Thursday, April 23, 2015

Thoughts on the economic viability of solar power

On the Economic Viability of Solar Power

I have been reading and thinking a lot about the economic viability of solar panel.   This post contains some background on the industry and my thoughts on where I believe events are leading us.

Background:   The cost of solar power has fallen and its use has risen in some areas of the world.

Germany remains the leader in the use of solar power where around 7 percent of electricity is obtained from solar units.



By contrast, in the United States solar power accounts for roughly 0.46% of all electricity use.



There is great variability across states solar power capacity in the United States.  Data on total per capita solar capacity for 26 U.S. states sorted by per capita capacity was presented in line below


Arizona led the list with per capita capacity of 166.9.  Hawaii was second at 136.5

Florida, Texas and Georgia states where solar power should be viable based on climate had per capita capacity of 5.8, 5.3 and 2.3 respectively.

Issues related to the use of solar power in Hawaii were highlighted in a recent New York Times article.



A substantial portion of the solar power generated in Hawaii is from homeowner who have added panels to the roofs of their homes and who sell excess energy to the utility.  Solar adversely impacts utilities in two ways – (1) by reducing revenue and (2) by increasing costs associated with reclaiming power. Utilities in Hawaii stopped accepting energy from new homes with solar panels.   The state regulator recently ordered the utility to accept all customers.  Utilities are also pressing for fees applied to residences with solar panels to pay for the infrastructure needed to accept the new energy


Comments on Factors Impacting the
Growth of Solar Power

Comment One: Utilities claim they should be able to charge homeowners for the costs associated with accepting power generated from solar panels on roofs.  Utilities also want to be able to refuse to accept this power. Tesla appears to be very close to the announcement of a new battery that will effectively store energy and allow many homeowners with solar power to leave the grid.


Comment Two: Energy storage costs could be further reduced if homeowners share the costs of the battery purchase.   An independent firm that owned a battery storage unit could store excess energy for a group of homeowners for a fee.   Alternatively, it may make economic sense for homeowner in adjoining houses to share the cost of the battery purchase.  

Comment Three: One way to fund battery storage projects would be through the PACE program.   The PACE program allows companies to fund environmental projects by issuing bonds that are backed by assessments on homeowners.  Under this program a community could fund the purchase of batteries that stored excess energy from all solar panels in the industry.   Unfortunately (from my perspective) the Federal Housing Finance Administration ruled that mortgages issued in communities with PACE loans would not be eligible for Fannie Mae or Freddie Mac loan guarantees.   This ruling killed the PACE program given the dominance of Freddie Mac and Fannie Mae in the mortgage market.


My thoughts on the FHFA decision on the PACE program are presented below.

Comment Four:  It is apparent that the cost of solar power generated from roof top panels has fallen.   However, I am not sure that a properly done cost benefit analysis would motivate me to purchase a solar system at this time.   The primary reason for my caution is uncertainty about costs of keeping the system in working order and the likely usable life of the system.   Maintenance costs could overwhelm the potential savings from the system if say hail breaks panels.   Also forecasted savings might not be realized if the usable life of the system is shorter than expected.


Comment Five:  Gains from the sale of solar systems could be very large if the homeowner with the solar panel also owned an electric vehicle or was able to charge EV car owners for electricity generated from the Solar panel.  

Comment Six:  One way to take advantage of solar power without incurring the costs of putting solar panels on your roof is through solar sharing program.   Under a solar sharing program, people buy a share in a company that builds a solar generation unit  in exchange for a reduction in their utility bill.  See details of Solar sharing programs below.


Utilities would still lose revenue from the growth of solar sharing programs.  However, solar sharing does not force utilities to purchase excess energy.

Comment Seven: A number of factors influence the state supply of solar generation including – 1) weather, 2) rules governing right of homeowner with solar power to sell energy back to the grid, 3) cost of electric utility bills, and 4) state-level subsidies.

The high level of solar use in Hawaii is due to two factors the weather and the high utility costs.

Solar energy has received preferential regulatory and tax treatment in some northeastern states like New Jersey and New York but the use of solar panel in these states is limited due to weather and strong utilities.

Based on weather you would expect strong solar sales in Texas, North Carolina, Georgia and Florida.   Sales of solar in these states have been reduced by other factors including resistance by utilities.


Comment Eight:  A 30 percent federal tax credit for solar projects on commercial or residential projects currently exists.  The residential tax credit is scheduled to retire in 2016.   The commercial tax credit is scheduled to fall to 10 percent in 2016.


Tax issues are often arcane.

