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If you want to know what I'm on about in the shortest time then please read the introductory first post and my current action plan. Comments are very welcome. And if you like this blog, please tell a friend. Thanks!

Wednesday, 21 May 2008

A proposal for a means-tested PVRP

Following up on the previous post, this one explores some options for the design of a solar photovoltaic rebate program. Hopefully a better one than what we have in the real world today.

First let's look at the goals of the program. Overall, the intention is to invest a fixed amount of money over a fixed time period into the PV industry. There are a number of anticipated benefits for society as a whole:

- Develop the skills and infrastructure required for a sustainable PV industry
- Encourage R&D for technology improvement
- Put downward pressure on costs
- Improve competitiveness and effectiveness of PV in the long term

I would also like to throw my own goal in there (to nobody's surprise), encouraging overall reduced energy consumption in participating homes.

Now, the only reason I'm writing this is because I'm critical of the previous attempts on both sides of politics to implement this scheme. Specifically:

- A fixed rebate value skews investment heavily towards the smallest eligible system
- A fixed rebate value without a means test is socially inequitable
- An all-or-nothing means test is more equitable on average but introduces ridiculous boundary cases
- With or without the means test, the scheme ignores the number of residents in the household

The number of residents in the household is important for several reasons. In a scheme where a means test is imposed, surely the case of a single person living alone earning a hundred grand should be considered differently to a working couple with children making do on the same amount. Also, one of the factors involved in choosing whether to purchase a PV system is the amount of time it'll take to recoup the costs, and that gets us back to the topic of feed-in-tariffs. Under the import/export models being adopted by the states it's clearly easier for the single person to generate excess energy than it is for the family.

So I propose that a good rebate scheme would be variable. Different amounts should be paid in different circumstances, according to some reasonable criteria. The scheme should offer greater assistance to those with the greater need, but in all cases part of the cost must be borne by the recipients. Good in principle... but tricky to deliver. Here we go.

First I would suggest that the number of household residents be taken into account when evaluating "means". The simplest way is to divide the household income by the number of residents to work out an income-per-person figure. The single guy mentioned earlier scores $100K, the family of four comes in at $25K each. We'll come back to that in a bit.

My next proposal is that the maximum value of the rebate per household should also be relative to the number of persons. That is, a household with more people should be eligible for more rebate. However there's a risk here that providing funds too freely will encourage profit-taking in the installation industry, and this needs to be addressed.

One way to do this is to also tie the maximum applicable rebate to the generating capacity of the system being installed. We start by nominating a minimum "per-person generating capacity" figure - I'll choose 500W for convenience. Then in order to receive the full rebate for each of the four members of the family household, a system with at least 2000W rated output must be installed. If the family decided to install only a 1000W system, they would be eligible for only half as much rebate. (I hope that makes sense - I'll do some examples at the end.)

Now we need to work out the maximum rebate each person would be eligible to receive. The simplest way to do this is on a linear scale: we need to define the maximum value of the rebate and the upper limit of per-person income at which point the rebate reduces to zero. In keeping with the existing scheme, let's set the maximum rebate to $8,000 and the cut-off at $100K. That means somebody with a "means" of $50K would be eligible for $4,000; somebody worth $75K could get $2,000; and somebody enjoying a hundred grand to themself would get nothing.

Just one more thing. We really don't want to get into the situation where the value of the rebates produces upward pressure on the costs of the PV systems. So let's set an overall threshold which ensures that the household has an incentive to shop around: the total rebate payable shall not exceed 80% of the installed cost of the system.

Simple, huh? No really, it's not that complicated. Here are a couple of examples.

1. Bruce and Sharon live in a house they've bought together. Bruce is a public servant earning $50K while Shazza's cornered the market for organic lima beans and is raking in $100K. Two people in the household, with an average "means" of $75K. The household is therefore eligible for a maximum rebate of $2,000 per person, depending on the size of the array they install. With two people there's really only one option in array size: an entry-level system with a rated output of 1kW makes them eligible for the full $4,000. The best price they can find on such a system is $10,461. Since their maximum rebate is well under 80% of the total price it is paid in full and their net cost is $6,461.

2. Helen, Gary and their four kids somehow manage to get by on the $60K which Gary earns through his small business. With an average "means" of $10K per person, they are each eligible for up to $7,200 in solar rebates - provided sufficient capacity is installed. The maximum rebate would be applicable for a system rated at least 3kW (6 x 500W). Such a system is available for $26,361 - clearly far lower than the hypothetical value of the rebate at $43,200. In this case the 80% rule applies, limiting the rebate to $21,088. Helen and Gary decide they can't afford to spend over $5K even for such a large system, and instead opt for a 1.5kW system that with an 80% rebate leaves them with an outlay of just under $3K.

Some key points to remember. First, I'm just some guy with a few ideas and an internet connection. Don't crucify me if there's something really flawed with my suggestions. Second, there are a number of parameters here which could be adjusted to alter the amount of rebate payable in different circumstances, including the maximum per-person rebate amount, the threshold at which the rebate cuts out completely, the amount of generating capacity required per-person to qualify for that portion of the aggregate rebate and the fractional ceiling limiting the overall rebate as a proportion of the system's cost.

One big weakness I see here is that it's hard to predict how quickly the scheme would burn through its budget allocation. A possible remedy would be to vary the rebate parameters on a periodic basis - probably as part of each year's federal budget.

So there you go. That's enough of that I think.

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