Solar is a market for (financial) lemons

https://pluralistic.net/2024/01/27/here-comes-the-sun-king/#sign-here

by Timothee • 2 years ago

95 105 2 years ago

This is a well written article, that makes the point that rooftop solar is good, but a market based approach to roll our it leads to anti-social outcomes like scammers installing substandard systems consumers pay through the nose for.

Still, I would like to see some solutions articulated. Should we be promoting solar installation by non-profits? Direct government financed solar installation? Or abandoning rooftop and promoting community solar?

philipkglass3• 2 years ago

Larger scale ground mounted solar looks like it will always beat rooftop solar in terms of energy produced per dollar of investment. There are some cases where rooftop solar can save money by eliminating the need for a grid connection altogether (remote rural properties) but that's a tiny market compared to current suburban-focused rooftop solar businesses.

Ground mounted solar has the following benefits over rooftop solar:

- Much less permitting overhead per megawatt of capacity installed

- Safer and faster installation process (no risk of workers falling off rooftops, uniform rows of panels are easier to install)

- Lower hardware costs for inverters (since the units are larger)

- Easier to orient panel installation for optimum sunlight gathering, so a unit of capacity generates more electricity each year

- Easier to clean panels regularly, so a unit of capacity generates more electricity each year

- Possibility to use single axis sun tracking mounts for panels, so a unit of capacity generates more electricity each year

Rooftop solar has the following benefits over ground mounted solar:

- No additional consumption of land

- Slight reduction in transmission and distribution costs, since more electricity is generated directly at the site of consumption

These benefits are comparatively minuscule. A least-cost, fastest-progress plan for decarbonization would have the solar component heavily weighted toward large scale ground mounted projects. The additional money that would otherwise be spent on rooftop solar is better invested in all sorts of other things: wind farms, battery storage, insulation retrofits, heat pump replacements for gas heating...

ldbooth2• 2 years ago

Generally agree, though let's be real that transmission and distribution losses for ground mount solar are not slight, they are in the 30-40% range, like all utility T&D.

lancewiggs• 2 years ago

Rooftop is generally on site. Ground is generally in large arrays owned by power companies. Being on site and owner-operated means not incurring the expenses of lines and various markups (sometimes extreme) from power companies. And it means being completely independent of the power companies who have different incentives.

bobsomers• 2 years ago

  - No additional consumption of land
  These benefits are comparatively minuscule

I think that benefit is significantly less minuscule than you make it out to be. For rural installations, sure, but in high density areas the cost of land can be absolutely insane, and those high density areas tend to have high power demands just due to the density of humans that live there.

You can put all the ground mounted panels out in the countryside hundreds of miles away from the density, but high power transmission lines are also expensive and dangerous to maintain. Generating the power right where it's used completely eliminates a problem which has serious negative consequences like wildfires.

roenxi2• 2 years ago

To add some other points - rooftop solar being the future is untested. Most of the installations were done in an environment where solar wasn't really commercially viable and people were trying to push water uphill with a shovel. Which can be done, mind you. There are cases like Germany where they seem to have done a lot of damage to their own energy supply.

But now that solar seems to be a viable option it is unclear what the equilibrium point is. For coal, it didn't make sense to give everyone a generator. Even coal-powered fireplaces in homes turned out to be noncompetitive for heating, which is a bit of an unexpected outcome. So since rooftop solar is dangerous to install and comes with a maintenance burden as well as presumably increased risk to consumers, it might still turn out that the best approach is a big centralised solar farm with huge economies of scale. Keep maintaining and using a distribution grid.

Grids are expensive, so it could shake out either way. But I don't think the public knows what will happen yet.

freetime23• 2 years ago

Having the ability to generate electricity in the event of a power outage is another benefit of rooftop solar.

sbierwagen• 2 years ago

Ground-mount arrays can also use bifacial panels-- solar panels without the opaque backing that can capture light from both sides at once.

rssoconnor• 2 years ago

Possibility to use single axis sun tracking mounts for panels, so a unit of capacity generates more electricity each year

I read an HN comment earlier this week that noted that solar panels are so cheap that is is more economical to just install more panels than to pay for the expense and maintenance of moving parts. I.e. you can generate the same amount of extra energy that tracking would give you by adding more fixed untracked panels. And fixed panels with have no moving parts which makes maintenance super cheap.

A quick glance around at internet articles seems to confirm this take.

