“Over the next four years, we are likely to witness the greatest mass
exodus of vehicles off America’s highways in history.”
Jeffrey Rubin, CIBC Markets, June 2008

The Denver Post ran an article this morning about the impact of $4/gallon gas on SUV sales. The article confirmed that not only where new SUV sales being decimated but that people were selling or trading in their SUV’s at a deep discount to blue book in order to escape $100 per week fuel costs.

However, peak oil and the resulting run away gas prices will soon effect more than the sales of inefficient SUV’s and trucks. A recent Canadian Imperial Bank of Commerce [CIBC] study predicts that 10 million cars will disappear from America’s highways as people with incomes of less than $25,000 are priced out of the car driving public and that U.S. automobile sales will decline from 17 million to 11 million by the year 2012.

It’s not surprising that the initial impact of Peak Oil would be to reshape the American automotive landscape, but what about the automobile’s twin sister, suburbia? What was probably more interesting about the Denver Post article was the subtle connection between gasoline costs, foreclosures, and housing. The article points out that in Temecula, a suburb at the outer reaches of a reasonable commute to San Diego and Orange County, has a staggering 15% of its 25,000 homes in foreclosure indicating that many of the commuting suburbanites of Temecula may have been pushed over the edge of solvency by the cost of gasoline to get them to work and back homes they can no longer afford.

This may be just the beginning of a massive shift in the real estate axiom of “location, location, location” as housing prices hold near job centers but continue to decline rapidly in the outer reaches of suburbia.

“I believe strongly that this country has to get off oil … The electrification of the
automobile is inevitable.”
Bob Lutz, GM Vice-Chairman, in Newsweek magazine, 2007

“Our view is that oil production will peak in the near future. We need to develop power train(s) for alternative energy sources,” to “move beyond petroleum.”
Katsuaki Watanabe, President of Toyota, June 2008

Our pattern of dwelling in America would not be possible without the everywhere, anytime mobility of the automobile.  The initial catalysts for our grand experiment with suburbia were abundant and cheap gasoline, the GI bill of 1944, and the vision of William Levitt who brought land outside of cites like New York and Philadelphia and constructed “towns” made of thousands of low cost homes.  Levitt’s invention would be duplicated all across America and gradually devolve into the  suburban sprawl, traffic jambs, and one hour commutes of the 21st century.

I spent my early childhood in a Southern California version of one of these post WWII developments.  We lived amid thousands of homes laid out in military grid formation with wide asphalt streets, concrete sidewalks, and the occasional park and school.  We ate 25¢ hamburgers at America’s first drive-in restaurants and fell asleep eating popcorn in the back of our family station wagon at the local drive-in theatre.  Cars where central to our lives and Detroit was still king of the automotive world.  Like a Paris fashion event, the annual introduction of new car models was exciting news and we all looked forward to how our nation’s car designers would drape and color the latest in sheet metal fashion for America’s showrooms.  Everyone in the neighborhood could play “name the make, model, and year of that car” and when a new model arrived in someone’s driveway, we all gathered around to admire and compare.

However, today the shine is off the Studebaker.  Levitt & Sons has gone bankrupt.  A victim of overreach and the sub-prime mortgage crisis.  What’s left of the Detroit auto industry is hemorrhaging cash as they scramble to survive in a $130 per barrel, SUV killing world.  In an effort to save our vast investment in suburbia and our automotive lifestyle major auto companies and a few entrepreneurial startups are designing and beginning to promote plug-in hybrid, all electric, compressed air, and hydrogen fuel cell cars as the answer to rising gas and diesel prices.

I have to question whether we will just transition painlessly to the next generation “power train” or will this new autopia be a game of fossil fuel whack-a-mole before we have to face up to to the unsustainable reality of suburbia?  In the short term the answer is a tentative maybe as we navigate the two decades between today’s emerging crisis of peak oil and tomorrow’s crisis of peak coal.

Understanding and Comparing A New Generation of Automotive Power Trains
Nothing is free when it comes to energy and transportation, and all of these new automotive power trains will merely transfer the current demand for gasoline into a new demand for electricity.   In America, that means we’ll be trading off oil against coal and natural gas which together comprise the base fuels for about 80% of our electrical capacity.

