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Solar Energy: Going for Broke

Solar Energy: Going for Broke
Profile photo of Roger Toutant

Every environmentalist drools over it, every physicist and engineer breaks into a dreamy sweat when they think about it, and every politician has fallen completely head-over-heels in love with it:  solar photo-voltaic (PV) energy.  What on earth could be more “sustainable” or “socially responsible” than converting sunlight directly into the energy needed to power our CFL bulbs, web servers and electric cars?  After all, PV energy installations require very little maintenance, last more than twenty years and generate no noise or pollution (aside from that created during the manufacture of the solar cells).

Indeed, the popularity of solar PV energy has increased greatly in the last decade.  Have you witnessed solar panels popping up on your neighbours’ roofs or on nearby industrial properties and farms?  If so, you can rest assured that it is all being made possible by the well-intentioned “new energy programs” of your provincial or local governments.  For example, in Ontario, the provincial government’s Power Authority introduced the Feed-In Tariff Program (called “FIT”) in 2006.  FIT pays an enormous fee to producers of PV energy and passes on the higher costs to the electricity consumers.

Consider that in Ontario, even with the high costs and financial over-runs of its nuclear generators, electricity has traditionally been priced in the range of 5¢ to 7¢ per kilowatt-hour (kWh).  However, the FIT program guarantees payment to solar producers of 44¢/kWh to 71¢/kWh, depending upon the size  and location of the installation [1].  In fact, small producers (less than 10kW) are paid 80¢/kWh if the panels are located on a roof [2].  For some inexplicable reason, a roof-top installation can yield a greater than 50% price premium over ground-mounted installations even though the gain in altitude has no impact on the efficiency or value of the power generated.  Furthermore, if the owner of the solar panels happens to be a native Indian, an “Aboriginal Price Adder” of 0.6 to 1.5 ¢/kWh is provided.  Only the government could invent such a convoluted and unjust pricing strategy that is completely decoupled from the real economics of energy production!

The high prices paid to solar PV producers bring into question the claim by the Ontario Power Authority that it is “leading Ontario in the development of North America’s most reliable, cost-effective and sustainable electricity system.” [3]  After all, how is a potential tenfold increase in the cost of electricity providing a “cost-effective electricity system”?

Furthermore, the artificially inflated prices paid to solar PV energy producers break the market’s price discovery mechanism that would normally direct investments to businesses that are most efficient and productive.  For example, programs like FIT send the following false signals to the energy production marketplace:

1. That the demand for solar PV energy has dramatically increased;
2. That the enormously high costs of solar PV installations are now economically justifiable;
3. That customers can now afford to pay the high prices of solar PV energy.

The above signals result in capital investments being directed away from less costly and more productive forms of energy and towards high-cost solar PV energy.  The artificially higher energy prices send the signal to energy consumers that energy is requiring more resources to create and that, as a consequence, energy consumers must do one, or more, of the following:

1.  Increase the efficiency of their energy usage (which does happen normally as technological progress occurs, but certainly not at the rate demanded by sudden increases in energy costs);
2.  Find alternative suppliers of less expensive sources of energy (which is very difficult to do if organizations like the Ontario Power Authority monopolize the supply of electrical power);
3.  Create their own power outside the normal electricity grid;
4.  Make do with less electrical energy;
5.  Make other sacrifices to pay for the higher costs of energy.

The last two options, making do with less and making sacrifices, are the only viable options for most energy consumers.  Without an increase in energy efficiency (which, again, cannot be made to increase suddenly due to its dependence upon the technological state-of-the-art), the standard of living for consumers will decrease until productivity and efficiency catches up.  As a result, home and businesses may not be heated as much in the winter, or cooled as much in the summer.  Less light may be used to illuminate houses and offices during the dark days of winter.  Money may be directed away from food, clothing and pleasure and sent directly into the pockets of the solar PV energy producers.

The poor, as usual, will suffer the most from higher energy prices.  With their budgets already stretched to the limit, and their likely inability to cut-back on their energy usage, the higher costs of energy will push them further into poverty.  These consequences alone make the imposition of solar PV energy immoral and dangerous.  Plus, some businesses that were once viable at lower energy price levels will go bankrupt if they are no longer able to produce their products or services at a profit.  Their employees will join the unemployment lines.

