Monday, April 13, 2009

Green Or Not

Two recent stories highlight how difficult it is to promote responsible energy policy in the US.

The first is from the Los Angeles Times, describing how the hybrid car market more or less collapsed in the first quarter of 2009.

I'm curious why there is no mention of how the entire automobile market crashed at about the same time, that the hybrid market was hindered by dealer markup of perhaps $10,000 on the vehicles (the Prius I looked last year at had an MSRP of $24,000 and a sticker of $33,000), that the "hybrid" market includes such laughable examples as the Lexus RX400H and Cadillac Escalade Hybrid which aren't all that attractive economically in the first place, or that nobody's buying anything right now due at least in part to the fact that credit for autos is almost harder to find than a decent mortgage. According to the LAT, it's all about the price of gas, which admittedly has dropped from the $4/gal mark it hit in 08 and has only recently started climbing again.

On the other hand, this item from Washington Monthly gives one hope. It seems there's a growing market for solar power, centred in Gainesville, FL, and poised to be one of the next great growth industries. ECS Solar, one of the vendors listed in the article, has a fairly extensive Website, and lists that the local power utility has agreed to a Feed In Tariff of $0.32/kwh. A Feed In Tariff, as the Washington Monthly article states, is a premium paid to alternate energy producers that feed the utility's power grid, and is scaled to create an incentive for wind and solar projects.

I'm struck by the two entirely different flavors of the articles. On the one hand, what's essentially a household consumer durable good - the automobile - while experiencing the same catastrophic drop in demand as has all its peers (refrigerators, plasma TVs, etc), is treated as a special case just because "consumers refuse to pay a premium for a fuel-efficient vehicle now that the average price of a gallon of gasoline nationally has slipped below $2." On the other, we have major property owners - condo associations, businesses and apartment complexes - either ponying up wads of cash themselves or making sweetheart arrangements with solar proprietors to get panels on their roofs, because unlike the here-and-gone-again income tax credit for the hybrid car the FITs being touted are perhaps double the actual cost of the energy if those installing solar were to purchase it instead of producing it.

There's a great deal to be said for cost-effectiveness. It's true that for a hybrid vehicle to match the cost per mile values for its conventional counterpart it has to be kept and used for a substantial amount of time (something like five years or 75,000 or so miles). The up-front expenditure is substantial, and in the current market climate a working vehicle that is either owned outright or on manageable terms is considerably more attractive than the headaches and additional burdens of purchasing something newer and more fuel-efficient - assuming you're approved for the purchase at all. But if upfront costs were such a hurdle, then the solar industry would be in deep trouble.

I investigated a solar array for my building a year ago. We learned that our building could support a 1Mw array, but it would cost about $2.2 million to purchase and install. TECO, our electric provider, as of today does not offer a FIT, though it does buy back at retail rates and accepts inputs up to 2Mw (the previous limit was 25kw). One vendor offered to lease the equipment to us, taking our lease payments in terms of our electric consumption. Essentially, the building could lock in its electrical rate for the duration of the lease. So far, though, I cannot persuade the board to go further with this than additional study. However, each member I have spoken to has been intensely interested in the project: the hesitation comes from each's assumption that it will be difficult to persuade the others.

It boils down to costs, and to the understanding of costs incurred. The solar initiatives are gaining traction because they have a clear and measurable payback schedule; the hybrid car does not, and MPGs can be misleading. There is a growing respect for the Gallons Per Mile computation as a more accurate indicator of efficiency: you can read a fairly clear analysis here.

It also boils down to costs incurred by whom. Mid-sized industries (those large enough to own their own premises), housing complexes and the like are better placed to make large-scale leases or purchases of this sort than the average household. Indeed, the average household isn't in much of a position these days to lease or purchase anything not absolutely necessary.

The bottom line is that there remains a solid and growing market for energy-efficient and energy-alternate products. The trick is making them attractive - in any economic environment - for their respective consumers. It also helps if we can avoid bewailing how the US isn't interested in being efficient in a cheap-energy environment without considering other factors at all seriously.

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