May 19th, 2012

Was it Matthew asking for ideas to get Europe’s economy moving?

It was a great insight of Keynes that spending doesn’t have to be useful to be effective in a slump (though he also said that useful was preferable). Helicopter drops of cash, banknotes buried in coal mines, and cheques mailed out randomly would work just fine, but clash with the Protestant ethic. Few Germans believe Keynes’ argument, and no German central bankers, so you really have to come up with Useful and Virtuous ideas.

At the risk of sounding like a one-subject crank, here’s mine. A part of my roof as it could be by Christmas:

What I suggest is a very large solar panel leasing scheme, funded or underwritten by the creditworthy members of the EU, meaning Germany. Taking a number out of a hat, 5 GW at €2.5 per installed watt would cost €12.5bn up front. That’s 2 million houses at 2.5 kw each, or €6,250; or 50,000 industrial roofs at 100kw, or any linear combination.

My American readers in the business were incredulous about these German costs when I last wrote on solar PV. But the German solar trade association BSW-Solar publishes an index (end of pdf) of all-in unit costs for installed rooftop systems under 100kw. Their latest number is €1.969/w without tax, making €2.34/w with VAT. Spanish wages are lower, and prices are steadily dropping, so €2.5/w must be attainable in Spain for a large scheme that’s closely based on German models.

The Spanish government has been forced by austerity to slash and cap its feed-in tariff (FIT), so the solar boom in Spain has some to a shuddering halt. But it doesn’t look as if a FIT subsidy is necessary; reverse metering, with an FIT equal to the retail price, should be enough. I pay 14.4c€ (18.3c$) a marginal kw/h before taxes; 17/7c€ (22.5c$) after tax. The latter is the relevant price for domestic substitution; the former may be relevant for feed-in, depending on the details of the tariff. At these prices, residential panels in sunny Spain pay off simply with reverse metering. Sources: Breyer and Gerlach, 2010, appendix; consultant Richard Keyser, Exhibit 2. (Keyser offers a handy rule of thumb for US conditions: multiply the installed cost in $ per watt by 7% to get the LCOE in cents per kw/h.) Solar PV imposes some hidden costs to other electricity consumers in the form of backup and night-time capacity and upgrades in the grid infrastructure. The capacity already exists as a sunk cost and the smart grid has to be paid for sometime. I think we can ignore this in our scheme.

Solar leasing has become popular in the USA. Householders hand over a good part of the benefits to leasing companies (Sungevity, Solar City) in exchange for simplicity and no cash required up front. The moral hazard to the leasers is limited: the householders don’t own the panels, but they have an incentive to maintain them properly, keep them clean and report faults. Stealing them doesn’t look practicable; where’s the resale market? Favelas in Brazil? From a policy viewpoint, leasing is a good way to build up economies of scale and learning in installation, though it’s open to abuse through opaque and one-sided contracts.

In Spain, residential solar PV (as opposed to utility) never took off because of impenetrable red tape – planning permits from the town hall, hooking up to foot-dragging utilities. The European trade association EPIA claims it takes 89 weeks on average to get through this; most householders are simply deterred. My solar installer (of hot water systems) has a list of customers who are waiting for a new right-to-connect decree, published in draft, to become effective. It doesn’t apparently impose reverse metering. I assume the utilities and grid-scale PV operators are doing their best to delay and water down the reform.

A large EU/German-funded scheme would be conditional on the adoption in Spain of drastically simplified regulations and standardised feed-in contracts. It could not, under European competition law, be tied explicitly to the use of German equipment, but in fact the German component of the value-added would be quite high. Residential PV installation is labour-intensive and dispersed. The scheme would create large numbers of jobs where they are most needed, for young people who have lost jobs in construction in the sunny South of Spain.

The main selling-point of the scheme is psychological. It maps on to two German preoccupations. (The Spanish preoccupation is to have any stimulus at all, on any conditions going).

