Marketing Solar: Bring in Elizabeth Warren?
Last month, my husband opened the door to a solicitor from a solar company and eventually agreed to let the polite young gentleman on our porch order a quote for our family to go solar. The three-page form that the company sent had several very misleading figures. I was appalled.
Let me be clear – I am no foe of solar. At some fundamental level, I can see the appeal. If we really want to reduce carbon emissions dramatically and address global warming, solar power of some form likely has to be part of the global solution.
But, I do not think companies should be allowed to misrepresent information.
Here’s half of the first page of our quote:
(I am not revealing the company’s name because I don’t want to out any one person or company. I will say that this is no fly-by-night outfit.) From the first two numbers under “YOUR FINANCIAL BENEFITS,” it looks like we will spend approximately $12,400 and save $39,500. And, if you look more closely at the savings, they are net of the upfront cost. How could we not sign up right away? Seems like we would be ripping up a check for $39,500, right?
Go to the second page, and you see how the company calculated the $39,500. They’re adding up savings over the next twenty five years without discounting savings in the future. This company would fail my colleagues’ introductory finance course.
We would pay the costs of $12,400 in today’s dollars, in order to save $3,576 in the year 2038, assuming we’re lucky enough to be alive and buying $100 cheese pizza for our grandchildren.
There’s another part of the quote that’s potentially misleading. The savings the company projects reflect their estimates about our electricity bills in the future. The first two columns on the second page of our quote titled “Utility Without Solar” and “Utility With Solar” are their guesses about what our electricity bills will be with and without solar. The difference between these columns yields their “Annual Savings” estimate. The columns embed assumptions about how our usage and electricity prices will change over the next 25 years.
The company estimates that our utility bills without solar will go up by more than 5 percent a year. The escalation in electricity payments is also reflected in the upwards slope of the red and blue lines on the first page of our quote.
It’s not clear from our quote which part of this is the growth in electricity prices and which part is the growth in our usage, but apparently other solar companies break out the components. Greentech Media reports that a gentleman in California has sued Sunrun, the company that convinced him to lease a solar system, for deceptive marketing. The company’s promotional material suggested that utility prices would go up by 5 to 6 percent, while his have leveled off since he bought his system in 2011.
There are at least two more components of the quote that are misleading, but this post is already long, so I will continue with another installment.
Certainly, some people want to go solar for reasons other than saving money on their utility bills, and for them, the numbers aren’t important. But, for the rest of us, who want reliable guidance on how much money we will save with a large financial decision, companies like the one on our porch are doing a disservice. It’s time to impose better oversight on the way these companies present information.
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Catherine Wolfram View All
Catherine Wolfram is the William F. Pounds Professor of Energy Economics at the MIT Sloan School of Management. She previously served as the Cora Jane Flood Professor of Business Administration at the Haas School of Business at UC Berkeley. From March 2021 to October 2022, she served as the Deputy Assistant Secretary for Climate and Energy Economics at the U.S. Treasury, while on leave from UC Berkeley. Before leaving for government service, she was the Program Director of the National Bureau of Economic Research’s Environment and Energy Economics Program, Faculty Affiliate of the Energy Institute at Haas from 2000 to 2023, as well as Faculty Director of the Energy Institute from 2009 to 2018. Before joining the faculty at UC Berkeley, she was an Assistant Professor of Economics at Harvard. Wolfram has published extensively on the economics of energy markets. Her work has analyzed rural electrification programs in the developing world, energy efficiency programs in the US, the effects of environmental regulation on energy markets and the impact of privatization and restructuring in the US and UK. She is currently working on several projects at the intersection of climate and trade. She received a PhD in Economics from MIT in 1996 and an AB from Harvard in 1989.
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The other unmentioned assumption in the analysis is the residential rate design. If there are major changes in residential rate design, then some benefits might be lost (e.g., if the system is sized to take advantage of high top-tier rates and the differentials shrink or if there is a fixed charge implemented that is unavoidable by self-generation).
Looks like the work of Sungevity
its good for the long term health of PV in California.
Thanks for your insight, Rik M! You provided some much need background information to the discussion
In the early 1980’s I got a solar water heating system; there were rebates (Fed and CA I think) that made the net cost that year somewhat lower. About 7 years later the system sensors, motor, controller, etc ‘died’. In those 9 years I barely saved enough to pay for the cost of the system. (BTW I had a ‘gold plated’ lifetime warranty ‘certificate’; there was fine print which was difficult to read, but said among other things ‘labor and parts excluded’!) I had to offer the buyer a DISCOUNT on the sale price to remove the panels. So there was property depreciation.
One must also remember that in this field there is still a lot of tech improvement coming, and a 10 year old system may make no market value contribution at the sale of the property.
A true analysis must include repair-maintenance, or be 100% warranty covered, labor and parts, by a durable dependable company which will be around when you need the service.
