Beware the Era of "Green Energy" Hype

Two of Elon Musk's companies, SolarCity and Tesla, have made an initial agreement to merge. The logic of the conglomeration seems to be entirely based on the idea of combining SolarCity's rooftop solar panels with Tesla's Powerwall battery storage. "SolarCity is going all in on a strategy that some analysts say is ahead of its time: pairing solar systems with the automaker's energy-storage batteries.... With batteries, electricity generated during the sunniest parts of the day can be stored for use at night."

Which makes a lot of sense—until you dig into the actual economics and practical function of the system. And then you get a lesson in how the label of "green energy" is being used these days as a way of erasing all skepticism and enabling a whole lot of the hype-driven style of "futurism."

Consider an interview with an Australian early adopter of Powerwall.

The Pfitzner family paid $16,000 for a solar installation with the Tesla Powerwall and now 6 months later, they are back in the news with some positive feedback and an electricity bill in hand to prove it....

He states that he has significantly cut down his daily energy bill by an incredible 90-percent (from $5-$6 a day to just 59 cents) and that his family has consequently learned to use their appliances in a more mindful manner. One example is that they use their "dishwasher during the day and shift as much power use to the daytime" so that they effectively use only solar energy for heavy-duty tasks.

He goes on to state that, at this point in time, that the current generation power and energy banks "don't make sense from a pure financial perspective," and that "pretty much none of them will pay for themselves before the warranty expires." And that definitely holds some truth to it. But Mr. Pfitzer continues on and says that, right now from his perspective, it is about "eliminating waste."

The interview reads like a positive bit of boosterism for Tesla, but the underlying facts are pretty devastating.

First, the whole point of an energy storage system like Powerwall is to solve the mismatch between when solar panels generate power and when people actually use it. The goal is to provide what we all take for granted with fossil fuels: power on demand. It should be like putting your foot on the gas pedal of your car. When you need more power, you press it down, and the power comes.

But the Pfitzner family still has to adjust their daily routine to match the availability of power, rather than having the power system adjust to their routine.

Speaking of pressing down the gas pedal, this is how people still have to use Tesla's electric cars. The big disadvantage of electric cars compared to ye olde internal combustion engine is that users have to manage their battery level and worry about exceeding their recharge range. They have to plan their trips to match the car's power requirements, because the car can't provide power on demand to meet the needs of their trip.

The second thing you should notice about this interview is that "renewable energy" is still significantly more expensive than traditional power. The Pfitzners have reduced their electric utility bill to less than $20 per month, which saves them whole hundreds of dollars a year—on a system that costs tens of thousands of dollars to install. Combine that with its limited life—you know how the battery in your cell phone stops holding a full charge after a couple of years—and the "savings" disappear.

That's another parallel to the electric car. Sure, if you drive a Tesla, you never have to pay for gasoline. But the average person drives somewhere around 15,000 miles each year. At a fairly normal fuel efficiency of 25 miles to the gallon, that's 600 gallons per year. At $3.00 a gallon (a little higher than today's rate), that will cost you $1,800 per year. Which means you would have to drive your Tesla for about 30 years to make up for the premium you paid when you bought a $90,000 Model S rather than a $45,000 Lexus. But the Tesla battery isn't going to last anywhere near that long, even if the rest of the car does.

So why does that report on the Powerwall still seem so boosterish? Mr. Pfitzner says it's about "eliminate waste." Where I come from, sinking a lot of capital into a system that won't pay for itself before the warranty expires is the very definition of "waste." But what he clearly means is environmental "waste." His real investment is in the notion that his solar panels and in-home battery are helping to curb man-made global warming. Or as a Tesla-driving friend put it to me, it's about "happy tree-hugger feelings."

It's a belief that is dubious even on its own terms. But more to the point, it means that Powerwall and Tesla automobiles—and a whole lot of other "green energy" products—are still a very long way from being actually economically viable. They still depend heavily on government subsidies and mandates and tax breaks, and even then they are very much a plaything or status symbol for the wealthy and upper middle class, the sort of people who uniformly believe in man-made global warming and who can afford to spend tens of thousands of extra dollars just to feel good about themselves.

Which is to say that this is less of a technological revolution than a niche lifestyle fad, including a high-end Sydney development being billed as a "Tesla suburb."

The green package won't come cheap, however. Homes will likely go for between A$1.48 million ($1.12 million) and A$2.1 million ($1.6 million). Glenvill development director, Travers Nuttall told the publication the battery was more than just marketing. "We felt there was an opportunity to put a stamp on this site as being a really sustainable community," he said.

This is totally not a bubble.

Meanwhile, from the standpoint of an interested observer, or an investor, or someone looking to project the course of the future, by far the most significant development in energy over the past few decades is fracking, which has succeeded in breaking the power of OPEC and putting an effective cap on oil prices. The Saudis have been trying to put frackers out of business by increasing their output and lowering oil prices. But whenever oil returns to about $50 per barrel, large numbers of fracking rigs become economical again and the spigots turn on, keeping the price from rising farther. And it gets worse for OPEC: frackers are adjusting to the Saudi strategy by further lowering their costs.

All of this just increases the slope solar panels and electric cars have to climb to be economically and technologically competitive with fossil fuels.

Yet Tesla and SolarCity and any project associated with electric vehicles and "renewable energy" gets more press, and a whole lot more positive press, than anything having to do with fracking. So if you're going from what you read in the media, you're missing the actual story about innovation and the future of energy.

That's a good reason to remind yourself to beware the era of "green energy" hype.