As North Sea gas depletes and global-warming impacts snowball, the choices the world makes about energy economics are increasingly going to look like life-and-death decisions. The more we rely on Russian gas imports for electricity, the more homeowners are likely to have the lights turned off on them if their government displeases a resurgent Kremlin. The more we allow greenhouse-gas emissions to go on rising, the more likely land-based ice caps are to collapse, threatening billions of people on coastal plains. Cast in this kind of light, the question of who to trust on questions of value becomes a big one.
A recent case history in the UK shows how extreme the choice can be. In one camp, we had the Royal Institute for Chartered Surveyors (RICS), a generally authoritative body in the construction sector, telling us in a report that solar electric panels have payback periods of over a hundred years. The day after the report was published, headline writers in the national dailies majored on the hopelessness of putting solar roofs on homes. In the other camp, we had investment analysts advising, around the same time, that solar electricity will be cheaper than all forms of traditional electricity within as little as two years. Investment funds have lately poured billions of dollars into solar on this kind of advice.
The stakes in such a surreal difference of view involve value for money in carbon saving, as much as electricity bills. Solar-photovoltaics advocates point out that a typical solar roof will save over a tonne of carbon dioxide a year. Solar homes can be built today that produce zero emissions, if they are maximally energy-efficient. What a potential prize, then: more than half UK emissions derive from buildings, and more than half of the buildings-related emissions are from homes. As for the global potential, the UK Government’s own 2003 energy white paper concluded ‘… solar energy alone could meet world energy demand using less than 1% of land now under crops and pasture …’ We wouldn’t need the arable land, we could simply use some of the roofs.
The damaging RICS report made three main mistakes. The first was to overlook return on investment completely. A typical solar system today will save more on electricity bills, at current prices, than could be made by banking the money required to buy and install the solar roof. The solar system is an asset. It may depreciate a little as it sits quietly on your roof generating free electricity for forty years and more. But it may also appreciate in value. There is growing evidence that buyers perceive higher value in solar homes.
The second mistake involved the assumptions in calculating payback. If we must think in terms of payback – we never do when we buy a kitchen, for example – then let us at least make realistic assumptions. If we factor in electricity price inflation of as little as 10%, we bring the payback on the solar roof down to around 13 years for a typical UK home: an order of magnitude different from the RICs conclusion. Of course, in recent years electricity price inflation has been considerably more than 10%. Who wants to gamble that it won’t continue to go up? Indeed, who cares to gamble that electricity supply won’t disappear from time to time? It is easy to hook a solar system up to batteries and keep the lights on if a British government falls out with Mr Putin, and finds it really does take more than ten years to build third-generation nuclear power plants.
To make the payback calculation even more realistic, we need to factor in payments for Renewable Obligation Certificates, savings on stimulated energy efficiency and other value adders. These include the future potential for a feed-in tariff (premium payments for solar electricity) of the kind the Conservatives have promised. The RICs study didn’t. It was a meaningless, but very dangerous, piece of work.
The third mistake was strategic. Any calculation made today must be in the context of future cost reductions. The fact is that the manufacturing cost of solar photovoltaics is falling all the time: roughly halving as the global industry doubles in size, which it does every two years or so, at recent growth rates. The global industry grew 67% last year. Meanwhile, conventional energy costs are spiralling upwards. This is why the more bullish investment analysts predict ‘grid parity’ for solar electricity (price equivalence with electricity from traditional sources) within as little as two years.
Investors believe the analysts, clearly. Twenty-eight billion dollars was poured into the solar photovoltaics industry last year. It is the fastest-growing investment sector within the renewables family, which itself attracted nearly $150bn out of a total $1,300bn invested in energy of all types. In reality, the world is at the inflection point of a solar revolution.
There is hope in this: solar is a key tool in escaping energy dependence, and in achieving deep greenhouse cuts in years to come. This is especially so when solar supply is married with energy demand management. But every time the traditional institutions misrepresent the figures in their desperation to defend the status quo, the task of the ‘survivalists’ is made harder.
Where people choose to invest their trust in the murk of the energy debate is important indeed.