Turskarama• 2 years ago

- Slight reduction in transmission and distribution costs, since more electricity is generated directly at the site of consumption

The generation being at the site of consumption has another big benefit: one of the largest roadblocks in the way of utility scale solar in Australia is that it's slow to get approval for the large grid connection you need to actually export that power. That time represents a cost that is sometimes larger than the cost of the actual grid connection itself.

jokethrowaway2• 2 years ago

I don't see how you can say government subsidies are a "market based" approach

Why not try to just NOT create incentives and let consumers choose?

sufimalang• 2 years ago

That’s just the nature of western capitalism.

rgmerk• 2 years ago

Australian capitalism isn’t that different to American capitalism, and the interaction of government incentives and market players has produced all manner of disasters here too (child and aged care are but two examples).

But in the case of the solar market things have turned out dramatically differently. The Australian rooftop solar market has worked so well that a large part of the market is now unsubsidised.

rstuart4133• 2 years ago

That’s just the nature of western capitalism.

I'm also an Australian, and I think rgmerk is bang on. It's not the nature of all capitalism - just the USA style of it, and only in some instances. It seems to arise from the USA's love affair with free markets, or perhaps distrust of governments. They are two sides of the same coin, because distrust of government means they don't trust them to put the rules in place require to create competitive markets.

For clarity, not all markets are equal. A monopoly is a kind of market for instance, but it's one that favours the suppliers. As other comments here have pointed out, some markets can self-destruct. A personal example is I refused to purchase SD Cards off suppliers like Ebay because fraud was so rampant, and it was impossible to figure which sellers were genuine. Later, SD Cards disappear from Ebay from a while - ie the market collapsed. I bought my SD Cards from stores instead, so that market (for an identical good) worked fine.

A competitive market is one where there are lots of buyers, lots of sellers, free flow of information - in general no power imbalances. They are surprisingly fragile. Government intervention is often required to create them. An example of such in intervention is the EU changing the rules for software, effectively saying software must do what it promises on the side of the box. (Currently software typically has shrink wrap licences that disclaim all liability if it doesn't work.)

In typical fashion, a lot of what appeared to be USA posters here decried the the unnecessary impost on business, and promptly predicted all software producers would move their operations to the USA. Perhaps they will, but businesses can't survive without customers and it's just as likely the customers will doing their purchasing in the EU when they can.

collaborative• 2 years ago

I got my roof mounted solar by saving for 3 years, getting multiple quotes, and going with what I thought was sensible. At current rates it will pay itself off in 9 years. It's not a great investment but also good for the environment. I wouldn't recommend borrowing for it. Just save for it if you can

Retric• 2 years ago

Good luck finding a 25 year bond with even close to that rate, risk profile, that also pays after tax returns.

toomuchtodo2• 2 years ago

I have solar on all of my properties (primary, secondaries, rentals), but there is a lot of peril in the residential solar install market. Below are some of my observations on the topic from my experience.

You can install on asphalt shingle roofing, but I don't recommend it; unless aligned with your roof replacement cycle, you're going to be paying thousands to remove and reinstall the system (racking and panels) to reroof when the time comes. Install solar on your roof if the roofing material will outlive the initial solar lifetime (~25-30 years). I love standing seam metal roofs for this, as there are friction mounting systems where you do not need to penetrate the roof to mount the racking and PV panels; $$$ but worth it imho. If your roof is coming up for replacement, do not install until replacement has occurred.

Installers are fly by night (lots of sales->subcontractor to install relationships) and it is very likely they won't be around to maintain the system; the only mitigation for this is to find a vendor who is also a roofer or some other business that can buffer from the cyclic nature of residential solar (cyclic from PV panel commodity costs and government incentives). If you're capable, get certified by the inverter manufacturer to get installer access to your system (Enphase University [1] or the like).

Get multiple quotes from installers [2] (a coop buying org is also a great option if available in your area [3] [4]), compare on equipment and price per watt. Research what your interconnect agreement with your utility looks like. 1:1 net metering is best, everything else less so. Net metering vs something else will govern system sizing and panel layout/direction. No batteries unless your grid is unreliable and you have the economic tolerance for it, or there are generous incentives from your state and utility. No PPAs or leases, they are economically inferior with the cost of systems having fallen so much and can make a property transfer transaction more difficult. As you mention, borrowing for this is economically inefficient unless you can get a long duration loan at something like ~3%.

It is a great equivalent of an after tax bond return as Retric mentions, but you must do your homework [3]; it is not turn key unfortunately.

[1] https://university.enphase.com/

[2] https://www.energysage.com/

[3] https://www.energy.gov/eere/solar/articles/purchasing-power-...

