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Internal economies and solar production

Dovetailing solar production with other effort - if you can...

by : Nov 1, 2015

Normally when a business owner contemplates the addition of a machine to his stock of captital, he does so not only with the direct benefits in mind but indirect benefits as well.

Consider a business where the owner knows that adding a special machine to his production facility will add a net $10 to profitability per unit produced all other things being equal. But in addition, he knows that one of his employees has special skills with the new machine, and that adding the new machine plus applying the skills of the worker which are currently under-utilized he can achieve a $20 profitability per unit. The employee's wages rise to acknowledge his increased productivity, but this still leaves an increased return to the owner with the same outlay of capital.

There can be other benefits; if the new machine requires that a worker be trained in a specific area, then these new skills may come in useful in other departments as well. The training has been expensed as part of the addition of the machine, so the additional benefit comes as a bonus over and above the direct benefit of the machine's productivity.

I'm not sure that any peripheral benefit arises from the operation of a solar array under a MicroFIT arrangement. A solar array is designed to do a specific job, produce electricity and dump it into the grid. It is hard to imagine how the array, as the new machine, can be combined with another factor of production to provide indirect benefits without considerable extra expenditure. Therefore, since it is largely a passive, self-regulating factor that requires no operating skill apart from that invested in setup and ongoing occasional specialist repair, there are few internal economies of scale.

Economies would arise, for example, if the operator had a means of supplying electricity to the grid while the solar part was ineffective, on cloudy days and at night. But this would increase the productivity of only a small part of the capital investment - the connection to the grid. The major part of an investment in a solar array is in the panels and inverters, not in the cabling.

So I listed the internal economies of scale as a cost rather than a benefit; the incentive to reward a solar producer has to be greater than in the case where the producer enjoys some internal benefit and can therefore produce at a lower overall cost.