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Circuits with installed PV up to and greater than 250% of daytime minimum load. Source: HECO
Hawaii leads the nation with the highest per capita installation of solar photovoltaic (PV). High electricity rates—three times the national average, —a generous state tax credit, plummeting PV costs, and net energy metering (NEM) policy have all contributed to the proliferation of PV. Considering future cost savings, PV is an attractive investment, yielding an internal rate of return of 23% with the state tax credit, equivalent to a payback period of four years (Coffman et al., 2016). In a recent analysis I answer the question of how PV is capitalized into a home’s value.
Using econometric tools, I assess the impact of PV systems on home value for single-family resale homes on Oahu. Using home resale and PV building permit data from 2000-2013, I find that PV adds on average 5.4% to the value of a home. This translates to approximately $34,000 relative to the sales price of the median non-PV home of $630,000.
This means that PV already installed on a home is worth about $4,000 more than the median value of a PV permit (approximately $30,000). While this may appear puzzling at first, issues of circuit saturation may well-explain this result. Calculating the stream of electricity savings* over 9 years (the average household tenure) and a typical 30-year mortgage respectively, reveals that a homebuyer is effectively paying $4,000 more for a PV home to receive between $14,000- 30,000 in electricity savings. This makes sense given many of the circuits in Hawaii have reached legal limits for PV installations and therefore new homebuyers have an expectation that future installations will be limited. Thus for many the choice isn’t purchasing a house without PV (and then installing it) but rather to gain access to PV (and future electricity savings).
An area of further inquiry in light of the recent PUC ruling is to extend the dataset to examine whether homes that are grandfathered under the NEM program are worth more.
Coffman, M., Wee, S., Bonham, C., and Salim, G. (2016). “A Policy Analysis of Hawaii’s Solar Tax Credit Incentive.” Renewable Energy, 85, 1036-1043.
Economic Analysis of the Water-Energy-Food Nexus: My Visiting Research Fellowship at the Research Institute for Humanity and Nature in Kyoto, Japan
Earlier this year I had the opportunity to work with an interdisciplinary team at the Research Institute of Humanity and Nature (RIHN) on a Visiting Research Fellowship examining “Human-Environmental Security in Asia-Pacific Ring of Fire: Water-Energy-Food Nexus." Our objective was to design research frameworks for conducting water-energy-food economic analyses for three study sites in Japan: Obama, Beppu, and Otsuchi.
Synergies and tradeoffs among water, energy use, and food production should be considered by stakeholders and decision-makers looking to maximize the benefit from each resource. Economics can help to identify these tradeoffs by quantifying the benefits and costs of water, energy, and food-related projects over long planning horizons, as well as by optimizing allocations of these resources over multiple uses. During my research fellowship we developed frameworks for economic analysis of the water-energy–food nexus using examples from three case studies in Japan: water allocation over multiple uses in Obama, renewable energy production in Beppu, and construction of a dike in Otsuchi. Each of these case studies involves choices that will affect inherent linkages between water, energy, and food in each system. Failing to recognize these tradeoffs can result in sub-optimal allocation of resources with respect to the economy, the ecology, society and culture.
Obama is a city on the Sea of Japan in Fukui Prefecture, where groundwater is an important resource for a variety of uses including domestic use, melting snow, and fishery production (via submarine groundwater discharge). Over-allocation of groundwater towards above ground uses has implications on the important fishery resource near shore. An economically efficient solution is characterized by groundwater utilization paths over time that maximize net benefits across uses, explicitly considering how using water for one purpose reduces the availability of water for other purposes. Aside from the direct tradeoff between groundwater and the fishery, a key variable in the model is the price of energy, which affects the costs of both groundwater pumping and alternative snow-melting techniques. The team developed a bioeconomic optimization model that can be used to solve for optimal allocation of groundwater to each of these three uses over time.
Beppu is a city in Oita Prefecture best known for its high concentration of natural hot springs (“onsen”). Onsen are an important economic and cultural resource, whose use has significant implications on the surrounding society and ecology. Interest in small-scale renewable energy production using hot water and steam from the onsen (“onsen hatsuden”) has increased in recent years, especially following the Tokohu earthquake/ tsunami/ nuclear meltdown disaster of 2011. There are two primary types of onsen hatsuden being developed in Beppu: binary systems which are more productive but generate larger social and ecological damages, and the smaller scale yukemuri hatsuden which have a much lower production capacity but are less harmful to the surrounding ecosystem and society. We designed an economic approach to comparing the benefits and costs of each system.
