Daniel Weintraub: SMUD subsidy isn't best deal under the sun

On a warm spring afternoon you can stand in a grassy field in Rancho Cordova on the outskirts of Sacramento and still see more cows than people. But soon this prairie will fill with more than a thousand houses. On their rooftops will be solar panels, subsidized by the Sacramento Municipal Utility District and its owners, the people of the capital region.

In an age when green is associated more with virtue than with envy or greed, solar power and Sacramento would seem to be a perfect match. The region is famous for its long, hot summers. It enjoys 320 days of sunshine a year. Why not turn all of that solar energy into electricity?

But as sensible as that notion seems at first blush, an argument can be made, and has been made, that the rush to subsidize the current solar technology is a boondoggle in the making.

That technology is expensive, more expensive than other alternatives to the electricity that comes from fossil fuels. And with more efficient and cheaper rooftop solar technology expected in the near future, Sacramento might be stuck with a big investment in panels that will have a lifespan of 20 to 30 years and won't ever return to ratepayers the money that was put into them.

"The cost of solar is very high," said Severin Borenstein, director of the UC Berkeley Energy Institute and a professor in the Haas Business School at the university.

Borenstein earlier this year published a research paper evaluating the economics of solar voltaic panel technology. In the paper, Borenstein gave solar the benefit of the doubt in several ways that earlier studies had not done. He took into account, for example, that solar panels produce more power during the hottest part of the day when buying electricity on the open market is most expensive. He gave solar credit for reducing transmission costs because its power does not need to be moved from a central plant to the home.

Borenstein assumed that the cost of electricity would increase by 5 percent a year, and interest rates, after inflation, would be only 1 percent. But even after all of that, Borenstein calculated that the cost of a solar photovoltaic installation today would be at least three times more than the benefit of the electricity it would produce over its lifetime. His conclusion: Rooftop solar simply does not pencil out.

"If the goal is to move toward greater use of renewable energy, there is wind, there's solar thermal, there's geothermal, there's biomass, there's improved energy efficiency," he said. "If the goal is to reduce the greenhouse gas footprint of SMUD's customers, any one of those alternatives will do it more efficiently than installing more solar photovoltaic panels."

Sacramento's public utility is considered the nation's leader in rooftop solar, and the latest deal with Woodside Homes to subsidize nearly 1,500 houses will be the largest such arrangement in the country, SMUD officials say. It will bring to more than 4,000 the total number of new homes the utility district has subsidized.

The solar subsidies to Woodside will cost the district's ratepayers about $5,000 per home, or more than $7 million in all. The builder will also receive federal tax credits of $2,000 per home, and the eventual homebuyers will be eligible for the same amount.

Jim Tracy, the utility district's chief financial officer, concedes that the current rooftop solar technology is not "cost effective" when compared with buying electricity on the open market and is not even the most efficient source of renewable energy. But the utility is under a state mandate to encourage its installation, and with the district paying only a portion of the cost, he thinks SMUD is getting a good deal for its money.

Tracy says the payments translate into a solar subsidy by the district of about 12 cents per kilowatt hour. With green "credits," the net cost to the district will be closer to 10 cents per kilowatt hour. And that is just about what it costs to buy a kilowatt hour of electricity on the open market at peak hour prices, he said.

Tracy's calculations make it sound as if the deals might be a wash for the residents and business owners who pay for the subsidies with a surcharge on their rates. But that's not really the case.

By helping pay for the installation of solar units on new homes, SMUD's non-solar ratepayers are paying for their new neighbors' electricity use, just as if they were sending them a check every month to help pay their electricity bill.

True, for every kilowatt of electricity the new homeowners get from the sun, that's one kilowatt SMUD won't have to buy on their behalf. But it's also one kilowatt for which the homeowners won't be paying. So while the cost of buying that power disappears from the district's budget, the revenue from the customer vanishes as well. What remains is the cost of the subsidy.

The sun may be free, but rooftop solar power is not. It's not even a bargain. Even in sunny Sacramento.

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• Call The Bee's Daniel Weintraub, (916) 321-1914.