Movies in the 1910's and '20s.
Freeways and sushi in the 60's.
Yoga in the 70's.
Bottled water in the 80's.
Smoking bans in the 90's.
Even martinis.
Keep yours eyes fixed on California. Crazy new trends always seem to start there, then soon appear elsewhere in the USA.
You've probably heard that before, and there definitely is some truth to it. Unquestionably, lots of trends begin in the Golden State.
It may be about to happen again, this time with home construction. Now it isn't that you're going to start seeing some crazy new home designs. Of course you might, but that's not the next big thing to come out of California. Instead, it's the idea of having all new homes built to generate solar power.
You read that correctly. California's Energy Commission has adopted a new set of rules requiring all new low rise new residential construction to include solar.
Depending upon your political persuasion, you might view that as absolutely wonderful … or absolutely terrible! I want to suggest that even if you're a die-hard conservative who hates more government regulation, this is one you should absolutely love! Let me explain why.
Unquestionably, solar power has been getting cheaper and cheaper. You've probably heard of Moore's Law, which says that the number of transistors on a computer chip doubles every 18 months. First posited by Gordon Moore in the mid-1960's, Moore's Law continues to work to this day, a half century later, and all of us benefit in one way or another from the increase in computer horsepower. The Iphone or Android phone in your purse or pocket wouldn't exist without Moore's Law.
Which brings me to Swanson's Law. Never heard of it? Well, Swanson's Law says that since the 1970's, every time the volume of solar panels put into production doubles, the price drops 20%. The cost of solar power has dropped by two thirds just in the past decade thanks to Swanson's Law.
With that, more and more people are retrofitting their homes with solar installations. Nevertheless, even though the price of solar keeps going down, solar systems remain fairly expensive to install and take a fairly long time to pay for themselves.
California's new law will likely change all of that. The reason has to do with what makes solar installation so expensive. It really isn't the cost of the solar panels. Instead, it's what is referred to as the "soft costs". Those are things like design, permitting, and installation. Anyone who has ever done a home remodeling job knows how expensive it can be. Experts at the US Department of Energy estimate that in typical retro-fit installations of solar panels in a home, two thirds of the total is soft costs.
If the solar panels and control system are installed when the home is built, much of that cost goes away. Oh yes, the solar panels probably will cost the same, but the soft costs will be dramatically lower.
California's Energy Commission estimates that the cost of solar power in a home where the system is included in original construction will be only 2.5 cents/kilowatt hour. Here's how they came up with that estimate:
- The typical residential system will produce 3,015 watts and will generate 133,630 kilowatt hours over 30 years (i.e., 4,785 KWH/year with a 0.5% annual degradation due to system aging)
- As part of new construction, the solar system will cost $ 3,381
- The cost/KWH over the lifetime of the system will be 2.5 cents.
That 2.5 cents/KWH may not be meaningful until you consider what the average homeowner pays for electricity. Idaho has the lowest average cost/KWH and it is 8.0 cents. The second highest is New York at 18.1 cents. Hawaii is the true outlier with an average KWH of 33.2 cents!
So even if you live in the state with the lowest average cost of electricity – Idaho – you stand to save a lot of money if your solar system is an original part of your home.
California is on the higher end, as you might expect, with an average KWH cost of 15.2 cents. It's estimated that the extra cost of the solar system - $ 3,381 on the cost of the new home – will increase a typical 30 year mortgage payment by $ 17/month. That's offset by an estimated $ 80/month in electricity expense, clearly a bargain.
Which leads me back to why everyone – even diehard conservatives – ought to love what California is proposing. No need to discuss why liberals and progressives should love this. After all, built in solar means that much less greenhouse gas emitted into the atmosphere.
So why should a diehard conservative love this, especially one who doesn't even believe in global warming?
They should love it because it creates another good way to help people save money and make money. The new homeowner clearly can save money, so let's turn to how this mandate could be a moneymaking proposition.
Banks should like it because it increases the size of the average mortgage, but it provides a built in means to more than pay the extra cost. Going back to the California example, the average homeowner will pay an extra $ 17/month on the mortgage but save $ 80/month in electricity.
What about the electric utility that supplies power? At first glance, one would expect electric power providers to hate this. They'll be selling less power and making less money. Well, they'll be selling less power, but I think they actually could end up making more money. That's because the utilities could develop new sources of revenue and also reduce their own costs.
They could reduce their costs by buying up excess power generated by these new home installations. The utility could offer to pay the homeowner 2.5 cents/KWH for excess power generated. The typical cost to generate power by an electric utility around the country is substantially higher than 2.5 cents/KWH. Thus, every KWH purchased by the utility would reduce its own costs. That's especially true in the case of peak load demand.
The second way the utility could benefit would be to install and rent batteries to the homeowner. The homeowner will probably generate excess power during the day but needs power in the evening and nighttime. Thus, some type of battery storage will be required. The utility could purchase such batteries, install and maintain them. They could charge the homeowner monthly rent on it. It could easily become a profit center for the utility.
The third possibility is for the utility to pay the cost of home solar system and rent it to the homeowner. That would get the system into the utility's installed asset base and permit to earn a rate of return on it. This is much the same as cable TV equipment installed in the user's home that is rented to the user. It's estimated that the new California requirement will create additional solar capacity at $ 1.12 cents/watt of generation. That's pretty close to the cost of building large scale solar plants. It might even be less in certain states where the cost of construction is lower. After all, everything in California is expensive! So instead of building X watts of new capacity, the utility might opt to pay for the cost of new systems for the homeowner. The utility should be able to work out pricing that cover the cost of the new system for the homeowner as well as provide a good economic return to the utility. This approach likely won't cover all growth in electric demand, but it could have a significant impact.
The utility will still be installing and maintaining large power production plants, but it creates the possibility of the utility thinking of its residential customers collectively as another power plant. In this case, it would be a power plant that produces power at very low costs. Not only that, it would be a power source that requires little or no capital investment by the utility.
The economics of solar system installation at time of home construction appear pretty compelling. That's true not only in California but in the entire rest of the country. During 2017 there were 614,000 new homes sold in the USA. If every new home included a built in solar system, pretty much everyone would benefit. Which brings us back to Swanson's Law. All those additional solar system sales would make the price of solar continue to decrease
Is California's move a panacea? Of course not! But it presages the future. More importantly, as I've shown above, it's something that everyone could come to embrace. Even if you think global warming is a hoax, you'll likely pay attention if it means you can save money or make money.
So the people who first brought you movies, martinis, and freeways may now be bringing you a way both to reduce greenhouse gases and make money.