Not all fuel reduction equipment qualifies for credits so people have to check that equipment is certified. 


Many of the people who receive the residential tax credit pay the alternative minimum tax and will lose a portion of the tax credit.  The impact of the AMT on the value of credits can be substantial.

In some cases, the commercial organization that builds the solar project does not have taxable income to take advantage of the credit.   A separate investor might be able to fund the project and utilize the credit.

Comment Nine:  Some companies have created demand side management programs (DSM), which provide a financial incentive to move electricity consumption from peak hours when it is very expensive to off-peak hours when it is cheap.   Solar power, since it is plentiful during the hot periods of the day, also serves to reduce peak demand.   Solar power with battery storage would reduce both peak demand and off-peak demand.  See the following article on demand side management programs.




A quick search on the web revealed several dated articles on DSM program.  It appears as though utility enthusiasm for these programs varies greatly.  

Concluding Thoughts:

Improvements in technology are increasing the viability of solar energy but there is a lot of opposition from utilities.   In the United States, political support for solar power varies across states and the political environment appears correlated with the growth of solar power.

Elon Musk may have a large impact on solar through two channels.  The Tesla battery may allow homeowners with solar to leave the grid.   The electric vehicle will stimulate demand for solar panels on home by fueling cars at no additional cost.

The growth of cooperative groups that share energy from a common solar grid or share the costs of energy storage would stimulate the sale of solar power, especially in situations where utilities are not purchasing excess power or are imposing additional fees.




Wednesday, April 22, 2015

The FHFA kills PACE

Mortgage guarantees and PACE assessments
The Property Assessed Clean Energy (PACE) program would allow municipal governments to finance the up-front costs of home improvements designed to reduce energy and water consumption and provide clean power.   Under the PACE program, municipalities issue a bond and lend money to homeowners for energy conservation and environmental projects on the property.  The homeowner would pay back the loan through tax assessments, typically over a 15-year or a 20-year period.  The tax lien is attached to the property, not to the person who took out the loan.    A new owner continues to pay the tax lien once the property is sold.  In the case of a mortgage default, the tax lien on the property used to pay for the home improvement would take priority over the mortgage payments due the lender and guaranteed by Freddie Mac or Fannie Mae.
The Federal Housing Finance Agency (FHFA)  prohibited Fannie Mae and Freddie Mac from acquiring mortgages on homes that participated in the PACE program.  In 2011, a U.S. District Judge ordered FHFA to adopt rules codifying its action.  The ninth circuit   court of appeals has ruled that FHFA need not adopt formal rules when it acts as a conservator of the two agencies.
This post provides my thoughts on PACE and the FHFA decision.
Comment One: Financial risks imposed by the PACE program on Fannie Mae and Freddie Mac appear small compared to the myriad of problems ignored by FHFA prior to the housing market meltdown that led to the bankruptcy of the two housing agencies.
Comment Two:  The concern that PACE assessments will lead to higher foreclosure losses is valid but not unique.  There already exists a wide dispersion of tax assessments across states and communities because of dispersion in the general level of taxation and in the reliance on real estate taxes.  Neither Fannie Mae nor Freddie Mac restrict guarantees on mortgages in jurisdictions with high real estate tax assessments even though tax assessments always take priority over mortgage payments.  It would be useful to understand why the FHFA treats tax assessments for energy projects differently than tax assessments for other spending projects.
Comment Three:   It seems as though a PACE assessment on a home that does not have a current mortgage guaranteed by Freddie Mac or Fannie Mae would not impose any risk on the two agencies.  The agencies would simply have to avoid buying a loan on any property with a PACE assessment.
It also seems as though homes with PACE assessments should still be able to obtain financing through the jumbo market or other government guarantee programs.   Moreover, PACE projects on larger homes financed with jumbo loans should result in greater energy savings.  Even though Freddie Mac and Fannie Mae are the big players in this industry the other sectors are not insignificant.
Comment Four:  A recent paper found that mortgages on homes that have adopted fuel-savings projects have a lower default rate than mortgages on other homes.
The primary determinant of whether a homeowner defaults on his or her mortgage is whether household equity is negative.  However, most  homeowners with negative equity actually do not default on their home and lower energy costs reduces the likelihood of defaulting because the owner will experience an increase in costs at the new home.
The lower default rate for homeowners with energy savings improvements on their homes would decrease losses to Freddie Mae and Fannie Mac; thereby, offsetting some losses from the priority of the PACE assessment.
Comment Five:   FHFA does not oppose energy loans as long as the mortgage has priority in foreclosure.  However, the cost of the energy loan might be higher than PACE financing and payment problems from the new loan could increase defaults relative to the number of defaults that would have ocurred under a PACE program.
Moreover, households who anticipate moving are often reluctant to take out a loan with a longer duration than their expected time in the home. This reluctance is quite practical given uncertainty about the future value of the home.
Concluding thoughts:  I understand the FHFA is troubled over the priority that PACE assessments have over mortgage debt but I believe their reaction is disproportionate to the potential harm.  Where was this regulatory energy during the  housing bubble?
The FHFA decision to prohibit the PACE program is arbitrary.  Many states and communities have extremely high real estate assessments and mortgage payments are always secondary to tax liens.  The FHFA does not have general restrictions on loan guarantees in high real estate tax assessment jurisdictions.   Why has the PACE program been singled out?
Here are some other concerns and questions:
Taxes are not the only source of risk to Freddie Mac and Fannie Mae. A much larger source of risk is second mortgages and piggy back liens.   Often second mortgage holders demand and receive a payment from the first mortgage holder in order to restructure loans in foreclosure.    Could FHFA prohibit Freddie Mac and Fannie Mae from issuing piggy back loans.  Now that FHFA is the conservator could this change be done without a formal order?
Does the FHFA restriction on Freddie Mae and Fannie Mac create a profit making opportunity for a private firm willing to guarantee mortgages on homes with PACE assessments?
Would the restriction on PACE lending result in some support for a GSE reform or privatization proposal that would allow for a private entity to guarantee mortgages with PACE assessments?
Why did the FHFA decide to prohibit Freddie Mac and Fannie Mae from guaranteeing all  PACE loans?  Wouldn’t a risk-based guarantee price achieved a similar effect?
Here is some reading material on PACE.  Enjoy!!!!!

