The Remarkable Weirdness of Incentives


The Nov./Dec. issue of Mother Jones has some interesting feature reporting on the expansion of personal home solar power in the U.S., now that you can, in many places (it's not clear from this story if it is everywhere, that I could tell–any insights, please tell all in the comments thread) sell back any excess power you generate to the grid, leading to the phenomenon colorfully expressed by article author Bill McKibben as "mak[ing] the meter spin backward."

This, of course, gives people a wonderful personal incentive beyond being cutting-edge techies or reducing greenhouse gases or saving the planet to go solar–it not only saves them money on the electric bill, it gives them a marketable commodity that they own and can sell. Obviously, all of us who pay our own power bill could save money now by using less power. But those of use without solar can't make that power bill negative.

And something distinct happens in the human mind when you know you are dealing with something that's yours, that you and your family can personally profit from…something so unfamiliar to the usual Mother Jones mindset, where personal property and profiting therefrom are not the usual favored movers of social change, that McKibben uses adjectives like "remarkably" and "weird" to describe this change–the realization that they want to conserve even more now that they are using power that they made, they own, and they can sell–that comes over people with marketable home solar power.

NEXT: The Socialism/State Paradox

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  1. I believe:
    CA – Can sell back
    GA – Can not sell back
    Of course, solar may or may not be cost effective to sell back if one deducted all the subsidies that go to all the different forms of energy production.

  2. I think our man Gary Gunnels said he does this …

  3. Indeed, Ca can sell back and the utilities are required by law to buy it.

    There is no federal energy credit for individuals but I believe that a solar credit still exists for business entities.

    California has a nice tax subsidy for folks who want to go the solar route.

  4. Whether or not you actually get paid for it, if you’re producing more power than you’re using, that power gets distributed throughout the grid. Doesn’t matter where the current originates, it works just the same as the power plant does. Of course, the powe rplant has bigger “pipes” to carry to current, so theoretically, I could cause mayhem if I, say, built my own reactor. Hehe.

  5. Here in Oregon it’s known as net-metering. Both large electric utilities (PacifiCorp and Portland General Electric) in the state allow it and have it in their tariffs (and I think Idaho Power does too but can’t say specifically). Basically your bill reflects the subtraction of power you send out from the utility power you consume.

    The other route is to become a PURPA plant (if you have over 100kw of capacity), which is priced separately. If you have a PURPA plant, the utilities are required by federal law to purchase your power. These plants would be more stand-alone though, not usually people with panels on their houses.

  6. BTW — you can be a PURPA plant under 100kw too. I just re-read my message and realize I too need ot learn to love the preview button.

  7. CA law requires utilities to buy power back. It was the result of a long and bitter series of exchanges when a couple of dotcom winners established massive solar on their property and wound up with hundreds more kilowatt hours than they knew what to do with, but were still spending hideous amounts on energy bills to keep their personal aircraft fueled (they were working on a photographic survey of the California coast as both a personal and academic research project).

    It is largely because of their efforts to save enough money to buy fuel that the laws got rewritten – initially the concept was supported via a toothless resolution passed by the legislature, but the utilities were not required to do anything about it, and in fact fought the couple every damn step of the way – using the argument that the power grid they had established on their own property was so far in advance of the local muni grid, that it would cost the utility hundreds of thousands of dollars to upgrade their infrastructure to the point where an interface between the two would be feasible.

    Wired ran an honestly fascinating article about it earlier this year.

  8. I looked into solar power a couple of weeks ago. I was thinking about making a solar powered hydroponic indoor growing system.

    For obvious reasons, I wouldn’t want to “tie into the grid” as they say, but a lot of these programs were crazy state programs with weird tax incentives, many of which were available only by lottery.

    Still, plenty of potential for the idea (but I saw a number of something like $18,000 to install enough for 5,000 watts of light or something like that.

    I’d love to hear from anybody who’s done this.

  9. “I looked into solar power a couple of weeks ago. I was thinking about making a solar powered hydroponic indoor growing system.”

    Far out, man. Dude, you can sell your power back to the man! It’s so ironical.


  10. Why is it odd that this is seen as odd? Ever kW not used costs the same whether or not you generate it. If you use 50 kW instead of 75 kW, you pay the market price for the extra 25 kW. How is this functionally different than selling 50 kW versus selling only 25 kW? In the end, it still costs the same.

    I know, it’s a psychology thing, but what is the psychological value of selling something versus money saved when purchasing it. Couldn’t part of the reason that solar power resellers are more energy conscious because they put up the major capital purchase of solar cells specifically for this purchase and want to get a return on their investment more quickly? One would assume that the people that buy these things are more sensitive to energy usage than your average consumer.

  11. In WA, you can “Net Meter” as the Regulator mentioned in OR, but you can only spin back to zero each month. That is, every month you can spin back only as much as you’ve taken from the grid; all the rest you’re giving away for free. They use a monthly system, I guess, because in WA (where we don’t get a lot of bright sun…or politicians), they still want you paying during the winter instead of averaging for the whole year. I’m actually going to be pushing for a change in this law to force power companies to buy back any amount created, from any source. Hey, as long as I’m not breaking any pollution laws, who cares where the power comes from (i.e. a biofuel engine powered from my father’s farm waste. I know this isn’t a great example, but you see my point).


  12. To figure out which states require “net metering,” go to: a database of all the state laws/incentives regarding renewable energy.