[4] https://www.solarunitedneighbors.org/the-ultimate-solar-co-o...

[5] https://www.reddit.com/r/solar/wiki/homeownerguide#/c/purple

nostromo• 2 years ago

I wouldn't recommend borrowing for it.

Not necessarily. Just run the numbers.

I installed rooftop solar during low interest rates. I could have paid cash but my loan payment is less than the power bill it replaced.

jussij• 2 years ago

At current rates it will pay itself off in 9 years

One thing to consider, over that period of time, electricity tariffs will most likely go up, meaning that R.O.I. will end up being less than 9 years.

a1371• 2 years ago

Highly opinionated article void of facts. Reaching the conclusion that the government should install solar, not seeing the fallacy in that argument. Governments are also optimization machines that connects the opinion of voters and interest groups, to action. What they spend on is not based on objective good, it's based on what the public opinion is that year. Most people would rather money going into low income housing and fighting homelessness. So the system will end up underfunded and that's assuming if the gov is efficient. I say that as a socialist, if the market is bad, regulate it.

civilized• 2 years ago

Well-covered ground in public choice theory https://en.m.wikipedia.org/wiki/Public_choice

sp332• 2 years ago

I don't think the argument is that the government should install all solar. But if they're going to put all this money into it, they should put the money into just installing it instead of these gameable incentives.

jokethrowaway2• 2 years ago

I love how the author blames the market and then goes on to explain the government created subsidies in the first place.

If you let the market do his thing the growth would have matched exactly what consumers wanted.

We also had some moderate subsidies in my EU country but we didn't get fast salesmen and crappy products. The quality was reasonable. I suspect this happened because the subsidies were not large enough to warrant the business model.

We, the middle class taxpayers, just gave a bunch of free money to the people who own houses and who were smart enough to buy solar panels - which happened to be quite rich already.

ChumpGPT• 2 years ago

I dreaming but man would I like a solar system that I could roll out like a 20 x 60 carpet in my backyard and connect it to a system to provide power or charge a battery pack. Otherwise fixed installation is to costly for me.

kwhitefoot3• 2 years ago

Surely the fault is in the scammers not the market.

Karellen• 2 years ago

The point of "lemons" is that for some markets, scammers drive out legitimate businesses.

https://en.wikipedia.org/wiki/The_Market_for_Lemons

Akerlof's theory of the "Market for Lemons" paper applies to markets with information asymmetry, focusing on the used car market. Information asymmetry within the market relates to the seller having more information about the quality of the car as opposed to the buyer, creating adverse selection.[1] Adverse selection is a phenomenon where, buyers result in buying lower quality goods due to sellers not willing to sell high quality goods at the lower prices buyers are willing to pay. This can lead to a market collapse due to the lower equilibrium price and quantity of goods traded in the market than a market with perfect information.

ls612• 2 years ago

Rooftop solar doesn’t seem like a good with unobservable quality that significant (which is necessary for the Akerlof equilibrium), this seems more like people not understanding what they are buying. For instance I 100% guarantee you the rate after the intro rate was disclosed in the initial contract and the people just didn’t look at it. You can’t fix stupid and all that.

crabmusket2• 2 years ago

Compare America's federal rooftop solar subsidy scheme (the ITC) to Australia's (STCs):

The ITC is a tax credit, which means only households with a large tax bill will be able to benefit. And they'll not benefit up-front, but only after their next tax year.

STCs are cash rebates which actually reduce the up-front cost of purchasing solar.

The ITC is based on the price of the system, which incentivises higher prices.

STCs are based on the kW size of the system, according to a formula intended to estimate the system's energy production over its lifetime. It's a very rough approximation of course.

(Not directly related, but the amount of STCs awarded also steps down annually until in 2031 no certificates will be awarded. This policy has remained remarkably stable over the last several governments.)

The ITC looks to this foreigner like it was intended to ensure that solar must be purchased on finance. It's not "government subsidies" that are the problem, it's subsidies that may as well have been designed by banks.

EDIT: Australia's market is by no means perfect, and we also have our share of financial shenanigans. But it's much better than what I've seen of the US market, and our prices are drastically lower.

theptip2• 2 years ago

The ITC is a tax credit, which means only households with a large tax bill will be able to benefit

Can you explain your working here? Pretty much every home owning household is going to pay $10k of taxes, say.

crabmusket2• 2 years ago

That's a fair point, I hadn't run the numbers on that. It being a significant problem was just based on having read articles on the US market over the last 5-8 years and not an in-depth analysis, so I can't cite any of them in particular.

tsjackson• 2 years ago

10k is a reasonable guess for how much tax liability is needed, and it's not a huge issue, but it is an issue. Retirees and lower-middle income folks often pay less than that each year, as do folks with even lower incomes who inherited their homes.

tzs• 2 years ago

Pretty much every home owning household is going to pay $10k of taxes, say.