Tuesday, April 21, 2015

Even FDR and Ronald Reagan had competition!

Even FDR and Ronald Reagan had competition!

I am aghast about the state of affairs and the lack of competition in the Democratic Party.    Hillary Clinton is on her way to a coronation.   Not a single A-List Democrat has begun raising the money that would be needed to contest her for the nomination.

The lack of a robust debate in the Democratic Party in 2016 is bad for the party and terrible for the Nation.  It is especially bad for progressives in the party who will see the nation and the party drift to the right.

The whole reason for elections is to facilitate discussions about policies and approaches to problems.  I have no idea where Hillary Clinton stands on a host of issues.

·      Does she support or oppose Keystone?  Would she link passage of Keystone to additional environmental programs?
·      Does she favor linking the Social Security COLA to a modified CPI?   Would she link modifications to Social Security benefits to improvements in 401(k) plans?
·      Does she favor the Common Core curriculum?  Does she favor holding teachers accountable based on the test performance of their students?
·      Does she favor a new free trade agreement even if it overrides domestic initiatives on health and the environment?  Will she work for inclusion of provisions in future trade agreements that will also provide for incentives to reduce green house gas emissions?


Even the two most popular presidents of the twentieth century Franklin Delano Roosevelt and Ronald Reagan had to struggle for the nomination.


FDR had two main opponents Al Smith (a four-term governor of New York and the Presidential nominee of 1928) and John Garner (the Speaker of the House.)

Below are two excellent articles on FDR’s struggle in 1932.




In 1932 FDR’s opponents opposed interventionists economic policies to assist the economy.   The pro-business wing of the party controlled the DNC. FDR was an outsider.   Under 1932 rules the nominee needed a two-thirds majority to get the nomination.   FDR remained around 100 votes shy of the nomination after two ballots.  An attempt to split the vote of the Mississippi delegation in the third ballot failed.  The withdrawal of the John Garner led to Roosevelt’s delegation on the fourth vote.

Ronald Reagan in 1980 had previously fought for and lost a close battle for the nomination.   The 1976 contest between Gerald Ford and Ronald Reagan was every bit as close as the 2008 battle between Barack Obama and Hillary Clinton.   However, Ronald Reagan was not handed the nomination in 1980.   He had to earn it against several candidates with impressive resumes including George Bush (CIA director and Congressman), Howard Baker (Senator known for his role on Watergate), John Connnally  (A former Secretary of Treasury and Governor of Texas), John Anderson (Congressman), Bob Dole (Senator in leadership position, and Phil Crane (Congressman).

Many Americans had doubts about Ronald Reagan in 1980.   The contest for the nomination helped end these doubts among enough people to assure Ronald Reagan’s eventual victory.  

