“Oppositions: Pennies From Heaven?” event with Urban Green Council in New York City was a debate about whether solar PV was worth the premium cost compared to less capital-intensive strategies such as energy efficiency measures. The event felt like the judges had made up their minds before the defendants had a chance to testify – the event was hosted at the $1B Bank of America Tower, one of the greenest office buildings in the world, and yes one that lacks solar PV. But the most damning arguments were yet to come. Read past the break for the full story and join the Green Light Distrikt Facebook group for updates on new events, blog posts and more.

 

The event brought together thought leaders from several highly respected organizations:

  • Laurie Kerr (LK) from the NYC Mayor’s Office of Long Term Planning and Sustainability (Moderator)
  • Bill Guiney (BG) from Johnson Controls’ Global Renewable Energy Development Group
  • Nikhil Krishnan (NK) from McKinsey and Company’s Clean Technology Practice
  • Richard Perez (RP) from SUNY Albany’s Atmospheric Sciences Research Center.

While the panel was defined as a “lively debate” and the moderator joked that following the panel “there would be a fight in the parking lot,” most of the speakers agreed on the issues, including the argument that energy efficiency strategies should be the first strategy to decrease fossil fuel energy use. The following is a transcript of the discussion. In the interest of time, I have paraphrased all comments and listed speakers by their abbreviations. In order to give you a chance to decide for yourself, I have saved my comments for the end of the post.

Transcript from Oppositions: Pennies from Heaven?

Question #1: What are the relative costs of different strategies and technologies?

  • LK: I am a skeptic of solar. I did a thought experiment where I measured the efficiency of replacing incandescent bulbs with CFL bulbs and compared that to adding a solar PV system. I found that CFL’s were 457 times more cost effective than solar PV without any rebates or incentives.
  • LK: Our office also did a study comparing options. We found that lighting retrofits pay back in 7-10 years, and the payback time is dramatically less if you just turn off the lights and don’t add motion sensors and dimmable controls.
  • BG: Solar thermal has an equal if not better payback than solar PV, depending on natural gas prices. In 2006, the payback was 20 years. Today, that payback time is 40 years, double the time it took five years ago, because the cost of electricity from natural gas has cut in half in the past five years.
  • BG: There was a recent study in Kentucky showing that if all coal miners were forced to retire, paid their pensions in full, and there was a subsequent major investment in renewable energy, we would be much better off economically [Editor: I tried locating this study without results – please share if you know what study this refers to.]
  • NK: McKinsey put together a greenhouse gas emissions cost curve. From a pure macroeconomic analysis, what we found was that energy efficiency is by far the most cost-effective strategy, which pays back very quickly depending on the approach. Energy efficiency strategies include increasing insulation, retrofitting lighting, improving industrial facilities, etc. Solar PV doesn’t even compare – it’s on the right side of the cost curve, meaning it doesn’t pay back.
  • RP: Solar offers ten times the energy return on the embodied energy it takes to manufacture the panels. This efficiency will continue to improve.
  • RP: Agreed that efficiency strategies such as daylighting harvesting are the first things you should do. But solar is still necessary because daylighting is on the demand side – it doesn’t supply the building with the energy it needs to operate.

Question #2: What should the government’s role be?

  • [Editor: most pass on this question.]
  • RP: Government should provide the long-term vision.

Question #3: What are the opportunities?

  • BG: We expect a 15-20% growth in solar thermal in the next ten years and up to 25% if there is any positive movement from government or technology breakthroughs.
  • BG: Solar thermal is an $800M industry; it’s much smaller than the solar PV industry because the costs to manufacture solar thermal are significantly less.
  • BG: China is taking the lead in renewable energy. 2005 was the first year in which the US imported more renewable energy products than it exported. This gives China a significant competitive advantage as the world moves towards renewable energy. Europeans are also putting a stake in the ground, including many that are investing in the US because they see major market potential. Also, countries such as Germany are going through painful transitions away from nuclear and towards renewable energy over the next few decades, but this puts these leaders at a significant competitive advantage similar to China’s.
  • NK: Energy efficiency presents a $1B revenue opportunity at an investment of $520M. That’s a huge return on investment. This calculation doesn’t even include technological breakthroughs or behavioral change.
  • RP: There is an order of magnitude more solar energy available than all fossil fuels combined. NYC offers the densest solar PV potential on the planet.
  • RP: The solar PV industry has grown 50% a year over the past ten years. The price of modules has steadily decreased and will continue to do so. Currently the cost is roughly $4/watt and will be $1/watt in ten years.
  • RP: The real benefit of solar PV is that it doesn’t just offset fossil fuel needs; it’s a distributed power plant. [Editor: This only matter if you produce more electricity than you consumer, which isn’t the case with the majority of homeowners.]

Question 4: What are the barriers?