Electric, compressed air, and hydrogen cars often get promoted as super clean, zero emission, technologies and I still get the occasional email from friends who seem to think that the laws of thermodynamics have been suspended for these new technologies and that we’ll be driving around burning water for fuel.

The truth is that all of these new power trains will require fossil fuel inputs to get us to work and back. Electric and plug-in hybrid cars will depend on lithium ion batteries that will need to be plugged into the national electric grid every evening for a recharge.  Air cars will depend on high pressure storage tanks of compressed air that will have to be re-pressurized every evening using electrical power.  The one question that usually goes unasked and answered for hydrogen cars, is “where does the hydrogen come from?”.   The unfortunate answer is that hydrogen will come from the electrolysis of water and that will require an energy input of either electric power or the burning of natural gas.  In addition, after creating the hydrogen, much like air, it must be compressed to store enough usable energy for the fuel cells to convert hydrogen into DC electricity for the power train.

Although there are cost tradeoffs between the three options, based on the efficiency of converting electrical power into miles driven, lithium ion electric cars have a clear advantage.  A study by the Institute for Lifecycle Environmental Assessment based on incorporating each of the three drive trains into the equivalent of a Ford Taurus gives the lithium ion technology a three to one advantage in miles per kwh of electrical input.

Based on electrical rates in Denver, and 18 miles/gallon for a Taurus, the “equivalent gallon” costs of all three technologies easily beats our current national average of over $4.  However, when you compare the CO2 emissions, based on 1.8 lbs/kwh in Colorado, only the electrical car emits less greenhouse gas than the equivalent gasoline powered Taurus.

A Game of Fossil Fuel Whack-A-Mole?
We get about 60% of our electrical energy from coal and about 20% from natural gas.  The good news is that coal plants, which provide most of our base load power, have excess capacity after about 10 PM at night, and ased on a study by the Oak Ridge National Laboratory that assumes plug-in hybrids gain a 50% market share by 2030, we’ll only need an additional 8 large power plants to meet that new electric car demand. The bad news is that if we plug in at 5 PM instead of 10 PM, we’ll need an additional 160 large power plants to meet demand.

In either case, we’ll be burning millions of tons of additional coal to power the electric, hybrid plug-in, compressed air, and hydrogen cars of the near future.  In the process we’ll be driving up the cost of coal and electricity and hastening coal’s eventual depletion.

An October 2007 report by the Energy Watch Group estimates that we’ll be facing a world wide peak in the production of coal sometime around 2030.  This study does NOT factor in a new generation of automotive power trains that rely on electricity.  Since electrical power generation is the primary end use of coal, this peak in coal production will only move closer.

I agree with Bob Lutz that  “the electrification of the automobile is inevitable”, but if we think coal is the answer then we’re just playing a pathetic energy endgame of Fossil Fuel Whack-A-Mole.

“Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy.”
Vice President Richard Cheney, 2001

I have begun wonder lately whether anything I personally do can be considered sustainable.  I live at 9,000 feet in the Colorado Rocky Mountains and I’m in the process of converting my home to a zero energy standard powered completely off-grid with a hybrid wind and solar system and transforming my 3 acres into model of permaculture capable of providing all of our food requirements.   At a personal level that seems “sustainable” and at least provides a sense of satisfaction and security, however from a global perspective of 6.7 billion people it amounts to nothing more than a personal fortress.  A fragile island of self-sufficency, in a world racing toward ecological overshoot and collapse.

Is Cheney right about conservation being no more than a virtue?  Is what we do at a personal level no more than a greener than thou ego fantasy?  Is nothing we do personally sustainable in the larger context of a growing pop of 6.7 billion people and the equivalent 2 to 3 more earths required support a Chinese, Indian, and Brazilian population determined to achieve the American standard of consumption?

It is likely that we have already exceeded the carrying capacity of the earth.  The point at which the combination of the world’s population and that population’s average level of consumption exceeds the capability of the earth to provide sustenance.  Individual actions to achieve a sustainable level of consumption are no longer meaningful.  Actions and policies of entire countries are only slightly more meaningful.