Otsuchi is a small town in Iwate Prefecture in northern Honshu, one of the most impacted following the Tohoku disaster of 2011. Estimates of total economic losses from Tohoku range from $50-$210 billion USD. The research team developed an economic approach to assessing the benefits and costs of a government-financed dike being constructed with the intention of preventing similar losses following a natural disaster in the future. Benefits include the reduced risk of future losses, while costs include not only dike construction, operation and maintenance costs, but also loss of the groundwater connection between land and sea and the accompanying loss of mudflat habitat and associated oyster, abalone, and seaweed fisheries.
While the frameworks for the economic analyses have been developed, the science to properly parameterize the models is still being conducted at our three study sites. We will continue to improve our models and complete the analyses as more data becomes available. The 5-year/5-country (also U.S, Canada, Indonesia, and the Philippines) project will conclude in 2018.
- Kimberly Burnett
In Hawaii, like most U.S. states, households installing rooftop solar photovoltaic (PV) systems receive special pricing under net-metering agreements. These agreements allow households with rooftop solar to buy and sell electricity at the retail rate, effectively using the larger grid to store surplus generation from their panels during sunny times and use it when
the sun isn’t shining. If a household generates more electricity than it consumes over the course of a
month, it obtains a credit that rolls over for use in future months. Net generation supplied to the grid in excess of that consumed over the course of a full year is forfeited to the utility. Net metering agreements often include
a monthly fee to support billing, transmission and operation of the grid.
A growing concern is that the utility has many costs besides the fuel used in electricity generation, and most of these “fixed costs” are lumped in with per- kilowatt hour (kWh) charges. As a result, under current net metering agreements, when a solar customer provides their own power, they don’t pay the fixed- cost component for each kWh they produce. Under a revenue-decoupling rule, those costs are shifted to households and businesses without rooftop solar. As less power is sold in Hawaii, fixed costs per kWh are rising fast. Most of the decrease in power sales is due to gains in efficiency, but some of it is due to installations of solar PV. Residential customers now pay roughly $0.17/kWh for fixed costs. After the drop in oil prices earlier this year, well over half the utility’s revenue from residential customers goes toward fixed costs.
The graph shows the average residential electricity price from 2000 to the present, and breaks out the generation component from the total (Adjusted ECAF). The difference between price and the Adjusted ECAF (Gap) accounts for all non-fuel or fixed costs.
A longer-term concern, particularly in Hawaii with its high electricity rates, is that an inefficient pricing system could encourage many households and businesses to install stand-alone systems, unplug from the grid, and further raise costs for everyone else.
In a new report UHERO's Energy Policy & Planning Group summarizes the benefits and challenges with distributed solar and sketch out a set of long-term solutions based on marginal-cost pricing as the primary platform. Marginal cost is the incremental cost of power production—the cost of generating one more kWh. This cost can vary a lot depending on total demand and the amount of renewable power, among other things, so ideal prices would vary over the course of each day, week, season and year. This is likely to become especially pronounced as the variable supply from renewable sources becomes more prominent.
Kīlauea volcano is the largest stationary source of sulfur dioxide (SO₂) pollution in the United States of America. The SO₂ that the volcano emits eventually forms particulate matter, another major pollutant. In a recent project, we use this exogenous source of pollution variation to estimate the impact of particulate matter and SO₂ on emergency room admissions and costs in the state of Hawai‘i.
To accomplish this, we employ two sources of data. The first is measurements of air quality collected by the Hawai‘i Department of Health taken from various monitoring stations across the state. The second is data on emergency room utilization due to cardio-pulmonary reasons which we obtained from the Hawai‘i Health Information Corporation. An important feature of our study is that our cost data are more accurate than the cost measures used in much of the literature. We then merged these data by region and day to obtain a comprehensive database of air quality and medical care utilization in the State of Hawai‘i. Importantly, we employed coarse geographic information on the patients’ residence (as opposed to the hospital in which they were admitted) when computing the utilization time series by region to ensure that our utilization measures corresponded more accurately with the pollution exposure. Using the merged database, we then employed regression techniques in which we related ER utilization and charges to measures of exposure to particulates and SO2 while controlling for comprehensive seasonal patterns and regional effects.
