02/04/09: Redirect: You can find my actual solar share production values here and my financial analysis of this program.
I bought a piece of a 1MW solar farm in Wilton through the SMUD solar shares program, a first-of-its-kind system in the nation, that allows people to purchase a share of this solar farm for a fixed monthly fee. My electric bill is charged this fee, but in return, my share of the PV production is credited back to the bill.
I am credited a fixed monthly PV production credit for 20 years. I am charged $53 per month for 20 years...to pay back the initial cost of installation. The production is 3,472 kWh per year, spread out monthly as PV production varies by month. The kWh credits 'reduce' my energy consumption by the same amount, and I'm billed the difference.
My expectation is that future energy prices, over the next 20 years, will rise faster than the historical average. I temper this expectation with observation: SMUD just increased rates 7% this year, while the end of 2009 will bring a near double digit increase, not to mention what 10, 15, and 20 years out might bring. Based on a 3.5% yearly rate increase (roughly the rate of inflation) I'll be dollars ahead by the year 2016. That is, my fixed $53 fee never changes, it's fixed for 20 years...but the credit will offset energy that (I believe) will be more expensive in the future.
An awesome system if you ask me. This solar farm takes advantage of better federal tax credits and economies of scale, and is built correctly (no shade and perfect orientation). I don't have an upfront cost, like I did with my own solar system, but instead I amortize it over 20 years. I also have a production guarantee of 3,472 kWh, each year, for the entire time I'm enrolled.
However, solar is a gamble. A gamble, because I could lose financially for any one of three reasons: 1) SMUD rates don't grow as fast as inflation; 2) I leave SMUD service and lose out on my early payments, or 3) solar technologies advance to where solar panels substantially drop in price during the next 20 years.
These concerns can be tempered.
I don't think #1 is realistic. I don't believe electricity in the future will be cheaper than it is today, in relative terms. For #2, I don't have any intention of leaving the SMUD service territory. Even if I move houses in Sacramento, my shares go with me. As for #3, well, this is the biggest unknown. Forty years of PV technology has led to what I am buying today, and there is no doubt that a technological advancement might make future PV so inexpensive that renders both my system and my solar share system obsolete. But...I'm gambling that this won't happen over the next 20 years, and it is a gamble I am willing to take. Why?
Because even if I lose out financially, I still win environmentally. That is as much a reason to engage in this as are dollars spent. People like me engage in such ventures, if nothing else, to help promote a viable PV market, spurring others to develop better PV technologies. It is also a socially responsible action.
More details to follow.
Edit, 1/6/2009: Regarding the #3 risk above, SMUDs program team plans to spread cost reductions for future PV capacity additions across ALL Solar Shares customers by aggregating the costs. That is, we will build into our rate structure a provision to meld the costs of early Solar Shares projects with later ones. If a new farm is brought on-line 8 years from now that is less expensive to build as this first one, then the rate structure (the monthly subscription fee) is modified to account for the difference. The subscription fee has the potential to be lowered (not raised) based on the fixed costs laid out for all Solar Shares projects, and benefits earlier participants who paid for more expensive PV power. Clearly, later participants then won't be afforded a PV solar share system that's as inexpensive as the last installation. This hedges against reduced future solar costs, something not available to me as a direct PV owner. Another reason Solar Shares is an awesome program relative to installing your own system.
However, this could easily be viewed as a subsidy; newer participants subsidize the earlier entrants...a Ponzi/Madoff scheme! Well, not exactly...consider that the current participants are, right now, entering into a proposition with an unproven track record; unproven throughout the industry, and are taking a financial risk. This risk may be mitigated by the potential for future rate restructuring.
SMUD is going to the board to raise rates again in 2009/2010. I'm 100% positive. Virtually every California utility will do the same, because utilities are all experiencing common issues:
- Customer revenues are all significantly down (no growth=no money, a common thread)
- Natural gas and commodities prices in 2008 led to high mid-term contractual pricing. The recent plummeting market price has certainly helped, but the vast majority of gas is purchased on contract, not on the spot market, and we aren't expecting much relief.
- Regulatory fees have increased faster than expected (not surprising if you look at all we have to now jump through to meet FERC reliability requirements.)
- CAISO is going to jack us with MRTU transmission wheeling cost increases.
- Credit market entanglements have reduced interest income on invested securities while interest costs on debt are higher.
- Employee health premiums are continuing to rise at an annual double digit rate (seemingly ad infinitum) and who believes we're gonna see those come down anytime soon? Even if premium increases slowed by half, that would still be ~5% per year.
- Another dismal water year.
Insania
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