One is the environment, where Germans are right. The rest of us should be grateful that Germany is deadly serious about renewable energy. Solar panels in Spain cut Europe’s carbon emissions even more than they do at home, with 68% more sunlight (Breyer & Gerlach).

Second, their puritanical anxiety about throwing more money away on lazy, dishonest and swarthy Mediterranean types. The closet racism is reprehensible, but remember that they have already managed to lose a lot of money with foreigners of all descriptions, including WASPS in Wall Street. German skill at generating a huge trade surplus from superior manufactures has been balanced by a remarkable incompetence at investing the corresponding capital outflows. Hence giant loans to reckless Spanish and Irish real-estate developers (the Irish are pale-skinned but drunken Catholics, so perhaps count as honorary Mediterraneans) and the Greek government, lying through its teeth for years with coaching from Goldman Sachs.

A solar leasing scheme has the huge merit of presenting Germans with visible, revenue-generating assets. PV panels are reliable and long-lived, and insolation is known perfectly. The technical risk is negligible. There is still a default risk. Ultimately the only way Germans can insulate themselves from that completely is by not running a current-account surplus in the first place. A leasing scheme with standardised and saleable physical assets (even more so than cars) is safer than anything else they are likely to find.

* * * * *
My scheme is not very original. Greece has already tried its luck with a €10 bn project called Helios covering sunny Greek hillsides with utility-sized solar farms and exporting the electricity to Mitteleuropa. The EU Commission may be receptive – they are a sucker for megaprojects – but Germany is sceptical. The snag is the need for new transmission lines, on land through bandit country rapacious and unsympathetic neighbours in the Balkans, or expensively undersea to Italy. My scheme doesn’t need new transmission capacity, and the security is a lot better.

It’s not actually very difficult to think up quite sensible forms of Keynesian stimulus in Europe. The EU has plenty of other vehicles. The problem is German politics. It’s still an open question whether Germany will choose the survival of the European project over Protestant housekeeping (30% of Germans are Catholics, but the moral culture is Protestant). The ray of hope here comes from François Hollande’s election in France, combined with the defeat of Merkel’s candidate in a regional election in North Rhine-Westphalia, Germany’s most populous state. The defeat wasn’t a protest at Merkel’s popular euro policies, but it has the effect of strengthening opponents more sympathetic to Hollande’s case.

18 Responses to “Mein Solardach”

  1. Brett Bellmore says:

    “Solar PV imposes some hidden costs to other electricity consumers in the form of backup and night-time capacity and upgrades in the grid infrastructure. The capacity already exists as a sunk cost and the smart grid has to be paid for sometime. I think we can ignore this in our scheme.”

    “Some” hidden costs? Just “Some”? The exact extent of them doesn’t matter? Just ignore it?

    • JMG says:

      No, we should be ready to tackle it in detail as soon as we finish calculating the charges needed to internalize the costs of carbon emissions from fossil fuels and all the acidification of the oceans and the health costs of particulates from coal emissions. Glad to see you leading the charge for full-cost accounting for energy systems instead of just randomly emitting flatulent bursts of trollishness.

    • Surprising as it may seem, I have consistently recognized these costs and done my amateur best to evaluate them. In my last post on PV I cited a Minnesota study with simulation charts (pdf page 40; reproduced more conveniently here, scroll down to 18 March) for a hypothetical all-renewable generating mix applied to the real weather and demand in two historical weeks in summer and winter. Eyeballing, this gives about a 60% backup capacity requirement and 10% of average consumption. In my own paper exercise for S Australia, limited to wind, I came up with a backup need of 30% of nominal wind capacity and nearly 100% of demand. These are significant numbers.

