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Solar Energy Flim-Flam

A local radio ad touts the benefits of residential solar systems:

  • 30% Federal tax credit (unlimited, through 2016)
  • 50% Louisiana state tax credit (residential only)
  • You can sell electricity back to the grid
  • Five to six year payout of homeowner’s cost.

A local vendor’s website goes into more detail:

Compared to investing in the stock market, or leaving money in the bank, investing in solar energy creates a high return on investment. Where else can you get an 80% ROI in a year or less!? The return is secure and predictable – and you physically own your investment! You don’t have to worry about your bank surviving or the investment banks behaving themselves—your solar investment is safe on your roof.

Why are we doing this again?

Leaving aside the salesman’s flim-flammery (an 80% tax credit is effectively a discounted cost to the consumer, not an 80% “return on investment”), the economics of this venture are just horrible.

Taking the radio ad’s claim at face value, in five years the homeowner recovers his out-of-pocket investment — 20% of the total cost of a solar installation. The payout on 100% of the cost is therefore 25 years (!), before accounting for maintenance or the time value of money. I have no idea what the claimed useful life of a solar panel may be, but 25 years in the elements would seem to be a stretch.

Look, solar energy may have some practical niches, perhaps where sunshine is more reliable than in Louisiana. Offshore oil and gas operators, my company included, use solar panels to recharge the batteries that operate warning lights and foghorns; solar makes sense because the cost of power generation by other means is prohibitively high.

But as a long term solution to electrical supply on any scale, solar is a lost cause. It currently supplies just 1% of residential electricity and virtually none on a commercial scale. That’s not going to change any time soon.

Which begs the question, does the tax credit do anything beyond making politicians and greenies feel good?

Cross-posted at Stevemaley.com.

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