Update: "Double A" America--Looking a Gift Solar Project in the Mouth, Part 1

Who would turn down “free money”?  Certainly not a city government in these troubled economic times.  So it was earlier this month when the Edina, Minnesota, City Council approved a 25-kW solar electric project to go on the roof of City Hall.  This $200,000 project will be delivered free to the City and will produce modest amounts of electricity that will offset purchases from the local utility valued at $1,300 per year.

Paying for 100 percent of the project are an $80,000 grant from the federal Department of Energy’s stimulus money (by way of the State of Minnesota) and a $120,000 rebate from the local electric utility.  The City will contribute, on net, nothing to the cost of project, but will pocket the $1,300 per year in electricity savings.  So it’s a great deal, right?

Looking at it from the perspective of the local residents, of course it is:  we just reduced the City’s annual operating budget by $1,300 per year for the next two decades.

But what about federal taxpayers?  We contributed $80,000 to the project (not including the interest on the money borrowed to finance the stimulus) and we will see none of that $1,300.

But what about the electric utility’s ratepayers?  We will contribute $120,000 to the project and not only will we not see that $1,300, but we will have to make up the lost margin to the utility on that foregone sale to the City every year.

So then how does “Society” fare from the project?  Collectively, we contribute $200,000 to the effort, in order to produce electricity valued at $1,300 per year.  In my world that represents a 150-year payback.  In reality the project will never pay for itself, because the equipment has a useful life of only a few decades, not centuries.

This vignette, although tiny in the grand scheme of our multi-trillion-dollar national debt, goes a long way to explaining why America is in the shape it is.  At no point did a market or a public official step in to say “no” to this uneconomic investment.

The City just acted in its own best interest.  The federal stimulus was intended for “shovel-ready” projects:  solid infrastructure investments that lacked only the seed capital needed to get started.  As it happened, this project arose solely to take advantage of the “free” money on offer.

The utility?  It is just doing what it was told by the state legislature:  offer a solar rebate to all who are eligible.  The utility was not given the discretion to vet the projects, only to process the requests. 

Just repeat this process over 50 states and thousands of municipalities and there you have a “double AA”-rated nation.

Update:  The latest edition of the Edina Sun Current has the story, and includes a quote from yours truly.