I don’t agree with world view embedded in Cheney’s cynical quote, however one word speaks to the truth.  Our continued survival on this planet will depend on a comprehensive world policy of sustainability and living within our planet’s carrying capacity and that policy must address and include the politically explosive issue of population growth.

Conventional, easy-to-get natural gas in the U.S. has already peaked and natural gas from all sources will peak in North America around 2010 and globally between 2030 and 2035.
Dr. Michael Smith, Energy Files Ltd., 2004“

The North American outlook for natural gas production is not good. Mexican production has been in decline since 1999. U.S. production has been in a plateau for some time. All the big finds have been tapped and are in decline. Currently, we are bringing new wells online at a maddening pace just to keep our domestic production flat. And the new wells are declining at rates as high as 80% in the first year. The size of the new finds is also diminishing. Over the past decade, the amount of gas found per foot drilled has declined by 50%.
Dale Allen Pfeiffer, The Natural Gas Cliff, October 2005

Since natural gas is used to heat over 60% of the homes in America and in about 70% of new homes, its important to know how it gets to our homes and how fragile natural gas is as a source of both direct heating energy and as an indirect source of electrical generation for cooling.

Natural gas consists mostly of methane. Conventional natural gas is found in underground formations of porous rock, and conventional, easy sources of NG in the U.S. peaked in 1973. To keep up with demand, we are now frantically drilling and keeping our supply heads above water with a combination of shale gas, tight gas(from non-porous rock formations), deep gas (from wells over 15,000 feet in depth), sub-sea gas, and coalbed methane gas. These “unconventional” sources all require more risk and capital for extraction. Nearly 20% of U.S. demand is filled with imports from Canada through our existing pipeline system and to a much lessor extent via imports of liquid natural gas (LNG) from Trinidad and Tobago.

Natural gas gets to our homes through a complex system of pipes or “lines”. Gathering lines connect drill rig production areas to natural gas processing or refining plants which separate out natural gas liquids, water, carbon dioxide, sulfur, and inert gases such as helium which would reduce the energy value of the gas. The refined gas is then piped into a 280-thousand mile North American transmission network. This network consists of 20 to 42-inch diameter pipes with compressor “boost stations” located about 75-miles apart to maintain sufficient working pressure.

Local distribution companies tap into to this network, providing a storage buffer, and metering the gas through a system of more than one million miles of mains and smaller trunk lines that bring gas to our homes.

Much of the soil in the Great Plains is little more than a sponge into which we must pour hydrocarbon-based [natural gas] fertilizers in order to produce crops.
Dale Allen Pfeiffer, Eating Fossil Fuels, 2004

Looming Natural Gas Shortages

No one knows how and exactly when shortages will occur, but shortages are inevitable, even in the context of exploiting new arctic natural gas sources and the building of a massive LNG (liquid natural gas) infrastructure. Both of these sources will take years to develop and to have an impact and will require billions of dollars in capital expenditures. LNG is our best hope of avoiding severe shortages, but dependence on LNG will thrust us into the international gas market, forcing us to compete for Middle Eastern and Russia gas with Europe and the emerging economies of India and China, at prices two to three times what we pay today. By the time arctic gas and imported LNG become available in meaningful quantities, we will have already begun a steady and irreversible decline in our current North American sources of production.

A few years ago people looked at L.N.G. as a solution to North America’s gas needs. But
today we see that there is less L.N.G. around than people expected, and there is more
competition for that L.N.G. from markets that are willing to pay more than the United States.
Nikos Tsafos, analyst with PFC Energy, 2008

At first higher prices will cause demand destruction in the industrial sector and manufacturers will convert to other energy sources like coal or move production to locations in the world where natural gas is still plentiful. Eventually, because modern agriculture is heavily dependent on fertilizer, and natural gas in the primary fertilizer feedstock, we may be faced with the dilemma of either heating our homes or putting food on the table.

Just as we will be forced to find new ways to configure and power a personal transportation system, we will have to find new ways (or revert to old ways) to moderate the internal environments of our homes. The equivalent of 500 HP forced air furnaces lumbering away in the basements of our poorly constructed and insulated homes will no longer be sustainable in a world of rapidly depleting fossil fuel supplies. In many ways the inertia of transforming over 100 million existing homes will be more difficult than transforming our transportation system and onus and urgency for change will fall on the homeowner.