A tight primary contest will more often than not energize an entire party.
People are basically social animals.  They want to meet and discuss and do not enjoy small tightly controlled scripted events.  Congressional and Senatorial candidates campaign with and endorse different Presidential candidates and return the favor.   If things continue as they are all the energy will be on the Republican side in November 2016.

The Democrats and Hillary are heading for a huge disaster in November 2016.






Friday, April 17, 2015

Thoughts on Fast Track and Trade

The Democrats and Trade

The Democratic Party has surrendered.   There has always been tension between free traders and people worried about the consequence of trade on workers, domestic industries and the environment.   Free traders almost always win the big ones but usually the liberals get something of symbolic value. For example, in the NAFTA debate in the 1990s NAFTA was linked to the creation of a new infrastructure bank called NADBANK.   The new bank was created but never really got off the ground in any substantive way.

The enactment of the WTO did more than lower tariffs.   The WTO can and does overrule laws that aim to improve health, the environment, and finances if these laws somehow impede trade.


The decision by the Democratic leadership to agree to a fast track vote on a new free trade agreement given recent political actions by Republicans in Washington is galling.



Congress has basically dismembered the deal with Iran.  Other nations are signatories to this important nuclear deal.   No other leader was similarly undermined.   There is irony here.  Congress is agreeing to not review details of the free trade agreement and vote up or down at a time when they are asserting control over and will probably kill the nuclear deal.

Politics generally involves compromise.  Compromise often involves linkage.   The Democrats in Congress cannot even get a timely vote for President Obama’s AG nominee.    The Republicans would not tolerate having one of their AG nominee tied up for months. 

Hillary Clinton, the presumptive 2016 Democratic nominee does not make speeches on issues let alone Fast Track and Free Trade.   She probably supports it.  But no one knows what is in the free trade agreement.  It has not been fully negotiated.

I do not believe that free trade should have primacy over other concerns like the environment.   President Obama still has one lever.   The Administration controls what goes into the free trade agreement.   He could in principle negotiate and include a provision in the new trade agreement that linked lower tariffs and trade preferences to green house emission reductions among the signatories.

This has happened in the past albeit on a small scale.


Given the lack of debate in the Democratic Party I am not optimistic that this will happen.  









Friday, April 10, 2015

Student Debt and Bankruptcy -- Questions for Candidates


One of the areas that will not get much discussion unless a progressive candidate challenges Hillary Clinton is student debt. A second related area is bankruptcy law.   The issues of student loans and bankruptcy are high priorities for Elizabeth Warren.    Both Hillary Clinton and Joe Biden voted for the 2005 bankruptcy law, an act that continues to devastate many people struggling to remain in the middle class.

Issues Related to Student Debt and Bankruptcy

1.     The Income Based Replacement Loan Program allows for reduced payments on student loans in years where household income is low and for potential loan forgiveness after 20 years of payments?  Do you support this program?   Participation in the program appears to have been low.  Does the program need to be modified?

See web site below for a description of the IBR student loan program


2.     Unless a student borrower can show extreme hardship student loans are seldom if ever forgiven in bankruptcy.    Moreover, the IBR program providing the potential for some debt relief is only available for new borrowers and no debt relief programs are available for parents who cosign loans for children.   Could you envision and support some program providing debt relief to older borrowers?



3.     The 2005 Bankruptcy Act changed the rules on the discharge of privately issued student debt in bankruptcy.   Prior to the new bankruptcy law private student debt without a government guarantee was dischargeable in bankruptcy.   Under the current bankruptcy law the same rules govern the discharge of student debt regardless of whether the loan has a federal guarantee.    Privately issues student loans without a government guarantee generally have market rates based on the risk of the borrower.  Should private student loans without federal guarantees have the same priority in bankruptcy as loans guaranteed by the taxpayer?  What changes do you recommend in this area?





4.     One goal associated with Chapter 13 bankruptcy is to provide debtors with a fresh start after several years or repayments to creditors.   However, many bankruptcy courts do not give priority to student loans over credit cards or other forms of consumer debt in bankruptcy.  As a result, many borrowers are exiting the bankruptcy process with substantial amounts of unpaid debt.  Should the bankruptcy code be modified so that student debt has clear priority over consumer debt in bankruptcy?

I wrote this report!


5.     Should student loan interest rates be reduced?    Does this solve the problem?


6.     Part of the explosion in student debt and default on student involves the growth of for profit schools.  For profit schools are responsible for a disproportionate share of defaults on student loans.   What policies are needed to address the part of the problem?



This post is part of a series on policy questions for candidates.   Below is a post on questions pertaining to pension policy and Social Security,