      But bear in mind three things.
      - As I wrote, all developed countries already have very large reserves of despatchable generating capacity, basically gas. The medium-rum marginal cost of backup capacity is therefore zero. It will become positive sometime: Replacing the last 10% or fossil electricity will require a lot of storage, biomass, hydro or geothermal. For the near future – including my scheme – it’s not a problem and it’s economically rational to ignore it.
      - The omission of intermittency costs from the universally used LCOE formula (which I already noted) is a technical failure. Correcting it is incidentally important for the efficient deployment of storage and geothermal technologies. It’s not something that can be fixed by just tweaking the formula; it’s a system-wide variable, depending on the overall generating mix. You’re an engineer doubtless with more mathematical chops than me, why don’t you try to make a contribution instead of just sniping?
      - What JMG says. Wind and solar get one unfair advantage (in the metric of a hypothetical perfect market with correct Pigovian taxes) against the ten of fossil fuels. You want to snip holes in David’s sling? Goliath and the oil and coal industries and the bad guys and deserve to lose, with extreme prejudice.

  2. Brett Bellmore says:

    As long as there are negligible carbon alternatives to PV, you’d better care about the costs of PV compared to the alternatives. Somebody who’s deadly serious about something actually sweats the details. It’s the people who don’t give a damn, they just want to make a statement and don’t care if they’re committing economic insanity, who blow them off.

    • You think the German government is reckless and sloppy? They made a mistake in not tapering the FIT fast enough in line with falling prices, but that’s the sort of error inevitable in any large policy change.
      And cut the trolling or else.

      • Brett Bellmore says:

        Do I think a government which is abandoning baseline nuclear power for a combination of solar, (With Germany’s predictably lousy insolation.) and imported power from other countries which are using fossil fuels, is being reckless and sloppy?

        Yeah, that’s what I think.

        Well, to be precise, it might be reckless, but the extent to which it’s sloppy depends on how much of this decision was driven by engineering and economic considerations, and how much it was driven by political considerations. Assuming the latter, the decision might not have been sloppy at all.

        Thing is, a politically sound decision to build a bridge out of chewing gum still ends with the bridge falling down, or in this case power outages.

        • Randy Paul says:

          Regarding their movement away from nuclear energy, perhaps they considered the problems of evacuating a population living in a nation three times the size of Texas in population, while only about half the size in land area as well as where to dispose of spent fuel rods. I’m surprised that it took them this long after Chernoybl to move in that direction, given that winds do not recognize borders.

          • Brett Bellmore says:

            So, how large a radius around a coal plant do you have to evacuate, to account for it’s every day operation? Pretty large, I suspect. I do hope you were aware that, due to radioisotopes in coal, coal plants in normal operation can’t comply with the radiation release limits put on nuclear plants? Not to mention the evacuation radius around coal mines, which routinely cost more lives than nuclear accidents have.

            And what’s the evacuation radius around roofs? Venturing onto them isn’t exactly the safest thing, and installing solar power involves a remarkable number of man-hours on roof tops.

            Care for some numbers? Gee, even accounting for Chernobyl, roof top solar is eleven times more deadly than nuclear. Fancy that…

            The irony of attacking nuclear power on safety grounds, when it is by far the safest source of power, is so thick you could cut it with a knife.

          • James Wimberley says:

            The decisive objection to nuclear energy isn’t that it’s dangerous but that’s it’s too expensive, and getting more so all the time.
            The Chernobyl death numbers are disputed, and will slowly rise. What isn’t is the cost of the evacuation, containment and cleanup. Wikipedia cites a reputable article giving 18bn rubles ($580m at current exchange rates), not counting the large psychic costs of radiation exposure and the loss of output from contamination and evacuation. The Fukushima cleanup, in a richer and more densely populated country, will be much more expensive: the Japanese government is budgeting $13bn just for cleanup, not counting the containment operation and the replacement of the plant – probably not with another nuclear one.
            No such disasters are conceivable from any form of renewable energy except hydro; and dams are built with huge safety margins, proof against anything but large earthquakes, highly expert and well-equipped sabotage or warfare.
            In other news, fusion energy has a perfect safety record. It just doesn’t work yet.

  3. Katja says:

    Is this a bad time to point out that the German government currently wants to cut back on national solar energy subsidies? (The law is currently stuck in the German equivalent of Congress’s conference committee, because the Bundesrat vetoed it with a 2/3 majority.)