“Every power plant generates electromagnetic waves. From there they follow countless miles of high-voltage wave guides (commonly called “wires” or “lines”) at near the speed of light to numerous customer loads: heaters, motors, telephones, lights, antennas, radios, televisions, fiber-optic systems, the Internet, etc. We constantly “swim” through this sea of electromagnetic energy just as fishes swim through water. And, like water to fishes, this ethereal energy is vital to modern civilization.”
Richard C. Duncan, The Social Contract, 2006

“Whatever the statistics may finally show, it is probably the scenes on TV….thousands of New Yorkers walking home across bridges….five-star restaurants throwing out food….families in Cleveland and Detroit lining up for bottled water….that best convey the blackout’s impact.”
Commentary on August 2003 Northeast Blackout

How Electricity Gets to You Home

Today we take for granted the easy power available at the touch of light switch, but it was only as recent as 1882 that the first coal fired electric power plant opened in New York city delivering only enough power to light a mere 11,000 incandescent bulbs.   125 years later,  we have cobbled together a complex and fragile North American electrical infrastructure that delivers electricity to over 115 million American homes.

According to the Energy Information Agency, in 2001, 107 million homes consumed:

• 1,140 Billion Kilowatt Hours (kwh) of Electricity

• 4,704 Billion Cubic Feet of Natural Gas

• 5,105 Million Gallons of Fuel Oil

• 4,121 Million Gallons of Propane

• 18.7 Million Cords of Wood, and

• 348 Million Gallons of Kerosene

If you convert the numbers above to equivalent Btu’s, electricity is clearly the largest residential energy user at 11.7 Quadrillion Btu per year. That number includes the primary source energy (coal, natural gas, nuclear, etc.) consumed to generate that electricity for your home.  Due to conversion and transmission losses, only about a third of that source energy actually reaches our homes.  In other words, our national electrical system is about 33% efficient.

The Fragile State of the North American Electrical Power Grid

“The electric power networks are the largest, most complex machines ever constructed. They have been built, rebuilt, and interconnected over many decades with a baffling variety of hardware, software, standards, and regulations. The ravenous input nodes must be continuously fed with immense amounts of primary energy and then the output nodes deliver electromagnetic energy to myriad customer loads.”
Richard C. Duncan, The Social Contract, 2006

“…most of the equipment that makes up the North American grid is reaching the end of its design life after nearly three decades of under investment.”
Peter Asmus, energy issues journalist, 2006

The “handoff” from the power generating plants to the final electric distribution grid occurs at the local substation. Substations take power delivered via large transmission-level high voltage lines and distributes it to hundreds of thousands of miles of lower voltage distribution lines. The distribution system is generally considered to begin at the substation and end at the customer’s meter.

The U.S. electrical power grid consists of three interdependent but separate networks: the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection. These networks are also integrated with international networks in both Canada and Mexico creating a N. American power grid. Overall reliability planning and coordination is provided by the North American Electric Reliability Council (NAERC) and its ten Regional Reliability Councils (RRCs). The NAERC is a voluntary organization formed in 1968 in response to the Northeast blackout of 1965.

The U.S. power grid uses about 157,000 miles of high voltage electric transmission lines. While electricity demand has increased by about 25% since 1990, the construction of transmission facilities decreased about 30% and annual investment in new transmission facilities has declined over the last 25 years. This lack of investment and deferred maintenance has resulted in congestion and increased failure.  U.S.-wide transmission and distribution losses grew from 5% in 1970 to 9.5% in 2001, due to heavier use of an overburdened and congested grid.  Bottlenecks now affect many parts of the grid and the resulting power outages (blackouts) and power quality disturbances (brownouts) are estimated to  cost the economy about $100-billion a year.