For example, energy consumers that are hit hard by higher electricity costs are aluminum smelters.  A state-of-the-art smelter has an efficiency of approximately 13 kWh/kg of aluminum [6].  If 60 ¢/kWh solar PV energy was to be used to power the smelter, than the cost to produce one kilogram of aluminum would be $7.80.  However, aluminum today sells for only $2.2/kg.  Do you think that Rio Tinto would have reopened its Quebec smelter with such economics at play?  Of course not.

Higher electricity costs change the economic viability of not only businesses but products.  Consider the case of the Chevrolet Volt vehicle that runs on pure electricity for short distances.  The Volt expends electrical energy at the rate of approximately 23 kWh/100km.  If solar PV energy was used as the sole source of power to charge its batteries at an average price of 60 ¢/kWh, then the electrical energy alone would cost $13.8/100km [4].  By contrast, the Hyundai Elantra gas-powered vehicle achieves an average fuel economy of 6L/100km which equates to $7.20/100km (with gas priced at $1.20/L) [5].  The Volt, in this case, would be almost twice as expensive to “fuel” with solar PV energy as compared to the gasoline-powered Elantra.

To drive home how uneconomic solar PV energy is, consider an alternative source of electrical energy that would make any solar advocate cringe:  diesel electric power generation.  An Armstrong Power Systems 1MW diesel generator burns diesel at the rate of 276 L/hr [7].  With today’s price of diesel fuel at $1.4/L, the cost of energy produced by the generator equals 39 ¢/kWh, two-thirds to one-half that of a solar PV generator.

The following graph depicts the relative costs of traditional vs. solar PV energy in the cases described, above (red is indicative of the red ink that flows when solar PV energy is imposed upon the energy consumer).

Costs of Electricity Generation

The only saving grace for the energy consumer is that solar PV provides little power during winter and none at night, hence limiting both the effects of its ruinous costs as well as the great transfer of wealth form the poor and middle class to the solar PV energy producers.

In conclusion, how “sustainable” or “socially responsible” is solar energy?  Of course, it is neither.  The economics of solar energy say so.

References:

[1] “What is the FIT Program”, http://fit.powerauthority.on.ca/what-feed-tariff-program (Ontario Power Authority)

[2] “Welcome to microFIT”, http://microfit.powerauthority.on.ca (Ontario Power Authority)

[3] “About the Ontario Power Authority”, http://www.powerauthority.ca/about-us (Ontario Power Authority)

[4]  “Electrical Energy Consumption in the Chevy Volt”, http://gm-volt.com/2010/12/03/electrical-energy-consumption-in-the-chevy-volt (GM-Volt: Chevy Volt Electric Car Site)

[5] “Hyundai Elantra Sedan 2012″, http://hyundaicanada.com/pages/showroom/Showroom.aspx?model=ELANTRA (Hyundai Canada)

[6] “Aluminum smelting”, www.alcoa.com/global/en/about_alcoa/pdf/Smeltingpaper.pdf (Alcoa, Inc.)

[7] “1000kw Generator”, http://www.gensetcentral.com/diesel-generators-1000kW-up.htm (Bowers Generator Systems)

  • Abby Fressen

    An inspiring one here. Please continue educating the masses so more will involve themselves and know the benefit of going solar. Will never regret my decision on going solar myself (thanks to Reboot Solar) and will surely pass this on to the next generation. Cheers!

  • http://solarsavingsamerica.com Solar Panel

    very nice and impressive article you have posted

  • http://www.illumineenergy.com/ click here

    Solar energy has been the main target for the environmentalist over the recent years. They are stressing on to use this sustainable energy as a replacement for coal as it is a clean source of energy and can be replenished whenever we want.

  • Fric

    What about "Nuclear Energy: Going for broke" Based on the Mises philosophy, government should not have let the Nuclear industry go bust. And if government's role is just to ensure that private property is safe, then why "intervene" in Energy at all. The matter of the fact is that no bank would finance Nuclear without government support.

  • Alex

    But it's green!!

  • imoira

    Thank you for this Roger. I'm going to memorize much of it and create opportunities to recite it.

Articles
Profile photo of Roger Toutant

Roger Toutant has been designing electronic products for the telecommunications, consumer and industrial spaces for over 25 years. He can be reached at mises@mr2.ca. Check out a collection of his writing at mr2.ca.

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