    • James Wimberley says:

      Do you have a take on whether this was significant in the NRW election? The CDU candidate was the (now former) environment minister.

      • Katja says:

        It may have contributed a bit, but my understanding is that Norbert Röttgen’s biggest problem was that he was running against a highly popular incumbent (approval rating of 75% or thereabouts) in a rather ineffectual (not to say incompetent) fashion. For example, he was unwilling to give up his posts in Berlin (both as minister and member of parliament) to lead the opposition in Düsseldorf in case he lost, marking him as non-committal and as putting federal policymaking before working for NRW, unlike Hannelore Kraft, who had made it clear that she was playing for keeps. And he did that in a state that has traditionally been more social-democratic than conservative.

        I wouldn’t be surprised if poor federal environmental policymaking added to his poor image (or would it be correct to say “subtracted from it”?), but I don’t see it as having a measurable effect [1].

        You can find a breakdown of the election result and possible contributing factors here (in German).

        [1] In all fairness, he seems to have acted as Minister of Environment, Nature Conservation, and Nuclear Safety out of conviction; he spoke repeatedly about it being a Christian duty to preserve God’s creation and, by all appearances, meant it. Of course, being well-intentioned does not necessarily translate into good policymaking.

  4. CharlesWT says:

    The government wants everyone to use more renewable energy sources like solar panels and then it jacks up the price of doing so.

  5. James Wimberley says:

    On the usual assumption that anti-dumping cases are usually brought in bad faith – the US gives loan guarantees too to its own manufacturers – I tend to agree with a cynical reading. The administration has had to choose between two sets of donors to Obama’s re-election, domestic solar panel manufacturers and domestic solar installers, and has chose the former. It’s a good bet that a backroom deal will be made with the Chinese government well before November. Substantively it will probably be a sellout. China has an obvious comparative advantage in mass production of any standard-technology electronic devices, and US manufacturing has to retreat to higher-tech niches like thin films, manufacturing and test equipment, inverters, etc, and market-specific lower-tech items like installation kits.

  6. Randy Paul says:

    James, I just came back from Germany yesterday and was impressed by the number of solar panels I saw on rooftops and in open fields. In addition, the were any number of windmill farms I saw and my travel was limited to the distance from Cologne in NRW to Offenburg in Baden-Wurtemburg.

    I expect in the net year or two to semi-retire to a community in Espirito Santo, Brazil called Barra do Jucu, just outside of Vila Velha. I intend to have not only solar panels on the roof, but also a small windmill. I saw one in Trier, Germany that was about 6 meters high and had a spinning portion of about 1 square meter.

    Living about 400 meters from the beach I would be an idiot not to take advantage of both solar and aoelic power, especially given Brazil’s obsession with hydroelectric power, periodic droughts notwithstanding.

    • James Wimberley says:

      Good for you. I hope you can find an affordable installer, as the industry is very undeveloped in Brazil compared to the potential. But things are changing fast, and the energy regulator has announced rules to allow net metering, though SFIK no subsidised FIT is planned.
      Domestic wind power is expensive everywhere, as wind speed increases with height from the ground. It might be worth exploring a neighbourhood-level initiative.
      Note the timidity of the spokesman for the Brazilian solar power trade association, predicting a mere 300,000 installations by 2030. I would bet it will be well over 3 million by 2020.
      You are right on the wretched Belo Monte dam. Hopefully it will be the last such hydro mega-project.

  7. Randy Paul says:

    This is for Brett Bellmore in response to my comment earlier. If you want to make the argument against rooftop solar the danger of falling off of roofs, then I would make the counterargument of assumed risk, as opposed to children thousands of miles away from the nuclear plant developing thyroid cancer or drinking milk laced with strontium 90 because of a nuclear accident.

    If you want to see why people finding your rhetorical style risible brodering on trolling, you just demonstrated why.

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