price-competitive product.
When thinking about the economics for home solar, it’s important to note the contrast with farmland. A field always has an alternative economic use. You can graze a few sheep around panels, but you can’t combine them with highly-productive, mechanised agriculture. Economists term this loss of alternative income the “opportunity cost”. However, there’s no such cost if you’re going to be installing a roof anyway.
But if you had to pay more for solar tiles, would the expense be worth it?
The potential of solar power generation
Your home solar panel generates energy only during the day – and probably inefficiently, at that. That’s because your house is unlikely to have the optimal roof slope and orientation, and it may be shaded by trees. As such, domestic solar is usually an uncomfortable compromise – and it’s rarely the best use of a panel. From a technical point of view, home solar is therefore pretty bonkers. It’s for this reason that the edX course was quite critical of domestic solar.
Furthermore, it’s far more expensive to put one solar panel on a thousand roofs than it is to put a thousand panels in a solar farm. Installation costs and system efficiency are therefore the key arguments against home solar. By contrast, desert solar is currently the world’s cheapest electricity.
But this is the real world. Here, lots of other factors matter – beyond the cost per kWh generated.
When people are deciding whether to install home solar, they’re not just choosing on simple cost grounds. As the edX course pointed out, these factors include everything from a desire for energy independence, to smug “virtue signalling”. Not least among these considerations is the fact that domestic users pay the highest rates for electricity. Home solar may be costly, but these costs have to be set against the high price of bought-in electricity.
So, do the long-term “cons” of home solar really stack up, when balanced with the “pros”?
How solar is charged
Let’s look at how home solar is currently charged. Your energy use is primarily going to be in the evenings, when you’re at home. Because panels generate in the day (when people are often out at work), we rely on a concept called “net metering” to make an economic case for domestic solar. Householders are charged according to the net power they use, not according to the total. This is a common way of charging throughout the world. You pay for what you consume, less what you generate.
As a householder, it might seem perfectly sensible that you pay only for your net usage. After all, that’s what you really consumed, isn’t it? Unfortunately, that viewpoint is completely wrong – because it ignores the enormous challenge of matching supply and demand. The edX course stressed the folly of net metering. From an electricity company’s point of view, it doesn’t make sense to both sell and buy electricity at the same rate.
This fact has led to a global backlash against home solar, from utilities. It simply isn’t reasonable to expect the grid to give householders free access or storage. Those with solar are essentially receiving a subsidy, paid to them by taxpayers or other consumers.
So, why is this net metering nonsense tolerated?
Actually, there are two good reasons to allow some price-manipulation shenanigans.
Firstly: fossils don’t pay the cost of pollution and are therefore effectively in receipt of significant subsidies. This is true whether they’re used for power generation or otherwise. Economists call this the “negative externalities” argument.
Secondly: the government wants to encourage the use of solar, to support the nascent industry. Economists call this the “infant industries” argument. However, as scale grows, there has been a global backlash from utilities. They’re getting sick of solar customers free-riding on the grid. It’s not a trivial complaint, and large-scale solar electricity deployment can impose major costs and disruption. At some point, there’s going to be a day of reckoning. With a fast-growing solar sector, it’s clear that the infant-industry argument is running out of time.
So, what’s in store for rooftop solar? Is it a utilities pariah or a no-brainer for pennywise households?
Pop back tomorrow to get our verdict. You can send your feedback to email@example.com – but you’d be better off waiting until you’ve heard everything we’ve got to say.