<DrumBeat: January 7, 2009 The Oil Drum DrumBeat: January 8, 2009>

130 comments on Arizona Solar Power Project Calculations

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toilforoil on January 7, 2009 - 12:26pm Permalink | Subthread | Parent | Comments top

I agree with your direction, Paleocon. However, a major problem with achieving efficiencies in industrial and commercial buildings arises from the fact that commonly the name on the utility bill is not the building's owner. What is the incentive for a tenant to increase the building's energy efficiency, when he/she may be not be around to realize the benefit?

Has this problem been tackled anywhere?

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robert2734 on January 7, 2009 - 12:53pm Permalink | Subthread | Parent | Comments top

Even for residential buildings, the owner isn't necessarily the renter. I rented an apartment here in Tucson with electric water heating, electric everything. The electric bill was my responsibility. I figured the apartment complex could save their tenants a lot of money by installing solar hot water heaters, but then they have to advertise a higher rent number. My solution is smarter renters who look at the total cost, rent+utilities.

Robert a Tucson

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Engineer-Poet on January 7, 2009 - 1:54pm Permalink | Subthread | Parent | Comments top

Smarter renters can't do squat if landlords don't try selling efficiency.

A more direct system would be to require landlords to include X BTU of space heat and DHW in the rent, and let them figure out if renewables are economical.

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robert2734 on January 7, 2009 - 3:19pm Permalink | Subthread | Parent | Comments top

Yeah. But smarter landlords can't do squat if nobody will pay the extra rent. If there's a demand for energy efficient units, I expect the market to meet it. Landlords can try advertising the efficiency of their units but I don't know if that would succeed.

Space heat isn't an issue in Tucson. There's already a nationwide law requiring all new air conditioners to be at least SEER 13. Israel requires all units to have solar hot water heaters but it's a small country that's all desert. Arizona could pass a law like that but I don't know how well solar hot water works in Idaho or New York.

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Engineer-Poet on January 7, 2009 - 4:07pm Permalink | Subthread | Parent | Comments top

Everybody would be paying the extra rent (and less in the utility bills), so all the landlords would start out equal; it's just a question of how much it costs the landlord to deliver the X BTU/month, and thus how much of the rent they get to keep.

I expect wide regional variations in such laws; what matters is that they apply to all equivalent units in a market.

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Paleocon on January 7, 2009 - 3:42pm Permalink | Subthread | Parent | Comments top

You're going to require landlords to spend a bunch of money and raise rents? What about the people who complain about the lack of affordable housing?

It makes zero sense to hold landlords to a different standard than homeowners. Just upping the efficiency of new units and new construction is about the best you can do, unless you're willing to foot the bill.

Heck, even the SEER 13 law shifted the repair/replace value point considerably, and grey-market coils are still avialable for repair applications. Unless you provide funding, such changes will take 20 years to roll into full effect.

Much higher energy prices makes it all happen automatically. It's just a painful mechanism.

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Nick on January 7, 2009 - 4:34pm Permalink | Subthread | Parent | Comments top

"You're going to require landlords to spend a bunch of money and raise rents? What about the people who complain about the lack of affordable housing?"

Does it really raise rates, if the greater efficiency pays for itself? Don't most of these pay for themselves, if you amortize the cost over the life of the improvement?

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Paleocon on January 8, 2009 - 10:08am Permalink | Subthread | Parent | Comments top

You can't amortize the expense very long without lending assistance. You can't as readily get second mortgages and low-cost money for investment property improvements, so 20-year paybacks would be impossible. It'll take some sort of gov't structured program to make it work very well, or only cash-flush small-time landlords will be likely to consider such improvements.

And no, the efficiency will not pay for itself, as the lower rents will always win regardless of efficiency. Some places premium rents go for location, but most people cannot see past the $/month for rent for potential savings on energy. They will instead convince themselves that they could use less in the cheaper place and that the numbers for the efficient place aren't "real" for their situation.

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enemy of state on January 7, 2009 - 5:18pm Permalink | Subthread | Parent | Comments top

Much higher energy prices makes it all happen automatically. It's just a painful mechanism.

Only if the customers are well informed and rational. The penetration of CFL here in Northern California, where many are paying $.35 KWhr (marginal rates for people who use a lot), is still pretty low (under 50%). Just having cost effective solutions available, doesn't mean they will be widely utilized.

Then think of the typical industrial situation. Costs are compartmentalized. One department is responsible for capital expenditures, another for operating costs. If the manager of the former buys a premium priced unit which will pay for itself by cutting the operational budget, he may still have to answer to the COO for exceeding his capital budget! There is a lot of inertia, both institutional, and psychological. This means that the actually deployed systems are far behind current (economics tuned) optimal solutions.