  • BG: First, for solar thermal, many of the systems are designed in Europe. Those systems won’t work in the US because we get 2-3 times the sunlight of Europe and the systems can’t handle that much excess heat. Second, most homes in the US used forced hot air for A/C. We cannot utilize solar thermal to offset the energy used in forced hot air. This isn’t a problem in Europe because most people have radiant cooling systems.
  • BG: The cost of natural gas is the other major barrier. With the increase in shale natural gas and the decrease in cost by 50%, it’s more difficult to make the case for solar thermal.
  • NK: Natural gas costs don’t impact energy efficiency strategies much.  [Editor: I wanted to hear him back up this statement. Presumably, if electricity costs less, than the ROI of energy efficiency strategies isn’t as great.]
  • NK: The barriers to broad adoption of energy efficiency strategies are many (displays slide). There are three categories: structural (e.g. fragmentation and lack of centralization), behavioral (e.g. most people aren’t thinking about their energy consumption), and availability (e.g. private banks aren’t willing to lend because they have a hard time calculating the risks).
  • RP: If you include societal benefits, the payback of solar PV is obvious. But most people look at the pure economic payback and this doesn’t include externalities such as societal benefits.
  • RP: The incentives structure is too complex. We should do what they did in Spain and use feed-in-tariffs [Editor: This is very expensive for government, partially contributing to Spain’s current financial troubles.]

Question #5: Where would you put your money?

  • LK: We look at solutions that are technology neutral, meaning we only look at performance. We’re not in the business of providing incentives, but if we were, we would focus on reductions first.
  • [Editor: each panelist agrees that efficiency is the first step, with BG advocating for solar thermal afterwards and RP advocating for solar PV. NK doesn’t even talk about technology as there’s so much opportunity with energy efficiency alone.]
  • Random audience member: Nuclear is the largest energy subsidy in the US, followed closely by fossil fuels. In comparison, renewable energy subsidies make up a very small amount of US energy subsidies. I suggest we get rid of all subsidies and show that renewable energy is cost-effective when you level the playing field.

What do you think? Where would/do you and/or your business put your investments? Is solar PV worth it? Why/why not?

All in all, the panelists were intelligent, provided sound reasoning, and on the same team. But there were some curious assertions, many of which I questioned throughout the transcript. Beyond those points, I have come to several of my own conclusions:

  • The biggest barrier to the feasibility of solar PV and other strategies and technologies is the cost of natural gas. I had the privilege to attend the RBC Capital Markets “Global Energy and Power Conference” last week. It was staggering to hear the earnings and projections of the shale natural gas companies. Many are looking at 25% plus growth over the next few years. With improvements in horizontal drilling technology and few regulations (EPA is currently investigating hydraulic fracturing, but not until 2012 and then again in 2014), natural gas prices will continue to stay low for at least the next 2-3 years and likely for quite some time after that. In some ways, the most strategic leverage for clean energy advocates is to raise the cost of natural gas. I’m not advocating that necessarily; cheap energy can stimulate the economy during a downturn. But I want to bring to light that for all the variation amongst the speakers, and beyond that with people that support alternatives to fossil fuels, the common thread is a massive threat from low-cost shale natural gas costs. If nothing else, we should be paying more attention to the major activity across the US to discover and produce natural gas from shale. As Bill Guiney from Johnson Controls said, “Money controls.”
  • Richard Perez’s main argument about the benefit of solar PV is that it is in essence a power station and not just a way to reduce your building’s fossil fuel energy consumption. I assume that the majority of buildings that use solar PV also use fossil fuel energy to supply energy that the solar PV isn’t able to. I’m having trouble finding research to supply my assertion (or Richard’s), so if you know of anything, please let me know. But the simple fact that Richard’s calculations included societal benefits (which most entities don’t factor in) and that the argument for the power-plant nature of solar PV (which the evidence for this position is lacking) leads me to believe that solar PV isn’t the most cost-effective strategy or technology to reduce US greenhouse gas emissions.
  • The argument that the US is losing (has already lost?) it’s strategic position as a renewable energy manufacturer has serious economic implications. If we look at the concentrated wealth in oil-producing nations, we can get a glimpse of the benefits that market leaders of renewable energy technologies will hold in the coming decades. Read my article about fracking here.
  • This morning I read an article in the Wall Street Journal on the top ten thriving industries in the US. Numbers 2, 4, and 7 respectively are: wind power, environmental consulting, and solar power.
  • It was also interesting that the speakers presented their data in terms of ROI, not IRR. Chris Williams wrote a great post on why this thinking is backwards.
  • Finally, the only mention of behavioral change was that it is a barrier to broad adoption of energy efficiency measures. This lack of attention to behavioral change was echoed in a panel I attended with Solar1 a few weeks ago on the “Value of a Negawatt” (post coming soon). This is not to say that other entities, such as entrepreneurs, aren’t paying attention to behavior change, but that many people looking at the necessary greenhouse gas emissions reductions aren’t counting on people to make the right choices.

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