The Growing Risks of Losing Electrical Power to Our Homes

“With [urban] power out beyond a day or two, both food and water supplies would soon fail. Transportation systems would be at a standstill … natural gas pressure would decline and some would lose gas altogether - not good in the winter time … Communications would be spotty or non-existent. … All in all, our cities would not be very nice places to be… Martial law would likely follow.”
Paul Gilbert, National Research Council, 2003 Congressional Panel Testimony

“We’re trying to build a 21st-century electric marketplace on top of a 20th-century electric grid,…no significant additions have been made to the grid in 20 years of bulk electric transmission, yet we’ve had significant increases in the amount of generation.”
Ellen Vancko, North American Electric Reliability Council, 2003

‘‘If present trends continue, a blackout enveloping half the continent is not out of the question.’’
Roger Anderson, Columbia University

“For systems theorists the first message of their eerily smooth distribution curves is clear: big blackouts are a natural product of the power grid. The culprits that get blamed for each blackout – lax tree trimming, operators who make bad decisions – are actors in a bigger drama, their failings mere triggers for disasters that in some strange ways are predestined. In this systems-level view, massive blackouts are just as inevitable as the mega quake that will one day level much of Tokyo.”
Fairley, 2004

The August 2003 blackout in the Northeast, that left 50-million people without power for up to 3 days, was a preview of what’s to come. The lack of investment in our electrical grid has driven reliability to its lowest point in history. Blackouts that affect at least half a million 
homes now occur on average about once every four 
months.  The latest NREC 2007 Long Term Reliability Assessment reinforced the long standing and urgent need for investment in our national grid and identified additional critical weaknesses in the system.  The report stated that:

• Significant investment in transmission is still required in many areas of North America as projected transmission additions lag behind demand growth and new resource additions in most areas.

• Canadian natural gas imports into the U.S. are expected to level off and decline overall as early as 2010 due to increasing demand in Canada.  This will expose Florida, Texas, the Northeast, and Southern California to potential interruptions in fuel supply and delivery [of electricity].

• New England, Texas, California, the Rocky Mountain states, the Southwest and Midwest will [all] likely face capacity shortages in the next few years.

• An aging workforce will soon impact reliability.   With some 40 percent of senior electrical engineers and shift supervisors eligible to retire in 2009, the industry will be faced with a significant shortage of experienced, knowledgeable workers.

Based on the current state of our electrical grid, blackout’s are more than likely to become more frequent, widespread, and longer in duration until we make the necessary  and substantial investments required to modernize our aging grid.  In addition, an aging electric utility workforce and shortages of natural gas will just add to our reliability problem.  Going forward, blackout’s lasting days or even weeks are not out of the question.

I received an email this morning from Scot Horst , who chairs the LEED Steering Committee. He describes the behind the scenes narrative that has been going on since work began on LEED 2009.

Person A: “Global warming doesn’t give us much time.”
Person B: “But we can’t address much of anything, let alone global warming, if we’re only dealing with a small fraction of the entire built environment. We need to get everyone involved.”

Person A: “Yes, but why get them involved in a system that doesn’t take them far enough to save us from ourselves? We need our buildings to be restorative.”
Person B: “LEED can’t save us from ourselves. LEED, as a tool, can engage the market in transformation. That transformation is about people. It is not about LEED credits.”

Person A: “You’re missing the point. We have to be tougher. We have to go beyond.”
Person B: “No, you’re missing the point. We have to find ways to engage a market that has never thought about these issues before.”

Persons A and B: “Let’s find a way to do both.

”This is an engaging and very important narrative and perhaps the most important point for me is that LEED is a “tool” that helps to raise consciousness and “engage the market in transformation.” My personal view is that we must “go beyond” and that much of what we currently do in the green building movement, however well intentioned, is nothing more than rearranging the deck chairs on the titanic. The global warming mentioned in Horst’s narrative has provided the catalyst for both LEED and Architecture 2030, but focusing solely on warming misses the point. Warming is a symptom and not a cause. It has prompted us to take some action, but not to “go beyond”. As a premise for action it has been useful, but is easily attacked on it’s “scientific validity”. It is one of the canaries in the coal mine, but there has been is very little discussion of the coal mine. We need to expand the narrative and take a broader view.

Taking a page out of ecological economics, once you picture the built environment as a mere subset of our closed ecosystem, then your conceptual framework regarding sustainable building is forever changed. It means you have to accept that there are limits, and that we are not going to be able to grow forever. It implies the built environment must have some optimal size and level of consumption relative to the larger ecosystem. It means you cannot grow beyond that optimum without threatening man’s survival within that ecosystem. Out of this stream of thought flows a list of very troubling questions?