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Engineer-Poet on January 7, 2009 - 7:33pm Permalink | Subthread | Parent | Comments top

You're going to require landlords to spend a bunch of money and raise rents? What about the people who complain about the lack of affordable housing?

They're already paying for the energy costs (or doing completely bone-headed things like using and refueling kerosene heaters indoors, with occasionally fatal results).  This would be a cost shift, not a cost increase.

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Paleocon on January 7, 2009 - 1:00pm Permalink | Subthread | Parent | Comments top

This is indeed a difficult problem. The obvious solution is for both to share the savings -- the building owner assists with improvements and gets more in rent, for example -- but that requires a level or trust or some sort of certification to "prove" the stated savings. Tight credit makes this much more difficult, hence my thoughts that incentives would help reduce step-in costs.

I face this same conundrum in my rental units (a small side-line business). If I choose to install high-eff heat-pumps, high-eff hot water heaters, new insulated siding, CFLs, lots of attic insulation, and storm windows I will incur very significant costs, yet if I raise rents I will lose tenants to lower-rent/higher-utility landlords. It requires either an increased level of savvy on the part of tenants coupled with access to low-cost capital for improvements, or a flood of new efficiency regs that requires upgrading of equipment and houses (which would likely become unfunded mandates, and drive a lot of small-time landlords just to sell the properties and exit the business).

The best I have done so far is to choose higher-eff solutions when normal maintenance is required, and do upgrades between renters and raise the rent a bit. I have learned that you should never do upgrades while a unit is occupied, and you can rarely raise rents without swapping tenants. So far all upgrades have actually required sacrifice on my part, and I'm wrestling with a bunch more such projects right now, and I'm deferring some needed maintenance on rentals while I invest in my primary residence.

As for incentives, the few that do exist never seem to apply to individual small-time operators like me. I have thought about going to a "utilities paid" arrangement, but that just invites wasteful usage on the part of the tenant.

In short, I'd love to hear of a workable solution for this issue, too.

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Nick on January 7, 2009 - 4:44pm Permalink | Subthread | Parent | Comments top

" if I raise rents I will lose tenants to lower-rent/higher-utility landlords....I'd love to hear of a workable solution for this issue, too."

How about a regulation that requires all landlords to advertise their rents with a notice of the average monthly utility cost for the last year, and a prominent total figure for the two? Like MPG stickers for cars?

Then, you could show that total living cost hadn't changed.

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aangel on January 7, 2009 - 6:17pm Permalink | Subthread | Parent | Comments top

Has this problem been tackled anywhere?

Yes, the best solution I've come across is on-bill financing:
http://www.smallbusinesscalifornia.org/On_Bill_Financing.htm

I'm working up on post on it with one of the experts in the field.

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LarryWalker on January 7, 2009 - 11:53pm Permalink | Subthread | Parent | Comments top

Precisely!

The problem that Paleocon is bumping into is known by economists as the "split incentives" problem: the landlord bears the cost but the tenant reaps the benefits. And the key to breaking that dead-lock is exactly what aangel mentioned.

Prof. Joel Rogers at the University of Wisconsin's Center on Wisconsin Strategies (yes, they did in fact pick a name that acronymizes as COWS) has written some excellent papers on the subject. My favorite is:

http://www.cows.org/pdf/rp-seizing-07.pdf

which analyzes the problem in detail and describes a very elegant solution (of the win-win variety). I won't even try to do justice to the proposal in a couple of sentences, but I recommend this paper VERY highly. If only I knew how to get a copy of it onto the desk of whoever is designing the renewables/efficiency part of Obama's stimulus program!

Prof. Rogers has been working with the City of Milwaukee to implement this approach under the name of Milwaukee Energy Efficiency (Me2):

http://www.cows.org/pdf/Me2BackgrounderOnSlides.pdf

The same approach should also be applicable to funding solar energy systems.

I met recently with my state representative (who just became the chair of the Assembly Natural Resources Committee, now that the Dems have retaken the Assembly) and gave him Joel's paper. I told him that putting seed money into a revolving, self-liquidating loan program seems to me to make a lot more sense than expecting the tax-payers and rate-payers to keep doling out grants and rebates ad infinitum.

Handouts don't scale; revolving loans do!

Larry

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toilforoil on January 8, 2009 - 12:55am Permalink | Subthread | Parent | Comments top

Thank-you and everyone else. I have a meeting coming up with my representative in the provincial legislature. I'm going to summarize this material and see if I can convince him to take recommendations forward.

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130 comments on Arizona Solar Power Project Calculations

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