I just moved into a condominium with an active and very involved home owners association. The condominium complex is a little over four years old and since its inception it has been committed to the practice of “green and sustainable living,” a self-ennobling, if a bit vague, ethos.
Every year the HOA (home owners association) conducts a line-item budget review and this year I happened to notice an $11,000 payment for a “solar loan.” Three years ago, the community decided to promote the use of alternative energy sources and reduce its dependence on electrical energy provided by the local utility, Pacific Gas and Electric. So the HOA board approved the acquisition of a bank of solar panels that would provide electricity for the community common house as well as lighting for all the outdoor common areas like parking lots, car ports and walkways. There was also the hope that by producing a net surplus of electricity that the meter would begin to run backwards and yield a little bit of revenue.
Curious, I asked what the details of the solar investment were. A member of the finance committee said that the cost of the solar panels plus installation was a bit over $100,000 and this was after any applicable subsidies, tax credits or rebates. The current solar loan carries a 6% (variable) interest rate. Next, I asked when the anticipated breakeven* would be. The committee member said he wasn’t sure. That made me even more curious and so I poked around further. I asked what we were spending on electricity prior to the installation of the solar panels. Copies of the utility bills revealed an average monthly expenditure of $833.
OK… now for some back-of-a-napkin breakeven analysis. First the assumptions, a 6% annual increase in energy costs and a (steady but unrealistic) 6% interest rate for the remaining 10 years of the loan. There is no adjustment for inflation. Also, the opportunity costs of what else you could have done with that money are not factored into this brief analysis.
So what’s the “net net?” Well, it will take forty-six years before this condominium community sees breakeven. It’s unlikely that anyone living in this community today will ever see a savings on their already high HOA dues. Forty-six years even is far longer than the anticipated life of the solar panels themselves.
I mentioned this number to a couple of members of the association’s finance committee. One told me that no real cost-benefit analysis was done prior to the decision to move ahead with purchase and when he sent out an email to all indicating that the system would cost far more than we would ever save he was chided by some for being “negative” and not in keeping with the values of the community. Another finance committee member said it didn’t matter because “we wanted to invest in this emerging alternative energy technology.”
Solar has been around for a long time. It’s not a new technology. The reason it is still “emerging” is because unless it is heavily subsidized by government or unless the cost of conventional energy sources skyrocket (due to market forces or fiscal policy), there is no way that it makes any financial sense to install solar arrays, windmills or a host of other alternative energy sources.
What my community wanted to do was to make a statement, a statement of support for, and a commitment to “investment in sustainable green energy.” Unfortunately they unwittingly made another statement… that with “investments” like this only the wealthy can afford to be green.
