Economics, Energy and the Environment

Cash-strapped Schools Spend Millions on Solar?

At first look, I thought the headline on CNN’s weekend homepage was a wry joke accidentally lifted by a sleeper editor from a satirical outlet like The Onion. It read: “Cash-strapped schools spend millions on solar,” with the subtitle “A school district that’s lost $20 million in recent years due to budget cuts has spent millions on solar panels—all to save money.” This “spend money to save money” argument employs the kind of shaky logic that would make our ebullient vice president proud.

The article itself describes efforts by 90 school districts and colleges in California to install solar panels on school buildings in the hopes of trimming long-term electricity bills. The San Ramon Valley school district, for example, borrowed a cool $23 million in federal stimulus dollars to finance the work, and officials were immediately gushing about the potential savings. Terry Koehne, a district spokesman, estimated the panels would pay for themselves in 16 years. “It’s pure profit after that,” he said. “[We’re] going to start realizing savings of $2 (million), $3 (million), $4 million a year.”

This rationale—that the long-term energy savings outweigh the costs—is the only justifiable one for such a project at a time when states and districts are grappling with massive budget cuts. Yet lost amidst the hoopla and self-congratulation is an awareness of what it will take to actually realize these savings. (Special thanks to AEI scholar Ken Green, an authority on environmental issues, for helping to shed light on some of these economic realities.)

First, Green notes that solar panels are “notorious for losing efficiency when they get dusty. Nobody incorporates that cleaning cost and suboptimal performance in [cost] estimates.” Not only do solar panels get dusty, but they also get old. The average lifespan of a solar panel is often around 20 years—with decreasing efficiency as the years pass by—meaning the “pure profit” that Terry Koehne is dreaming about will likely last no more than four years, given the estimate that it’ll take 16 years for the project to pay off initial installation costs.

Second, the solar panels don’t cover all the district’s energy use, particularly on cloudy days. So the city or state will still have to build and operate enough conventional electrical sources to provide back-up power. Like the costs of cleaning the solar panels, the taxpayers will foot the bill for this additional source of power—one that will often be left idling and unused during sunny days.

Third, these low-interest federal loans aren’t costless. For one, it’s an example of Washington adding to a $1.7 trillion budget deficit in order to fund a pet project. While this might be a nice idea, the money is hardly free. Additionally, a private company would have paid much more in the open market for the same loan the federal government was able to offer these school districts at a discount. The difference between the interest rates for the market loan and the government loan is a subsidy—and it’s one borne by taxpayers.

Green suggests that schools could be one of the very few places where solar power is potentially a cost-savings decision, since schools use most of their energy during the daytime. Unfortunately, raiding the federal treasury to fund a project today—one that incurs a number of additional costs on local California taxpayers and with financial benefits that won’t be realized for almost another two decades—is hardly an example of fiscal responsibility. District leaders should be more attuned to the hidden costs and practical realities of their “cost-saving” endeavors.

3 thoughts on “Cash-strapped Schools Spend Millions on Solar?

  1. There is IMMEDIATE savings, but those are being applied to the debt service so there is NO general fund obligation to the school district. After 16 years, the district will own the equipment outright, the loan will be completely paid off and at no cost to the taxpayers. The manufacturer is maintaining the panels, and has guaranteed a 95% return on conservative energy saving estimates. If the actual return falls below 95%, the manufacturer will pay the difference. Plus, the federal stimulus funds applied to this project (which, again are paid off solely through energy savings) put thousands of local people to work.

    • Awww Terry, I worked for a solar panel company and we gotcha!! My company here in CA has no intention of maintining the panels we install and since we got them from China good luck on any help from the Manufacturer. My company got millions of the simulus funds and we did hire 2 people so that thousands of local people you talk about, never going to happen. We are the 4th largest Solar Panel Company in CA and unless we get millions more in simulus money we won’t be here in 5 years. If the economy was better I would go leave this job because I don’t like working for a company that is promising things that will never happen and the plan is to just wait until the lawsuits start then go out of business.
      Oh and Terry all that money you borrowed and that stimulus money, that came out of local Tax Payers pockets but hey who cares about them.

  2. Over the long term, these projects almost always fail. Businesses may be able to use a well polished alternative energy proposal to extract some level of cost reductions from your private electric utility, but be cautious of every proposal to add power generation to your facility.

    If one carefully reviews cost estimates of alternative energy generation projects that were funded and constructed, they often include naive or simplistic “project favorable” projections of costs and benefits flowing smoothly into future decades (e.g., steadily increasing electric utility energy and power rates (tariffs), slowly increasing operating and maintenance expenses, and uptime reliability that competes favorably with Viagra!).

    Short-term. After projects are built and integrated into operations, a high level of ongoing discipline is necessary to independently meter and monitor “actual” versus “proposed” energy and monthly demand cost savings. This is often found in first rate for-profit business organizations, but, rarely in governmental entities due to spendthrift cultures, not constrained by personal accountability.

    Mid-term. When the internal project champion leaves the organization, often these alternative energy projects are shut down for reasons such as: it breaks down too often; it’s causing problems with our compouter systems UPS; replacement parts are no longer supported; the manufacturer went bankrupt; or, the electric utility targeted these customers with discounted energy rates to eliminate the basic premise for the project.

    Think long-term. Fifteen years after a solar photovoltaic project is installed, you’re showing a new employee around the campus and he looks up on the roof and asks, “What do those black panels on the roof do for the business? How will you answer that question?

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