Butler: The sun shines on investors who saw the light
The last time I wrote about the economics of solar panels as a wise investment was back in 2011. That was after a time when former Vice President Dick Cheney had described renewable energy adherents as “naive” and California utilities had lobbied successfully to limit renewable energy sources to 15 percent of the total power supply.
Fortunately for all of us, including those nonbelievers, we’ve since come a long way while watching renewable energy ride a wave of powerful market forces — fueled by common sense.
Just how wrong have the experts been? My friend Ashok Vaish, a retired nuclear engineer and venture capitalist, says it all in his excellent blog, “The Capitalist Muse.” He points out that the U.S. Energy Information Administration published a 2016 report that predicted renewable (nonfossil) fuels will constitute 22 percent of world energy use by 2020. “Solar will be the fastest growing at 9 percent per year, but still not enough to change the landscape much by 2040.”
In fact, solar is already producing as much this year as these experts predicted for 2020. India’s number, for example, was 50 percent higher by year end over what was predicted for 2016. In California, the goal of reaching 50 percent of its energy consumption from renewable sources by 2030 was written into law in 2015. This month, a new bill was introduced increasing the goal to 60 percent, considering a trajectory that shows us overshooting even our ambitious current goal. By 2040, the expectation reflected in the new bill is that 100 percent of California’s energy use will be coming from renewable sources.
In the trenches, where this matters to folks like us, the installation of roof-top solar systems is growing at an exponential rate. Anyone with some sun on their roof earning nothing in a money market fund has figured out by now that investing $15,000 or less on a roof-top system may save more than $2,000 on electricity, and this is an after-tax return. A taxable investment would have to earn close to $3,000 pretax for most Californians in a 33 percent combined state and federal marginal tax bracket on their last few dollars of income.
Of course, solar panels are not exactly liquid — like a money market fund — but they are proving to have resale value reflected in the eventual sale price of the home. So investors need to disabuse themselves of the old mentality requiring “payback,” in which the savings on power add up to what the panels cost. It doesn’t work that way. This investment is like any other whereby we compare its annual after-tax return against those of any other guaranteed fixed-income investment. Solar wins it hands down.
Electric cars, more than just toys, have demonstrated that they are viable for more than just short trips to and from work or the mall. With ranges of up to 300 miles, Chevrolet and other automakers have seen the handwriting on the wall, and the lure of fuel-free, service-free and noise-free, high-performance transportation has captivated auto buyers worldwide. More than 500,000 have sent their $1,000 deposits to Tesla to wait in line for its new mid-priced Model 3.
What could be sweeter than free, solar-sourced electricity to run a home full of lights, computers entertainment centers, heating/air conditioning, pool pumps and one or two cars?
How about all the jobs and economic growth created? Today, building, installing and maintaining renewable energy sources is one of the fastest-growing job sectors in the country. Wind and solar combined employ almost 400,000 today, and the number is growing exponentially at more than 50,000 new jobs per year. Compare this to coal, which employs 70,000 and whose jobs we are bending over backward to protect.
Coal and petroleum companies are capital intensive and employ relatively few people for their size. By comparison, renewable energy service and installation work spreads job opportunities and money throughout every corner of the United States. Like desktop computers, it is clearly a game-changing event that will turn coal mining towns into ghost towns, and today’s ghost towns — like Bodie, California (with its wind and sun) — back into thriving energy producers.
As The Capitalist Muse counsels on the subject, we should consider this sea change when choosing our investments.