Why isn’t the Environment the energy transition’s greenest sales pitch?
Part 3: The Fiscal Limit
In part 1 and part 2 of our series, we spoke about how the environment becomes a second choice after human comfort and engineering respectively, for the energy transition. However such a stance may not bolster the argument of prioritizing nature as the primary objective for switching over from fossils. With this article, we seek to come full circle on our chain of thought and wish to elaborate on why ecology should be prioritized, with the caveat that we must approach it from a perspective removed from the usual emotive argument. In this sense, we put forth our first question:
What does it cost to go green? And what do we pay, if we fail to do so? How does the transition affect your wallet on an individual scale?
Let us start from the common household. The average payback period for investing in household solar is between 6–10 years. Add in a battery into the mix and we are already looking at double digits in order to recover our investment. One has to realize that even the longest breakeven period is less than half of the lifetime of the system. This means that any energy gained after breaking even, is a profit in the sense that we self-consume/ sell back profitably.
The cost of an average 5kWp solar system in India is ₹ 4,85,000 ($ 5,900), including all capital upfront costs. Now asking the common man to take up this investment would be an unreasonable ask, especially keeping in mind that he would not see the fruits of his labor until half a decade later! This is where government sponsored rebates or subsidies play a huge role. Simply put, For our 5kWp system, the Indian government provides a financial assistance of 40% of the benchmark cost up to 3kWp (0.4 x 2,85,000 = ₹ 1,14,000 ($1,386)) and 20% of the benchmark cost between 3–10kWp (0.2 x 2,00,000 = ₹ 40,000 ($ 486)) with the condition that the pv modules be produced in India 🇮🇳.
Now we might think that this is the state’s way of sharing the psychological burden of investing in the energy transition. But playing the devil’s advocate, these funds for subsidies have to originate from somewhere (psst.. It rhymes with “faxes”). So in the end, we as the general public are in a sense our own enablers of this transition. Focusing on the big picture, we might think that paying for somebody else’s decentral solar system sounds insane. But when we realize that this 5kWp system helps a family save over 8000 tons of greenhouse gases per year, this is where we have made a difference. The end goal stays the same, “save the environment”, but the common man is happy, his wallet does not have a larger-hole in it 😯.
It is not unreasonable to consider that these subsidies will not last forever. But when the flip side means that we burn our pockets trying to pay for something that has no short-term benefits, we cringe away in fear; environment be damned, I need to survive today!
And so we come to our second question; What is the next popular term to associate with an eco-friendly energy transition?
After we have paid our taxes and fees, the most pressing concern for a common man is to maximize the value of his savings. For this, we employ a variety of options (pun intended), to secure a future (double pun!!) be it through a good old fixed deposit or of late, stocks. We desist here, the urge to start a rant on our self-professed stock market wisdom and instead get to the point 🔽.
Enter “sustainable investing”. Defined as a range of practices in which investors aim to achieve financial returns while promoting long-term environmental or social value, it is a much touted concept in the western world, where you or I can invest into a company that we think drives environment friendly concepts. Why is it important? Because through the economics of scale, it influences companies to embrace sustainable principles. The more conscious the people become with their investments, the more they force companies dependent on public investment to become eco-friendly.
It has the power to make large corporations disclose into public domain information covering their operations and risks in three areas: environmental stewardship, social responsibility, and corporate governance. Called ESG reporting, it helps investors identify if their taxes and investments are indeed going to a firm whose values align with theirs or not.
Speaking of trading and investing, trading energy as a commodity is employed across the world (EPEX Spot, IEX), but is popular especially in the EU, where companies are established on the premise of “buying and selling energy”. As more renewables enter the electricity markets, we see in the future, an opportunity for people like you and I to make the markets dictate which energies to economically drive.
But why should an investor care?
Even if the average investor does not relate with global warming, he/ she can still feel the pinch of rising prices. Of what you ask? Pretty much everything, we say. All our goods have a story. They start out at raw elements in some part of the world and go through various processes to end up as that product we love and need. Now read those last few sentences again. The entire supply chain functions on, with and by energy. Going back to Part 1, we mentioned that humans are comfort loving. WIth great comfort, comes great energy demands 🕷️. This translates to an increase in consumption of fuels. But fossils are not renewable, therefore their costs are bound to go up (classic case: gasoline prices). So the need to move to renewables that have lower energy production costs AND incentivize organizations that support this with our investments is clearly felt.
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
At this point we cannot quantify the negative side-effects of being slow/ not starting with the energy transition. These include health issues, loss of fertile land and food-shortages due to climate change. All of these imply an adverse effect on us and our environment. This might sound dystopian, but dark times lie ahead. Until common-sense is attained, cash is the way forward. Fin.
