California: A Lesson in “Green” Economics

The headlines are breathless: “California becomes first state to mandate solar panels on new home construction!” That’s right – starting in 2020, every new single-family home (and many apartments and condos) will be required to have expensive solar panels on the roof. No ifs, ands or buts, and no exceptions for anyone in any income class. No choice – you will comply, comrade!

Among the usual non-sensible arguments about carbon emissions, global warming and transitioning the grid back to the 19th century to the 21st century, the California Energy Commission throws out an economic “justification”:

“Installing a solar system and complying with other energy-efficiency measures required will add about $9,500 to the cost of a new home, according to the California Energy Commission. That would be offset by about $19,000 in expected energy and maintenance savings over 30 years, the commission estimates.”

Sounds so inviting. Invest $9,500, reap $19,000. Heck, let’s buy 2, or 10. It’s basically a financial printing press, right?

Not so much. The key is “over 30 years” – meaning that on average, the solar panels will save $633 per year in energy. But money changes in value over time; $633 today is not worth the same as $633 next year, or in 10 years, or in 30 years.

I do this sort of analysis all the time. Using a conservative value of investment interest of 4% per year, if I invested $9500 today and received $633 per year for the next 30 years, the actual value of my investment (also called Net Present Value or NPV) would be $1,500. For reference, any investment where the NPV is lower than the initial outlay is bad.  Furthermore, if you consider electric rate inflation of 3% per year (and I am certain the CEC did so), the $19,000 total savings becomes even more backloaded and the NPV drops to a piddling $900.

So, to summarize: A $9,500 investment – forced by the state – is worth $900 in real, present-value dollars. No rational investor makes this deal; no taxpayer willingly signs up for it if they know the truth. California’s solar panel mandate is nothing more than a naked giveaway to the solar companies. And a usual, the average citizens are the ones doing the giving – and getting the shaft.

Burning Money

At least you’d get heat if you did this with your money!

 

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johnkbates2017

Colorado transplant currently residing in Indiana. I am endlessly curious about the weather, human nature, history, gardening, and cooking. I have a wonderful family of 2 dogs and 3 cats, all of whom are rescues.

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