We find strong evidence that particulate pollution increases pulmonary-related hospitalization. Specifically, a one standard deviation increase in particulate pollution leads to a 2-3% increase in expenditures on emergency room visits for pulmonary-related outcomes. However, we do not find strong effects for pure SO₂ pollution or for cardiovascular outcomes. We also find no effect of volcanic pollution on fractures, our placebo outcome. Finally, the effects of particulate pollution on pulmonary-related admissions are most concentrated among the very young. Our estimates suggest that, since the large increase in emissions that began in 2008, the volcano has increased healthcare costs in Hawai‘i by approximately $6,277,204.
These estimates provide evidence of some of the external costs of particulate pollution. Importantly, other studies have had a difficult time unraveling the effects of particulate pollution from other types of pollution such as carbon monoxide because they tend to be highly correlated. In contrast, in our data, the correlation between particulate pollution and other pollutants (aside from SO2, of course) is considerably smaller than the other literature on the topic that largely relies on manmade sources of pollution. In this sense, we provide one of the best available estimates of the pure impact of particulate pollution on human health.
Changes in population age structure have important implications for the economies of all countries irrespective of their level of development. One reason age structure is so important is that children consume but produce little or nothing through their own labor. To survive and prosper they must depend on transfers from adults – their parents, of course, but also tax payers. High material standards of living are harder to achieve in countries with young populations, because the number of productive adults is low relative to the number of dependent children. Fertility decline has led to a demographic dividend as the number of dependent children has declined relative to the number of working-age adults. This phenomenon is captured by trends in the support ratio, a key summary measure shown in the Interactive Data Explorer. Other things equal, output per consumer is proportional to the support ratio, and the rate of growth of output per consumer equals the rate of growth of the support ratio.
The Interactive Data Explorer is based on National Transfer Accounts (NTA) and population estimates and projections for forty countries that vary greatly in their level of development, social, political and economic systems, and demographics. The interactive tool can be used to explore the economic role of age structure since 1950 and to assess the likely influence of demography over coming decades. The support ratio is a useful summary measure, but it is also important to drill more deeply into the data, a task made easier by the data explorer.
The rise in the support ratio or what we call the “first demographic dividend” can be seen by tracing the past of most high-income countries and many developing countries that now have low levels of fertility. South Korea’s support ratio, for example, increased from 0.67 in 1973 to 0.95 in 2006, a gain of over 30 percent. In some countries, like China and Vietnam, the gains are even greater. The Interactive Data Explorer shows that in other countries the first demographic dividend is more modest and that many African countries are just beginning to experience it.
An important question: Why does the support ratio rise more in some countries than others? One of the most important factors is the speed of fertility decline. The importance of this factor can be judged using the Interactive Data Explorer by selecting a country and a year in the future and then by choosing among alternative fertility scenarios. For Ethiopia in 2060, for example, the projected support ratio is 0.90 for the “Medium” fertility scenario as compared with 0.71 if fertility remains constant at the current level.
The economic impact of changing age structure depends on features of the economic lifecycle as measured by per capita consumption and labor income by age in National Transfer Accounts. On average, the gap between consumption and labor income is less for children and older adults in lower income countries than in higher income countries. In higher income countries, spending on the costly education of each child is relatively high, and often consumption by the elderly is much higher than consumption by younger adults. This can be seen by setting the Preview to “Per Capita Profiles” and looking at the thumbnails for 40 countries. (Spending on education, health, and other components of consumption is available in NTA but not shown in the data explorer.) General patterns can be seen in the per capita profiles, but also the importance of country-specific features. In a number of African countries the gap between consumption and labor income is high even among those in their 20s. This results in a depressed support ratio.
The rise in the support ratio is a transitory phenomenon and as populations begin to age the support ratio inevitably drops to lower levels. To see why this happens, pick a country, set Scale to “Percentages”, and press “play”, watching the upper right figure titled “Aggregate Consumption and Labor Income by Age”. Instead of high consumption among children, we have high consumption among the elderly. The transition is particularly strong in rapidly aging societies in East Asia and parts of Europe.
Fertility also plays a role here and given the low fertility scenario, aggregate consumption by the elderly would reach very high levels in many countries at time goes on. This can be seen by choosing some future year such as 2050 and varying the fertility level. The rise in old age consumption has a silver lining, however, to the extent that the elderly fund their own consumption by accumulating wealth or capital during their working years. Under these circumstances, the growth in old-age consumption will lead to a second demographic dividend as higher capital fuels development in the host country and possibly in other countries through higher rates of foreign investment.
- Ron Lee and Andy Mason