The beauty of the Greek Trojan horse ultimately led to the downfall of Troy. Clean renewable energy is also very attractive, but it comes with a price.
While wind energy, especially in my home state of Wyoming, is now nearly competitive with other forms of energy, solar power remains relatively expensive. Recent technological advances in solar photovoltaic arrays are impressive but fall short of making this energy source competitive with electricity generated from coal and natural gas. The policy innovations by solar advocates to advance their industry in spite of these economic realities are equally impressive.
A proposed bill in the Georgia Legislature to allow citizens to “sign up for solar” is one such example. For many citizens, the question is, “What’s the catch?” Is this too good to be true? Unfortunately, the answer is probably yes.
More than 100 years ago, Marcus Samuel, founder of Shell Transport and Trading, envisioned fuel oil as a replacement for coal in shipping. His strategy was very simple: Create a market and get a contractual guarantee for future sales.
This is precisely what the proponents of this bill apparently are attempting to do. Environmentally concerned citizens of Georgia could be more than willing to sign up, especially if this comes with a promise that electric bills would decline. If citizens “sign up for solar,” there is now a demand for solar energy. Unlike the switch from coal to fuel oil in shipping, however, the net benefits of a switch to solar power in Georgia are unlikely to be significant.
So what’s the catch? Cost. Sunshine is great. You get a tan, vitamin D, and it’s free! You also can get burned. Collecting and converting sunshine to electric power involves some amazing technology, thanks to our space program. To buy this equipment, however, a homeowner must pay a cost roughly the equivalent of mid-sized automobile, $30,000 to $40,000. Recovering these costs from savings in purchased electricity can take a long time, especially since the sun does not shine at night or on cloudy days.
So who recovers these costs under the “sign up for solar” program? As the bill is written, the people who “sign up for solar” apparently would not bear these costs. If this is true, electricity ratepayers in Georgia — even the ones who don’t sign up for solar — likely will be stuck with the tab. While in the early years of such a program these costs would comprise a small percentage of the rate base, they would grow over time as the share of solar power increases and could significantly raise electric power costs.
Allowing consumers to choose their source of electric power is probably a good idea, but this should be done responsibly, providing full information on the costs of the decision, and ensuring they accept responsibility to pay the full cost associated with such choices. These simple principles could prevent the average ratepayer from becoming the “forgotten man.”
Timothy Considine is an economics professor at the University of Wyoming.
