Thinking about going solar

I answered an ad by an outfit called One Block Off the Grid (1BOG) which organizes the installation of solar panels on people's roofs. When I say "organize", I mean not only that they take care of various complex logistical issues including lining up a NABCEP-certified installer, but also that they try to consolidate system purchases to bring costs down. Over the past couple of years this has become big business in the U.S. because of state and federal government incentives encouraging installation.

The 1BOG folks sent me a proposal with numbers in it, and I have 30 days to make a decision during which the proposed price is guaranteed. I also spoke briefly with SolarFlair, a similar outfit here in my town, that does the same sort of purchase consolidation and does the installation themselves. Since my 30 days is nearly expired, I'm hoping to drop into the SolarFlair office some time this week and talk numbers with them.

In my own state of Massachusetts, the situation is that people with solar panels produce SRECs (wikipedia, explanatory video) worth around $500 each time the solar panels produce a megawatt-hour.

Massachusetts' renewables portfolio standard (RPS) requires each regulated electricity supplier/provider serving retail customers in the state to include in the electricity it sells 15% qualifying renewables by December 31, 2020... Solar Renewable Energy Certificates (SRECs) represent the renewable attributes of solar generation, bundled in minimum denominations of one megawatt-hour (MWh) of production. Massachusetts' Solar Carve-Out provides a means for SRECs to be created and verified, and allows electric suppliers to buy these certificates in order to meet their solar RPS requirements. All electric suppliers must use SRECs to demonstrate compliance with the RPS. The price of SRECs is determined primarily by market availability, although the DOER has created a certain amount of market stability by establishing a state Solar Credit Clearinghouse Auction (where prices are fixed at $300/MWh), as well as the Solar Alternative Compliance Payment (SACP) for the state RPS (set at $550/MWh for 2011). The Solar Credit Clearinghouse will only be utilized if or when SREC generators cannot sell their SRECs on the open market; the fixed price of $300/MWh effectively acts as price floor. The SACP, on the other hand acts, acts as a ceiling on the value of SRECs because it is the per-MWh payment that electricity suppliers must make if they fail to obtain enough SRECs to cover their RPS obligation.

There is a federal tax credit of 30% on the cost of installation. I don't know if that's factored into the prices I've been quoted, and maybe I'd need to pay that myself upfront until I get the following year's federal tax rebate.

The 1BOG proposal offers options either to lease the system from 1BOG, or to pay for it outright at a cost of about $25K. I went to the credit union and applied for a 5-year fixed rate $25K home equity loan, with monthly payments of about $450. 1BOG proposes a system to create about 5.5 kW peak, and they are guessing that averages out to about 700 watts continuous, which is about 6 megawatts per year, for a yearly SREC income of $3200. The systems saves me about $100 per month on the electric bill, and when all the dust settles, my monthly expense is about the same as it is currently.

Five years later, the loan is paid off, the solar panels are my property free and clear, SREC income is reduced but not zero, and my electric bill is still substantially reduced or absent. And I will have set a good example for friends and neighbors that one can reduce one's carbon footprint without unreasonable financial hardship.

Honorable mention for BetterExplained.com website and its author, Kalid Azad

Kalid Azad's BetterExplained.com website has a lot of elegantly straightforward articles on interesting topics, many of them mathematical. He's doing some really interesting stuff, including a brilliant online calculator that you can use to embed calculations in web pages.

I'm not a Microsoft fanboy by any means, but I admire the video he made, using Windows 7 for humanitarian purposes.

In an article on happiness, Kalid includes a video of Steve Jobs's commencement address at Stanford. I'm really grateful that he included this.

Remember this is a guy who had a diagnosis of terminal cancer a year earlier.

Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle... All external expectations, all pride, all fear of embarrassment or failure -- these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

I recently left a job where I wasn't following my heart. The money was good and the rest of the economy was bad, so I spent a lot of energy and effort trying to make it work, but there was no passion or fun or excitement. So this talk resonates for me now.

Social policy bonds

Two earlier posts (one on DRM, the other on amortizing development cost) deal with cases where today's free market does a poor job of compensating somebody for something of value. I think these are what economists might call "missing market" problems -- it's not that a free market couldn't work in this situation, it's simply that we don't have the right market mechanisms in place yet.

One more approach to the missing market problem is the social policy bond, invented by New Zealand economist Ronnie Horesh. It works a bit like the X Prize or the Methuselah Mouse Prize, in that when something good is accomplished, somebody gets money. But with the X Prize, all the money goes to the winner (in that case Burt Rutan, who won the prize in 2004 flying SpaceShipOne), and none goes to the runners-up, or to the subcontractors who helped the winner win. The incentives in a one-winner prize therefore punish anybody who doesn't win.

Social policy bonds spread the winning money more fairly. Everybody who puts in time or money can get something back. In Horesh's vision it works like this. A deep-pocketed government announces that attaining some goal is a desirable social good. Tax money is put aside to bring about that goal in an economically efficient way. The government prints bonds which are redeemable for some large-ish amount of money when the goal is accomplished, and sells those bonds at a lower price to anybody who wants to buy them. The free market does the rest -- compensations will arrange themselves so that people work toward bringing about the goal, so that they can collect on the redemption of their bonds. People who would be potential prize winners (if the government were using a prize) can use the bonds as loan collateral to pay subcontractors.

This strikes me as a brilliant idea, although Horesh recognizes a potential free-rider problem with the scheme. When social policy bonds have been used in real life a few times, we'll have a better idea how big a problem that will be.

I like the idea that a social policy bond could be issued not by a government, but by an individual or private organization. There are two potential problems. One, an individual can't command the huge sums of money that a government can, so it might take thousands or millions of people each issuing privately-backed bonds to make something happen. Two, the issuer of a bond needs to have people believe that he/she/it will make good on the redemption, and there isn't an obvious mechanism how an individual can do this. Maybe there is some trustworthhy organization (like a bank? or Lloyd's of London?) that could hold the money in escrow. I've discussed the notion of privately-backed social policy bonds with Horesh in email, and he feels these two problems are prohibitive, but I still think it's worth a shot.