CB -
Q & A on solar energy panels -
Q1. Why will a homeowner not install a solar energy panel on his roof without a tax incentive?
A1. The investment will produce an inferior rate of return as compared to other available investments.
Q2. Why is this?
A2. Its price is too high and/or the price of the energy saved is too low, or more probably, both.
Q3. Why is the price of the energy saved too low?
A3. Directly or indirectly, the price is controlled or capped by politicians or regulators responding to media-generated protests or the threat of same, as well as trying to buy votes and collect campaign contributions.
Q4. Why is the price of the panel too high?
A4. In part because of A3. The artificially low price of the energy to be saved limits the market demand for the panels, which in turn keeps their costs high in part due to low and inefficient manufacturing volumes.
Q5. Is the only cost problem low manufacturing volumes?
A5. No.
Q6. What else determines the cost of the panels?
A6. The retail price of the panel must cover all costs of manufacture and provide an adequate profit or return on investment to the manufacturer.
Q7. How can the costs be described?
A7. One way is to break up the costs vertically into raw materials, actual manufacture, advertising, transportation, distribution and, finally, actual retail sales.
Q8. Is there another way?
A8. Yes. All of the groups above can be combined into horizontal cost categories.
Q9. How is this done?
A9. All of the costs can be found in one of the following categories:
Raw Materials, Energy, Rent, Labor, Capital. If profits are added to the above, the total will be the retail price.
Q10. Is it really that simple?
A10. No. The categories are not fully independent. In particular, the categories of Raw Materials, Rent and Labor will include their own significant components of energy costs and all of the categories will contain Labor as well.
Q11. So the retail price can be entirely decomposed as above?
A11. No, we have left out the largest component, i.e. taxes.
Q12. Taxes?
A12. Yes. Every cost component includes a large proportion of embedded taxes.
Q13. Can an estimate be made of the cost components while separating out taxes?
A13. Silly question. The final retail price of a solar panel is estimated to consist of the following categories with all embedded taxes pulled out and combined :
Raw Materials - 5%
Energy -------- 15%
Rent ---------- 5%
Labor --------- 15%
Capital ------- 5%
Profits ------- 5%
Taxes --------- 50%
Total Retail -- 100%
Q14. Are these numbers meaningful?
A14. They are at least as meaningful as the Social Security Trust Fund.
Q15. Does the 50% content of taxes justify a 50% retail tax credit?
A15. Of course. The homeowners who vote get credit for the taxes that are collected in the income, payroll and gas taxes of the blue collar workers.
Q16. Is that the only benefit?
A16. Not at all. As the tax subsidy allows early manufacturers with political connections to go into production and distribution, this limits the available market for years to come for later arrivals who could build better products that could sell on their own merits if only they could operate on an economical scale. By failing to embrace the political economy, they deserve no pity as they live in their refrigerator boxes under the bridge, with neither electricity nor solar panels. (Nor sunlight)
Q17. Besides the tax benefits, there is the wonderful conservation of energy that results, right?
A17. Maybe. The processing of the raw materials, all of the manufacturing steps, transportation and commuting all use up a lot of energy themselves. With luck, and a long life, this will total less than the energy saved by the panels.
Q18. Are there any other considerations?
A18. Yes. It is a good way to take revenge on your neighbor when you move away. Assuming that the panels are a positive selling point for your house, your neighbor will see his property taxes increase when you sell and increase the local property valuations.
Q19. Is he defenseless against this strategy?
A19. No. He can respond to the new eyesore on your roof by collecting junk cars on his lawn and letting their fluids leak into the groundwater that supplies your well.
Q20. What can you do about this?
A20. Claim that your well provides the only mineral spring water in the county and that you were considering bottling and merchandising it to the local supermarket as a premium brand with an acquired taste. The secondary market is as a control solution for testing breathalyzers.
END
Regards, Don |
