Special financing cannot make a bad project good, it can only make a good project better.No idea who said that, but they were right!
One of the biggest problems with the types of incentives for energy retrofitting that have been common in the last 50 years is that they emphasize technology, not solutions. The truth is that every property is different, and even in a development of similar homes, we may still have individual differences, e.g. in terms of their orientation to the sun, or other individual specifics.
What is even worse is that these incentive programs have an unintended consequence in convincing unwary consumers to think that something must be a good idea because the government endorses it. The reality is that regardless of good intentions, some of these programs are utterly ill conceived, and others may be brilliant, but again, they are not equally applicable to every property, so you still need to do your homework. Compared to solar panels, in many properties, you might get more bang for your buck with a heat pump. And that’s just one example, there might be many more.
Tin Men and Worse
Remember the movie tin men? If not, make sure you catch it.
The idea is similar to the logic that car salesmen use: sell ’em on the payments. This trick was used extensively in the rooftop solar market. The logic was that if you paid $150 a month for electricity, that you could afford $140 a month for solar panels. The rest of the trick is simply stretching the payments far enough to bring the monthly payments down below the level of your current electric bill, so soon people were signing 20-year contracts for solar panels. To add insult to injury, most of those contracts also included annual escalation clauses, resulting in the fact that many rooftop solar PV customers ended up under water with their panels, and in some cases got stuck when trying to sell their property.
Knocking out Common Sense
The fundamental sales trick painted here is a knockout blow to common sense:
- People let the salesman frame the argument. The forceful salesman in effect shifts the attention towards his widget, when the realistic question should be: what would it do for my property?
- The first substitution is that, by focusing on the payments, the consumer now mentally accepts that energy is something you need to pay for forever. But the truth is renewable energy is in large part a make or buy decision, a decision that you can make it yourself cheaper than you could buy it.
- The second subtle deception is that the hard sell focuses on one item, but ignores that there are alternatives. The reality is that energy tech has developed so fast that there are multiple alternatives and the differences can make a huge difference that comes back both in your monthly operating costs and in the long term value of your property.
Make or Buy
The issue is that a lot of renewable energy technology amounts to ways of generating your own energy instead of buying it. Solar PV and Solar Thermal get energy from the sun. Wind power gets energy from the wind (which is indirectly also from the sun), and heat pumps extract BTUs from the ground or ground water, or from the air around us. For many retrofits, you can finance them for 5 or 7 years and be done paying, instead of paying for 20 years. And, if it comes to selling, you now do not have the hassle of having to have the buyer assume your lease or PPA (Power Purchase Agreement), at a rate that may be out of step by that time. An asset that becomes a part of your property, should not become an encumbrance.
There are so many alternatives potentially available, and to name just one example, let’s talk about the choice between solar thermal and solar PV. The efficiency of solar PV is about 22-25% these days, but the efficiency of solar thermal is about 95%. For the sake of this argument let’s assume your roof is the only place to put them. In many or most cases you cannot do both. If it is a retrofit on an existing property, solar PV is usually easier to integrate. But… for example DHW (Domestic Hot Water) may be as much as 50% of your heating bill. That always surprises people, but the truth is, you use hot water every day, and you heat only 3-5 moths out of the year, unless you live on the North Pole.
Solar PV has just been subsidized and promoted a lot more than solar thermal, but in many cases solar thermal may give you the bigger bang for your buck. I already mentioned heat pumps. In that area, ASHP have recently become so much more efficient that the incremental cost of GSHP, geothermal heat pumps is becoming hard to justify in many cases. But you have to do the calculations to see which options are real candidates and then to decide between them. The best projects will lower your monthly operating costs and also add significant value to your property, and this will become more and more important over time.
Subsidies Distort the Market
The big picture is that subsidies and incentives on technology distort the market and cause the wrong technologies to be selected for the job. I remember one installation with a backup water heater on natural gas, and the bookkeepers wanted to get the rebate that came with an energy star heater, but the engineers pointed out that if the unit was not running all the time (it was a backup heater), the heat recovery module would sit idle for long periods and be more likely to rot out and need regular replacement, which would cost more than the up-front savings from the rebate. In short, in this case a lower efficiency water heater without heat recovery was a better choice, even with a slightly higher gas consumption. The upshot is: you have to do the calculations or else you will never know and the bills do add up over time.