• How do we stop growing?

• What are the limits? What is optimal?

• Does climate change tell us they have already been exceeded?

• Do we face a kind of built environment armageddon when fossil fuel production peaks and begins to decline?

• Is a zero energy standard imperative now?

• What do we do? How do we do it?

Our very survival depends on how and when these questions are answered. LEED does not provide the answers, but it does help us to prepare.

There are two ways to store heat and even out the diurnal or daily temperature swings in buildings. One is with massive material’s like stone, brick, and concrete the other is with phase change materials or PCM’s.

A material is said to “change phase” when energy is either added or removed to cause it to change from a liquid state to a solid state or from liquid state to a gaseous state. For example, it takes a considerable amount of energy to transform ice into water and in the process the temperature remains at 32° F. This energy storage capacity within the phase change is called “latent heat” and when harnessed allows for the storage of heat energy in a fraction of the volume required by materials like stone or concrete.

For building applications, you want this phase change to occur at or near the desired room temperature, so custom wax formulations are usually the material of chose. As the cost of energy has increased, interest in PCM technology has also increased.

In 2005, Oak Ridge National Laboratory teamed with Advanced Fiber Technology and BASF, demonstrated that a 2×6 wall insulated with cellulose insulation seeded with 22% PCM reduced the surface heat flow rate by 40%.

PCM seeded insulation is not yet commercially available, however BASF has developed a drywall product called SmartBoard™ that is available in the EU that incorporates microscopic polymer spheres filled with wax. Applying this 15-mm (0.59 inch) thick drywall product is the equivalent of adding a 9-cm (3.54 inches) thick layer of concrete. SmartBoard™ is supplied with a choice of two “switching” or PCM melt temperatures, 23°C(73.4°F) and 26°C(78.8°F) designed to accommodate both heating dominated and cooling dominated climates.

SmartBoard™ has been successfully tested in each major EU climate zone and was used by last year’s winner of the DOE’s Solar Decathlon.

2007 Solar Decathlon - 1st Place Entry by the University of Technology, Darmstad

In addition to SmartBoard, BASF PCM materials have been incorporated into several other building products in the EU:

• Aerated Concrete by H+H Celcon, Germany
• Gypsum Building Blocks by Saint Gobain Rigips, Switzerland
• Gypsum Plaster by Saint Gobain Maxit, Germany
• Radiant (active) Cooling Ceiling Tiles by MWH BARCOL Air, Switzerland and Ilkazel, Germany

Combine peak oil with 1,500 mile farm to table transportation costs and 10 calories of fossil fuel energy consumed for every 1 calorie of food energy produced, and you have the perfect formula for a looming food crisis. I’ve speculated in the past that we will have to return to the citizen farmer victory gardens of WWII to build a secure bridge to a more sustainable food delivery system, however a Colorado entrepreneur has demonstrated that there is money to be made in converting the front lawns of suburbia into the organic farms of the future.

Transforming Suburban Landscaping from Ornamental to Edible

Kipp Nash under the banner Community Roots has created a suburban front yard farm network in South Boulder Colorado’s Martin Acres neighborhood. Homeowners donate their yards and Nash replaces their front lawns with beautiful and edible organic vegetable plots. Nash manages all of the planning, planting, weeding, irrigating, and harvesting and the homeowners are paid in organic produce. Community Roots sustains its operation by selling excess produce at local farmers markets or through it’s own CSA.

This is a business model that is healthy, local, sustainable, profitable, ecological and destined to grow by duplication in communities around the nation.

With price tags ranging from $15,000 to $50,000 or more for residential PV [photovoltaic] systems, the residential market has been limited to homeowners with a strong green ethic that either had the cash or were willing to tap into their home equity to pay for the cost of a system.  Given a 15 year plus payback and an average home ownership turnover of 5 years that represented a pretty small population of potential customers.  As a result, it was only a matter of time before entrepreneur’s realized that the PV industry had reached a point where it needed more financial innovation than technical innovation.