I'm not so sure. According to this [1] the median income of homebuyers in mid 2023 was $107 000, up from $88 000 the year before. I assume the median income of homeowners is less than that of homebuyers, so I'll be conservative and take $107k as the median homeowner income.

As a sanity check, this seems reasonably in line with older data [2].

Let's assume their income is all ordinary income as opposed to capital gains that might be taxed at a lower rate, and assume they are mostly families that file jointly, and assume they have no deductions other than the standard deduction.

The 2023 standard deduction for married filing jointly is $27 700, leaving our median homeowner family with $79 300 taxable income. That puts them in the [$22 000, $89 450) bracket, where the tax is $2 200 + 12% of the amount over $22 000.

That comes to $9 076. That would be median so there should be a lot of people below that.

[1] https://www.investopedia.com/typical-income-to-buy-home-surg...

[2] https://www.statista.com/statistics/974721/median-income-hom...

midasuni• 2 years ago

In the U.K. there are massive grants for home owners who don’t have a reasonable income.

It’s ageism - more money flowing from young workers (who pay the highest taxes) to old owners (who pay the lowest)

The generation that can benefit are “Generation Me”, they’ve spent their entire lives having society warp around them and don’t even realise it.

ianai• 2 years ago

People make the best decisions when the benefits are up front, not delayed to a yearly tax filing with a probability of distribution dependent upon income.

oh_sigh• 2 years ago

If you have a low tax burden and get a large tax credit, don't you just receive that as a refund?

jcrawfordor• 2 years ago

The federal solar tax credit can't take your tax liability below zero, but any remaining portion can be rolled over to later tax years until it's exhausted. Given this, I think a situation where someone couldn't meaningfully benefit from the credit would be very unusual. You'd have to have an effective tax rate of zero for years at a time.

zopa• 2 years ago

That’s the difference between a plain old tax credit and a “refundable” tax credit.

mooreds• 2 years ago

I always say the mortgage interest deduction is a subsidy to banks, not homeowners, because it is not available if you buy your house for cash.

gumby• 2 years ago

STCs are cash rebates which actually reduce the up-front cost of purchasing solar.

This is key because renewables are a swap of op ex ( buying fuel) to cap ex (capital expenditure on the “power plant). Most people can’t afford that.

oatmeal1• 2 years ago

There's a (superficial) good case for turning markets loose on the problem of financing the rollout of an entirely new kind of energy provision across a large and heterogeneous nation.
So the government moved in to tinker with the markets
But we won't get there with markets. All markets will do is create incentives to cheat.

Typical example of someone blaming markets for outcomes caused by the government intervention in those markets, and the government's poor judicial system.

If governments are willing to spend billions incentivizing rooftop solar, they can simply spend billions installing rooftop solar

The same thoughtful government responsible for creating a substantial portion of our global warming through car-dependent infrastructure can surely be trusted with the reins to mitigate it.

pydry2• 2 years ago

caused by the government intervention in those markets, and the government's poor judicial system.

How exactly did the government intervene to make those fraudsters commit fraud?

sokoloff• 2 years ago

When the government opens up the feed trough and fails to police it (as often happens), it ought not be surprised when pigs show up this time, just like the last 99 times…

kmeisthax• 2 years ago

Government broke my kneecaps, so obviously it shouldn't be allowed to give out crutches, or worse, stop breaking kneecaps /s

monero-xmr2• 2 years ago

It’s incredible how the markets where the government intervenes the most - housing, medicine, education - are also those with the most dysfunction, scandals, cost growth, lack of accountability, and on and on. Yet many think, “We just need a few more laws and tax dollars, and this time it will be fixed for sure!”

tryptophan• 2 years ago

ISPs are a good example as well. Hyper regulated in the USA with millions of permits and little laws about everything...

Meanwhile in Romania people just put cables up wherever they wanted and had 100s of bootleg ISPs and now they have the fastest/cheapest internet in the world.

