Tough Economic Times–Smart Money Going Solar

When Diesel fuel was over $5.00 a gallon, it reminded me of the California Electricity crisis in 2000 and 2001. I told my friends this summer that it felt like an Enron moment. During the California Energy Crisis, partial Electricity deregulation created a complex market where energy speculators could manipulate the market. Manipulation strategies known as Fat Boy, Death Star and Get Shorty, to name a few, caused rolling blackouts throughout California. This also triggered extreme jumps in the price of electricity and caused Grey Davis to lose his job to Arnold Schwarzenegger.

In November of 2007, the real estate market was dropping fast and gas prices, including natural gas used to generate electricity, were rising fast. It appeared that a perfect storm was coming which was going to upend the markets. Few could have predicted how hard the financial markets and credit markets would be hit.

It has been clear for many years that the end of oil was upon us. Oil production in the US peaked in 1970 or so and the same math that predicted the US peak also predicted the world wide peak. With demand rising in China, India and the third world, and supply flattening or declining, prices must go up. The spike that occurred this year was probably caused by greed and manipulation…it felt like an Enron moment. The underlying pressure on the markets, long term supply and demand trajectories, have not dramatically changed, however. Energy demand will continue to increase and supply will moderate.

Now that tough economic times are upon us, we are looking very closely at the California Solar market. It is true that many people have lost their jobs, a significant portion of their investment portfolio has evaporated and their house isn’t worth as much as it was before. Financing is tougher than it was before the credit crisis and people are uncertain about which way to turn. Venture capital has all but dried up.

One thing is true. There is a lot of money sitting on the sidelines with no place to go. The markets are scary, and real estate is continuing it’s decline. Money is fleeing risk. Smart money is going solar.

We are seeing some of our larger, more savvy customers deciding to go solar. The math is clear. With the new Federal Investment Tax Credits, the payback period for solar is 6-7 years and the 25 year Internal Rate of Return ranges from 14% to 20% depending on the size of the system and the future energy inflation prediction. It is rare in the investment world to find returns of this magnitude. During a period when stock markets are fluctuating up to 10% in a single day, an investment in solar looks particularly stable and we are seeing this flight to safety, particularly with some of our larger customers.

When my friends and family ask me where I think a good investment would be, I just smile and say, “Go Solar”…On your own roof, of course.

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