    Iowa does require net metering, by the way, but only for investor-owned utilities (not munis or co-ops) and only up to 500 kW.

  13. I should have mentioned in my last posting that the utilities bank the purchased power and credit it to your bill the next month.

  14. More info for anyone interested:

    Colorado just passed a ballot initiative sort of thing that forces sufficiently large power companies (3, at the moment) to give people credit for power they generate, pay customers $2 for every watt of power generation equipment they install.

    Of course, solar panels cost a lot more than $2/watt, not to mention all the ancillary equipment necessary to use them. And the initiative certainly didn’t ease any of the inspection requirements that will cause most people to need the services of an electrician. (And Joe Electrician isn’t necessarily going to know how to deal with power generation equipment, so you’ve got to get Mr Fancy Electrician.)

  15. In WA, you can “Net Meter” as the Regulator mentioned in OR, but you can only spin back to zero each month. That is, every month you can spin back only as much as you’ve taken from the grid; all the rest you’re giving away for free.

    That doesn’t seem unreasonable. After all, the power company didn’t ask for your excess power and never signed a contract with you saying they’d pay for it. So why should they give you money just because you’re dumping excess power into the grid?

  16. A fine post.

    McKibben uses adjectives like “remarkably” and “weird” to describe this change

    Well, who’da thunk it?

  17. Interestingly enough, in most areas, independent power producers are held to lower environmental and safety standards than the big producers.

    Also, I’d like to see some commentary on how it’s okay to use someone else’s privately owned equipment (the power grid) to sell your product without having to pay for the rights to use it. Many libertarians rightly bemoan the view that telephone and cable TV lines can be co-opted by people other than those who spen the capital to install them. What about power lines?

  18. Well, whatever one might think of rules regarding the sale of excess power, at the very least the price (if any) that they reimburse at should be lower than the price you pay for power. You pay them to produce and deliver. If you dump excess power onto the grid, you’re producing but they have to deliver.

  19. Oh, and the comment on hydroponics brings this thought to mind:

    Some indoor marijuana growing operations have been caught by “excessive” power usage. Solar panels that aren’t connected to the grid would be a way to get around that.

    If that sort of thing catches on I suspect that it will become a crime to not hook your solar panels to the grid. The drug warriors will support it as a way to monitor power usage. The environmentalists could be sold on it as a matter of social responsibility, so that excess electrical power doesn’t go to waste.

  20. I have degrees in electrical engineering and finance. I had my SF bay area home site surveyed by a specialty contractor. Even with $0.40 per KWH cost estimates and every tax incentive available the payback was over 10 years. The same set up would work as an investment in So Cal but NOT without hefty tax incentives.

  21. Hey,

    Here’s a link to a document from the Energy Information Administration outlining the extent of nationwide green energy programs (including net metering).

  22. db invites commentary re “how it’s okay to use someone else’s privately owned equipment (the power grid) to sell your product without having to pay for the rights to use it.”

    Calling the power grid someone else’s privately owned property seems a bit wrong to me, but then I’m not a card carrying libertarian. As I understand it, transmission and distribution utilities are still heavily regulated natural monopolies charged with deliverying an indespensible public good (power) at a reasonable price. Utilities don’t so much “spend capital” as finance capital improvements on the backs of their ratepayers, i.e. the general public. Thus, what could be wrong with passing more stringent “net-metering” laws that require utilities to take any extra power we have to offer?

  23. Of COURSE power lines are private property! It is only because of our corporatist fasco-communist state that we must suffer through having only one power company per any given location. Power companies should have to compete for our patronage! I, for one, look forward to that glorious day when I can barely see the street for the tens of power poles standing in my front yard, each pole representing another company vying for my well-spent dollar in that great marketplace called “the market”. The same thing should happen with water! Why should any ONE company have a monopoly on water/sewer delivery, even though it would be horribly inconvenient to have duplication of service? Dig up the streets, and let any company who wants to lay water pipe lay it! And we need kung-fu robot meter-reader ladies to avoid fraud!

  24. Ah, thank you. Everything is clear now. Markets good. Gov’t bad. I’ll pass the word. I really think this could catch on.

  25. REAL,

    If you had a choice, why would you buy power from a company who installed power lines on your street? (instead of burying them) Many many people choose to live in towns/cities/subdivisions where the power is built underground, and they pay for it themselves, because they made the choice to live there.

    What if your neighbor didn’t mind those power lines? What if he did?

    Why can’t you and those on your street contract with 1 power company? Then you can decide whether you want lines buried. Those on 1 street can certainly come to agree on something, surely.

  26. Interesting story and good thread as usual, but I find it remarkable and weird that I cannot find the words ‘remarkably’ and ‘weird’ as Mr. Doherty described in the MotherJones article. Am I missing something? The whole point of the post is that MotherJones is somehow missing the economic incentives created by these technologies, but I dont really see that in the article.

  27. Without getting too specific, the difference between “the law allows” and “in practice you can” is vast in some parts of our United States. There are any number of ways the power companies will thwart the co-generator, not the least of which is a non-mechanical meter which “adds” no matter which way the current flows. The most common is to push all the cost of the power out of “generation” costs and into infrastructure and delivery costs – so those of you who think the utilities will be paying you what you are paying them are in for a big surprise. You only get the generation cost back. The difference can approach an order of magnitude.

    Good luck.

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