In case you haven’t been following along (where have you been?!), this is part 3 of my 8 part series discussing how peer-to-peer transactions are shaping the way we use and value housing, transportation, energy, finance, entertainment, media, mental health, and education.
Today, I’ll be writing about energy. While there are many different forms of energy, your average person spends most of their energy dollars on fuel for their automobile and electricity for their home. I’m going to spend most of the article talking about electricity, not fuel. I’ll take a leap and claim that the concern over rising fuel costs is being addressed through the development of electric cars. As of September, there are one million plug-in electric cars on the road world-wide. Maybe that’s not a huge number (there are over 1 billion automobiles in total) but it is a good indicator of what’s to come. We can expect that one day we will be adding our automobile’s energy consumption to our monthly electric bills. Just for fun, I’ll point out that the founder of Solar City (the largest installer of rooftop solar panels in the U.S.) happens to be the cousin of the founder of Telsa (the largest manufacture of electric cars in the U.S.).
To explain how the peer-to-peer economy is shaping the use and value of electricity, we are going to focus in on solar panels. Let’s be clear: I’m not focusing on solar panels because they are a great renewable energy source that will reduce our dependency on fossil fuels, reduce global warming, etc, etc…. That’s very cool, but there are lots of renewable energy sources we could talk about. The reason I am focusing on solar panels is because they are scalable, portable, and simple enough that anyone can buy and install one. Anyone. That means that for the first time, anyone can supply themselves with their own electricity. Anyone can be their own power plant.
Lots of people are aware of solar panels, but maybe haven’t considered whether it’s worth purchasing. There is always a lot of hype and propaganda both for and against new technologies, so it’s hard to know for certain whether it’s right for you. Like any new technology, there are the early adopters, the masses, and the laggards – eventually everyone buys in. Without crunching numbers and making things super complicated, I’ll try to give you a rundown of the things one has to consider when deciding if solar panels are right for you today.
The benefit of installing a solar panel comes from two main factors: the cost of the hardware and your savings over the lifetime of the product.
First we’ll talk about the cost of hardware. Solar panels are not cheap. Even if you will save a billion dollars over 5 years of ownership, it doesn’t necessarily mean you can even afford the high up-front cost of the panels. Fortunately, there are government incentives available which can drive down the cost of the equipment to make it more affordable. You can also find companies (like ESCOs) which will finance the cost of your solar panels. Financiers treat your you and your solar panels the same way they would treat a farmer financing a new tractor – you are buying equipment that will make you money, so they’re willing to invest in it. Many utility companies also offer rebates on the cost of equipment. They offer rebates on other energy efficiency equipment too, like LED lighting and air conditioning, you see it a lot. Why would a utility company offer rebates on equipment that will reduce your energy bill? Great question!!!! Why does a company who makes money selling electricity want your energy bill to go down?
In many places, utility companies have a monopoly on the electricity market – who else can you buy it from? For this reason, local and state governments step in and regulate the utilities. One of these regulations states that the utility company must provide enough electricity for everyone. If our consumption goes beyond their maximum capacity, we have power outages and that’s not good. One way to accommodate our increased demand for electricity is to increase the capacity of the power plants. That’s very expensive.
What’s a lot easier for them, is to control the demand for electricity. But how can they do that? It’s actually not too tricky.
Utilities charge more during different times of day to level out the peaks and valleys of our energy consumption throughout the day and keep us within their capacity. These outages generally happen during “peak hours” (from around 11am to 6pm) when we have air conditioners running. They also offer discounts on products that you can install in your home that reduce your electricity consumption just enough to keep them under their capacity limits. Paying for part of your solar panel is cheaper than them paying to increase their capacity. Same goes with LED light bulbs and other products. The discounts always start off as big amounts for new technology and decrease over time. There is a reason why the discounts decrease over time – they want to control the rate at which people adopt new technology. If everyone changed over their light bulbs to LED overnight, the total U.S. electricity consumption would go down 10%. To me, that’s a crazy large number, just for screwing in new light bulbs. Utility companies don’t want this happening overnight. They want to carefully keep consumption exactly where it is.
OK – that was a tangent. Bottom line is: utility companies will offer rebates on products. Doesn’t mean it’s a good or bad things to adopt the technology. Their interests are not always aligned with yours. Keep in mind that a rebate is different from financing. Financing you pay back, rebates you do not. One last note – some utility companies will offer “on bill financing” for energy-efficient products. This is where they pay for your products and then get paid back out of your energy savings making everything seem free. It is not free – you are paying for it – but it is very convenient because it all gets streamlined through the utility bill you are already used to paying.
Enough about the cost of the products, how do you quantify your savings?
