Common Tragedies

Thoughts on Environmental Economics

Sun scorn

Posted by Rich Sweeney on February 22, 2008

I’ve been meaning to post on a new PV paper by Berkeley’s Severin Borenstein for a while now. Unfortunately, while I was being lazy, several other bloggers have picked it up and it has provoked a bit of rage from the renewable energy/ clean tech blogs.

Borenstein is head of the UC Energy Institute and actually presented a working version of this paper at RFF last summer. Borenstein’s paper is the most rigorous and complete analysis of the actual micro-economics of distributed PV that I’ve seen so far. Despite recent positive trends, a cursory analysis of the costs and benefits of PV indicates that it is still just way too expensive. However, the solar lobby usually points out that such analyses ignore two important benefits of PV, net metering and the elimination of transmission costs. The argument goes that when you incorporate these, PV is actually npv positive. Using cost data on actual PV installations in California and a simulation model on solar load curves which incorporates time of day and locational variation, Borenstein addresses both of these issues. The result is that PV is still npv negative, even when you incorporate very favorable assumptions.

Earth2tech quotes a SunPower spokesperson as saying that Borenstein’s analysis “is predicated on a host of faulty assumptions”. I’ve read this paper several times (and encourage yall to do the same), and I think the methodology and assumptions are pretty solid. However, the same Earth2tech post does bring up another criticism of sorts that I actually think is valid. Borenstein is quoted (perhaps out of context) as saying that people are “throwing money away” on PV. I think what he means is that if the goal is to reduce carbon emissions, then installing PV at current prices is a very inefficient way of doing this. However, from an individual’s perspective, Earth2tech is right to point out that its not necessarily irrational for early adopters to pay more for solar. They get the utility of being first. Moreover, these decisions indicate that the market may not view all electricity as perfect substitutes. I’m no expert on this topic, but the notion that early adopters pay a premium and drive down costs for future adopters sounds reasonable to me.

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