Power Purchase Agreements [PPAs] are offered by companies that are basically independent, solar electric utilities.  They use your south facing, roof-top real estate to install PV [photovoltaic] panels at their expense and then sell that energy back to you at a pre-determined rate under a long term PPA agreement.  Solar PPA’s represent over 50% of large commercial and industrial PV installations, and if you’re a big box store like WalMart, the economics are such that you pay zero upfront cost, lock in favorable long term rates and never have to worry about how it works or the costs to maintain the system.

Until recently, the PPA business model has been non-existent for the residential market, however two California companies now offer forms of residential PPAs to qualified homeowners.  Sun Run of San Francisco offers an 18 year residential PPA that requires an relatively modest (~30% of the system cost) upfront payment by the homeowner and Solar City Inc. of Foster City offers as low as a no money down 15 year lease to highly qualified (≥720 credit score) homeowners.  Whether it’s called a lease or a PPA the end result is the same, the company owns, maintains, and profits from the system and the homeowner pays a monthly charge that is off-set by their savings in electrical costs.  It’s a win-win-win situation for the company, the homeowner, and the environment.

To answer the “what happens if I move” question, both Sun Run and Solar City offer their customers the option of buying the system at any time, transferring the PPA/lease to a new owner, or renewing the PPA/lease agreement at the end of its term.

You’ve got to love the potential for the PPA business model to expand the residential PV market to millions of additional homeowners, but what are the factors that make it technically and financially viable for a companies like Sun Run and Solar City, and why are these programs currently limited to California?   The answer lies in tax credits, rebates, and utility rates, and in the case of California all of these factors are aligned to make the numbers work.

Whether it’s a lease or a PPA, since the company owns the system they get the tax credits and any state or utility rebates.  In the case of the Federal Investment Tax Credit [ITC], because they are a business, they get the full 30% credit and are not capped a $2,000 like us lowly homeowners.  Because the Federal ITC is scheduled to expire at the end of 2008, the PPA/lease business model may fall apart if it is not renewed.  If not renewed, the economics would probably dictate that the homeowner cover an additional 30% of the purchase cost upfront making the deal considerably less attractive.

Other factors that make the model work are the relatively high California utility rates and favorable net metering laws.  Additional requirements include an unobstructed southern exposure for the panels, a roof surface that will last the lifetime of the PPA or lease, and a system that’s large enough to make economic sense for the company.

If the Federal ITC gets renewed for several more years, look for both of these companies to rapidly expand into states with relatively high utility rates and strong incentives for renewable energy.  As utility rates inevitably increase and PV panel costs decline, this business model will only get stronger.

Some 70 years ago we began our grand suburban experiment.  A utopian vision of a tranquil and natural setting for our nations homes.  Garden communities full of happy children and the promise of tomorrow.  I grew up in one of these vast suburban tracts near Long Beach, California.   Our new 1,000 SF 3 bedroom, one bath home was one of thousands built of  returning WWII veterans and their families.  It’s detached one car garage housed our family car and in 1950 the men used that car to commute to and from work and the women stayed home to raise the children.  The white collar dads worked 9 to 5, and the blue collar dads 8 to 5 with an occasional overtime shift.  For the most part all the dads were home on the weekends.   Black and white TV’s and record players were the extent of our electronic life, and drive-in movie theaters and burger joints extended our automobile lifestyles.

As the population grew, new roads and freeways would be built and eventually a sprawling suburban would spread from north of Los Angeles south to San Diego as far the the Mexican border and from the Pacific coast to inland desert.  Progress would bring us two hour one-way commutes, two income families, and three car garages as we became trapped in lives that could only be lived by driving 20 and 30 thousand miles a year.  Our original utopian vision of peaceful tranquility would instead become one of road rage and isolation, and leave us obese and addicted to tranquilizers.

Today, I wonder what will become of this grand experiment as the production of oil peaks and we can no longer afford our auto dependent lifestyles as gas prices first reach $5 and then $10 per gallon.  Will we become a nation of telecommuters?  Will zoning laws change so that our suburban neighborhoods become sprinkled with offices, cafes, and small shops?  Will our suburbs become sufficiently urbanized (see Drivable Suburbanism v. Walkable Urbanism) so we can get to work, restaurants, and stores by foot?   Or will vast tracts of suburbia just be abandoned for something more sustainable and the land returned food production?

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