First, you have to calculate how much energy you already use. This is calculated based on your rate for electricity (which varies with your geographic location) and your energy consumption (which depends on the person or business’ needs and habits). If electricity is already cheap, you won’t save much money with solar panels. If you don’t use much electricity, then you won’t save much money. And we always have to keep in mind the law of being human – once you start saving money on your electric bill, there is a tendency to start using more electricity. I almost slapped an old man who I sold LED lights to who told me, “These lights are great – they save so much energy that I just leave them on all the time.” Thanks, man, that’s why engineers spent countless hours improving the efficiency of products… so you can keep our consumption the same. Gross.
Secondly – you have to calculate how much energy you can produce with your panels. This is going to vary based on: how many panels you have, how good the panels are, and how much sunlight falls on your panels. The last one is the big kicker for a lot of people. If you live somewhere that doesn’t get much sunlight, you may not get the benefit you are looking for.
OK – so at this point we’ve got a cost for our hardware, and we’ve got some savings. Calculate that savings over time and you’ll see how long it takes to pay off the cost of your hardware.
But you may have caught something at the very end of our calculation. In the case of LED lights, for example, we are reducing our energy consumption with a new product. In the case of solar panels, we are not reducing our consumption, but instead, we are producing our own power. This makes solar panels different than all the other products typically thought of when trying to reduce our electric bill. This is a very important distinction, because it means, we could possibly have an excess: your savings could surpass your energy expenses. So you could be making more energy than you consume… This means that you would actually have a net profit on your energy bill every month, right?
You’d think so. After all, you just became a power plant. Not only are you powering your home, but you’ve got extra energy to spare.
First a technical detail – it depends on what time of day you create this electricity. Obviously we capture solar power during the day, but we use electricity around the clock. For you to benefit in the evening from your daylight savings, you’ll need a battery to store the electricity, which will add to your hardware cost. This isn’t a necessity. It’s really only relevant in two cases: 1) You are producing more power than you consume during the daytime hours or 2) your utility company charges different rates during different times of day.
But let’s say, that you have batteries storing all your electricity and you have tons of it. You’re overflowing with electricity. Now what happens with this powerplant you used to call a home?
The two big questions which arise are:
- Are you able to sell electricity to your neighbor? Or your neighborhood?
- Will the utility company pay you money for extra power you pump back to the grid so they can distribute it to everyone?
One of the major technical pieces that comes up here is the distinction between production of electricity and transmission. On your electric bill, the utility company charges for two different services: one for the cost of making all the energy and the second for bringing it to your home. The same issue arises when it comes to how to handle the electricity you produce. You may have produced a large amount of electricity, but now it has to be transferred.
If you connect directly to your neighbor’s home, there is nothing a utility company can do to stop you. The building inspector may have an issue, but you are not violating any energy regulations. However, if you think you can use the traditional power lines to send energy to your neighbors or neighborhood, you’ll have to remember who owns those power lines. And who makes the rules about how that power is distributed.
Some places have allowed people to sell power back to the “grid.” Where you don’t designate who gets the power or what to charge, you simple get paid by the utility company for the power. But in that case, you are only getting paid the value of power production, not power transmission. A significant amount of debate is roused up over this issue: who wants a precedence set where average citizens are allowed to produce electricity and make money off it? Where is the regulation to step in to control the powers that be? In some places they’ve actually rolled back policy – originally allowing people to sell back to the grid and then taking away this right after too many people began doing it.
So finally I come to the peer-to-peer nature of this article. If you’re reading up to this point, you have followed along with the main idea: solar panels aren’t just awesome because they are renewable energy (yay green!) they are awesome because they put the power of energy production into the hands of the people. And that is awesome. And that opportunity is what will be leading our peer-to-peer energy revolution. With rising electricity costs and improvements to solar panels (both increased efficiency and decreased cost), we will see an increase in the number of people utilizing this technology. Tesla is also helping by making significant progress in battery technology.’
Can an individual break off from the system? Sure. You are allowed to take your home off the grid. There are hundreds of thousands of U.S. homes already off the grid. Can an entire community go off the grid? Yes. There are off-the-grid communities across the country, most of the ones I’ve read about tend to be in rural areas. Interestingly enough, this peer-to-peer revolution is not starting in San Francisco and spreading globally… instead, this one is starting in the farmlands.
Laws and regulations may step in along the way to place blockades… but, like Airbnb and Uber, there is no stopping the peer-to-peer revolution. When people see obvious solutions to problems which improve value and decrease costs, they don’t like big business and governments stepping in their way. And that’s what the peer-to-peer revolution is all about – seeing something that is obvious and beneficial to the end-user and going for it, despite the naysayers who feel “That’s not how we’ve always done it.”