Guess we need more ivy league "educated" professional experts to solve this problem for us, as is the american way.

trimethylpurine17• 2 years ago

Great article, but any opinion about the solar industry that diverges from the marketing is a recipe for downvotes and harassment. Best to keep quiet and pretend solar, batteries, and other "clean" sources of energy are actually clean, while capitalists and marketers sweep the ugly truth under the rug by branding them with one political agenda or another. Most people aren't scientists and they have louder mouths and shorter tempers than do scientists.

thelastgallon5• 2 years ago

pretend solar, batteries, and other "clean" sources of energy are actually clean

Death/TWH is a good metric. Do you have sources to claim solar and wind are not actually clean?

https://ourworldindata.org/grapher/death-rates-from-energy-p...

https://ourworldindata.org/safest-sources-of-energy

trimethylpurine17• 2 years ago

Sure. Here's the first result from a Google search. It has links to research as well.

https://spectrum.ieee.org/solar-energy-isnt-always-as-green-...

But did I really need it? Why would you expect one solution to be the most efficient in all possible environments? Could it be because of marketing?

Seems like I was right on the money. Downvoted and then shouted out with marketing materials.

Are you a chemist, out of curiosity?

I got my degree at ASU.

sunshinesnacks11• 2 years ago

That’s a good metric for safe. I think clean is best looked at in terms of something like lifecycle CO2 equivalent per kWh. In which case wind and solar are only beat by nuclear.

Then there’s lifecycle (levelized) cost per MWh, where wind and solar are way ahead of nuclear, and mostly have an edge on gas CCs.

trimethylpurine17• 2 years ago

You can focus on power output and if you're looking to clean that part by dirtying another, then you've won the debate. But that's not clean energy. You're not fooling any chemists with that logic. Clean energy takes into account the input side of the reaction. Mining lithium is filthy, emits carbon, introduces a waste cycle that we have no solution for, and distributes toxic waste across continents, especially Asia, in the current market, and across oceans. This is like the push for recycling plastics that lead to the giant plastic collection in the Pacific. Turns out shipping plastic is worse than burying it. Turns out mining lithium is worse than mining gas. Turns out you'll still mine gas for electric vehicles because you still need tires and roadways. What will you do with the excess gasoline? Have you thought about that? I'm just asking questions, but hopefully you have some answers for these questions because so far what I'm seeing is that people are advocating for electric, solar, etc. while offering no solutions for roadways, tires, etc. Meaning your plan is to mine lithium AND oil. To mine solar AND coal. To mine uranium AND burn gas. And those aren't clean solutions. Those are problems. Those are highly profitable problems.

scythe• 2 years ago

Part of the problem is that rooftop solar doesn't really make sense in the United States. It does make sense in Japan, possibly England, some parts of Europe, and maybe Miami and New Orleans. But in most of the country, solar farms are just a better value proposition.

You've probably seen the numbers that if we just used the land currently growing corn for ethanol fuel, we could power the whole country. And we have a lot more empty land than that. The smart money also saw those figures, realized that there is no long-term market, and took their ball and went home.

Installing stuff in cities — even suburbs — is expensive. Installation costs now dominate solar costs. Modus ponens, rooftop solar loses. The exceptions I mentioned are swampy places where open land is very expensive to build on.

thelastgallon5• 2 years ago

If the Govts stop subsidizing fossil fuels directly and indirectly (ethanol subsidies, defense budgets to protect fossil fuel assets and shipping) then we'll have properly functioning energy markets. It will function perfectly if we price in the externalities: air pollution, climate change, energy security amnd terrorism.

Why Are Governments Still Subsidizing Fossil Fuels? Last year, fuels that drive climate change and pollute the air were underpriced to the tune of $7 trillion. It’s hard to think of a more misguided policy: https://www.bloomberg.com/opinion/articles/2023-10-16/climat...

Air Pollution Kills 10 Million People a Year. Why Do We Accept That as Normal? https://www.nytimes.com/2022/07/08/opinion/environment/air-p...

more than 80 countries have policies that support biofuel demand: https://www.iea.org/energy-system/low-emission-fuels/biofuel...

jacknews• 2 years ago

"only way we can approach them is though markets, those monkey's paw curses that always find a way to snatch profitable defeat from the jaws of useful victory."

lol. markets certainly have their place, but they often need to be tightly controlled in order to devliver societal benefits, not just 'profits'.

incomingpain• 2 years ago

My solar investments sure havent done well. It doesn't seem to make sense neither. They ought to basically be amortized and pure profit.But they all seem to do so poorly.

renewables are not so renewable as advertised.

Solar is a market for (financial) lemons

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