Just like the expectation on life of LED lights is exaggerated (based mostly on an observation over 25 years ago that the LED chip was still giving off some light after 50K hours), one must factor in the lifetime costs. The power electronic components are the weak link in PV and LEDs, and must be easily customer replaceable for the economics to work out.
Thats a great point, Azmat. Fortunately for PV, lots of installation companies are offering 20 year full service, maintenance, and insurance agreements, with escrow accounts backed by companies like US Bank, Google, and others. Most also offer minimum production guarantees for 20 years, supported by manufacturers 25 year materials warranties on panels.
Hmm- maybe thats why so many companies are moving to a lease/PPA model which show instant savings for no cost. Companies that are still hawking the traditional cash model are frequently expensive and buying anything from a door to door salesman without a competitive bid is never adviseable per the CSLB.
@Jurgen- Solar is property tax exempt. The appreciation is not realized until the home is sold so the initial buyer would never be responsible for higher taxes by going solar. The new homeowner would only have to pay higher taxes on whatever the gross cost of the property was… just like any other home purchased with improvements.
@Jardinero1 – If you had to bet whether the cost of Natural Gas, coal, and other power sources (currently provided by profit seeking, publicly traded utilites) were going to increase or decrease with time, what would you guess? Expecting rates to drop forever from non-renewable sources is nearly impossible – just look at fuel costs.
Also, while individual rates per tier (assuming you are on a tiered system) may have dropped, the amount of power allocated to the cheapest tiers is continually declining (causing you to jump into higher, more expensive tiers faster). So your overall costs of electricity are likely still increasing.
Barring regulatory pressures to the contrary, I expect the cost per kwh of Natural Gas and coal fired electricity to continue dropping for another decade or two. Property taxation varies by state. In Texas, you pay tax on the current years valuation. If your valuation goes up, your taxes go up.
Guess i better sell my stock in PG&E/SDG&E then if theyre going to be seeing decreasing net income AND have to be maintaining a an outdated grid!
http://articles.latimes.com/2012/jun/24/local/la-me-san-onofre-20120624
Considering the war on ‘carbon’ and other emissions, many regulations against coal are underway (not saying they’re right or wrong)
http://www.foxnews.com/politics/2013/03/04/obama-to-tap-top-climate-crusader-for-epa/
This is especially critical since the EPA is lobbying to have most by-products of coal firing to be labeled as carcinogens- most notably coal ash. Which I am guessing will show higher rates (in California).
Correction: Since this article was written regarding solar/incentives/rates/etc in California specifically, I assumed that the questions regarding taxes was applicable to California. in texas, electric rates are heavily subsidized and therefore solar rarely makes sense there. Fortunately, many states label solar as property tax exempt. I apologize for the confusion
I am unable to reply to your comment below – below the comment, so I comment – above the comment.
My assertion of declining electric rates is for production, not transmission, which is a different matter. In Texas, our electric market is bifurcated, with transmission, legally separate from production. Production is allocated to a wholesale market where retailers bid/purchase and then re-sell to electric consumers. Consumer electric bills consist of a charge for production from the retailer and a toll to the transmission company. The Texas electric market is mostly unsubsidized. The only part of Texas electricity production which enjoys a direct subsidy is wind; who receive a direct payment of 2.5 cents per kwh from the federal government. The rest of the producers do not receive a direct subsidy for production like the wind producers.
With regard to your first statement. Higher profits are achieved via increased productivity not higher prices. A producer can achieve higher profits in the face of declining market prices with better productivity. I stand by my hypothesis of lower future electric rates barring unforeseen political pressure to the contrary.
This is a long time ago for some people but in the 1980s there were a number of solar fraud (usually had to do with water heating) and QF fraud cases (having to do with misrepresenting particularly wind QFs to investors) brought by the California Attorney General in federal court. Everything from exaggerated avoided costs, oil prices, lack of discounting, and misuse of energy agency forecasts. And jail time resulted for some/
Good post Catherine — I think what this post highlights is not an uncommon problem in the industry for all long-term cash flow analyses. Good firms specializing in engineering, forecasting, energy policy and energy economics are few and far between.
As a consolation to your unnamed firm, I’ve heard horror stories of a solar quotes based on simple payback.
I suppose you might question the home appreciation number, too. And if the house really does appreciate, did you get an estimate of the additional real estate taxes you will have to pay? While I totally agree with you about the need to force honest comparisons, I guess it may be worth pointing out that if the savings numbers (in terms of kWh) are reasonable, the discounted value of the savings would likely still exceed the upfront cost. So enforce “truth” in information disclosure, but don’t suggest that with recent cost declines we may not be entering a period where the economics begin to be interesting – even if properly calculated.
Where I live electric rates have fallen by about forty percent over the last 10 years. Rising electric rates are not always a valid assumption. There is no net savings to a grid tied electric consumer from solar power. The only reason for a grid tied customer to go solar would be for the personal satisfaction. A non-grid tied customer might have practical reasons to utilize solar, in whole or part, after comparing it to other power generation methods.