Green Tags vs. Solar Panels

I was listening to NPR a while back and there was a guy who sold solar panels for the roofs of peoples homes and businesses. When asked if solar panels were economic, he more or less dodged the question. The comparison he made was that people with $10,000 could spend the money to buy a new car, upgrade their kitchen, or they could buy a solar panel for their roof and obviously the last one is best for the earth.

This drove me nuts. While economics doesn't tell you what your values are, once you know your values, economics tells you the most efficient way to accomplish them. The comparison should not be between a new car and solar panels, it should be: you have $10,000 to spend to generate as much clean energy as possible. You should only purchase solar cells if that is the best way.

Wired had an article on Idealab's Bill Gross and his new company which makes a rooftop solar device. At first I was excited about its prospects, but after reading more I became skeptical (though I am still glad they are doing the research so hopefully some day it will be economic).

Even in sunny places like California, the pre-rebate cost of PV-generated electricity is roughly 21 cents per kilowatt-hour. Coal (from 4.74 cents per kilowatt-hour), natural gas (5.15 cents), nukes (5.92 cents), even windmills (5.15 cents) offer cheaper ways to keep the lights on.

Right now, PV solar has a 20-year payback, but people are still buying it," he says. "Our target for California is five. In Phoenix we could do 3.3."

Take away rebates and other incentives, and payback periods pretty much double. The hard reality is that, even on the rooftop, even with concentrated sunlight, even with low-cost Chinese manufacturing, unrebated solar kilowatt-hours cost too much for the mainstream energy market.

Lets compare that with Green Tags. You can purchase Green Tags for $20 per 1,000 kwh (or 1 mwh) or 2 cents a kwh. They give that money to companies producing clean energy so they can compete in the market with other "dirty" producers. If you purchase your electricity from your regular electricity and then purchase a corresponding amount of green tags, that is almost identical to purchasing clean energy directly.

The advantage Green Tags give you is that they allow you to take advantage of economies of scale. Wind turbines can create electricity much cheaper the larger they are. So it would be better for a bunch of people to go together and buy one large turbine than for everyone to have a small turbine on their own property. Instead of purchasing your own device, with Green Tags you help purchase a small % of a large device that will be more beneficial to everyone.

So lets toss some numbers into this discussion. $10,000 in solar cells in Seattle will produce about 3,000 kwh/yr. At the going electricity rate of $.07/kwh that is about $210. So your investment gives you $210 worth of energy plus 3,000 kwh of clean energy a year.

Or you could invest the $10,000 and at 5% interest you would make $500 a year. This allows you to purchase the 3,000 kwh for $210 and then have $290 to spend on green tags. At a price of $20/1,000kwh, that would create 14,500 kwh of clean energy a year. That would cover the 3,000 kwh you purchased plus 11,500 kwh of additional clean energy you could produce to help the earth. Plus you always retain your $10,000 while the solar cells will stop working after some time. So the Green Tags are the way to go.

These numbers will vary depending on where you live. If you are in the Southwest US, you would have gotten about 5000 kwh from your solar cells. In Hawaii you would be paying $.14/kwh. So in some cases solar cells might be preferable. But, the point is this analysis should be done by anyone who wants to maximize their help to the earth.

So, I am more of a fan of Starbuck's decision to use Green Tags than I am of Whole Food's decision to put solar panels on the top of stores.