Monday, 15 February 2010

Economics or Fashion?

Economists delight in working out the figures to support a rationale business case. If the proposal makes money (or saves money) enough to offset the expenditure then it is a sound investment. Anyone who lives in the real world – which is most of us – knows that there is more to life than rational economic decisions.

I committed to fitting solar Photovoltaic (PV) panels to my roof before the government announced the PV feed-in tariffs. I made the decision on the basis that this is what each building must have if we are to start to reduce carbon emissions. My decision was based on wanting to show leadership and ‘walk the talk’ to back up my calls for change. For me, it was not a rational economic decision, although I did have a suspicion that energy prices will climb high over the years ahead and that the expenditure might be a good hedge against such circumstances. The pay-back period, based on current energy prices, went way beyond the expected life of the system (30 years). It made no economic sense – but I wanted to fit PV despite this.

The UK government has now announced the feed-in tariff. Householders will be paid 41.3 pence per KW for retrofitted (36.1 pence for new build) starting from 1 April. The pay-back period for my system is now less than 20 years (based on current energy prices). There is now a robust business case to support a decision I took on a non-economic basis. Will that mean a flood of people following my example? No, people are not rationale in the way that economists assume for their calculations.

There is still deep-rooted opposition to PV panels on roofs despite the fact that they are a sound investment. What is needed is fashion change. When it is fashionable to have PV panels on the roof then people will invest in them to keep up with the Jones. Mine are hidden away out of sight on the side of the house and the generation meter hidden in the garage. Not much showing off to be had, but when I drive my electric car I can claim, with some justification that I am driving with zero emissions. That gives a certain warm glow inside that I am doing the right thing, but also, on this occasion, I am now behaving according to rationale economic analysis.

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