The Cure to America’s Energy Woes Is Staring Us in the Face
Why solar is the obvious answer to immediate energy security
By Chamath Palihapitiya and Chris Kemper
March 15, 2022
America’s energy policy is broken. What may have been obvious to only a few people just weeks ago has now been laid bare for all Americans.
By blocking the expansion of domestic oil and natural gas, threatening to roll back incentives for solar, and insufficiently demanding utilities to upgrade their decrepit grid infrastructure, America yet again finds itself energy dependent on a group of actors that includes the likes of Russia, Saudi Arabia, and Qatar, with talks of adding Venezuela and Iran to the mix. To make matters worse, leaders of Saudi Arabia and the U.A.E. recently declined requests to speak with President Biden citing American policy in the Middle East.
Are these the countries we want to rely on for one of our most precious resources? A resource that directly impacts our productivity and comfort? The obvious answer is no, and now, Americans will pay the price until we fix it.
By some accounts, many U.S. cities could see sustained average gas prices of $5 per gallon. Beyond the immediate impact to consumer spending and consumer confidence, history has shown that when energy prices spike by this magnitude in such short order, the U.S. economy typically enters a recession.
How did the most sophisticated economy in the world find itself in such a vulnerable position, and what can we do about it?
A Problem Decades in the Making
After the Gulf War, the U.S. took deliberate measures to reduce our dependence on foreign oil. In large part, this resulted in tapping America’s substantial shale reserves to extract natural gas from the earth via a process known as fracking.
For a while, domestic shale served its purpose, but like the burning of other fossil fuels, it comes with a range of negative environmental externalities. This caused both the U.S. government and capital markets to run headfirst into a set of environmental priorities that quickly made shale an unsustainable long-term solution. While this was a laudable outcome in the context of climate change, it came without a strategy to replace this lost energy supply.
Meanwhile, America’s utilities were also playing their part. By bowing to uninformed and unscientific bullying about the evils of nuclear energy, they ran to decommission our nuclear energy capability, which data shows is actually cleaner and safer than any hydrocarbon.
At the same time, the capital markets reinforced a myopic focus on the present. Because the operating model for public and investor-owned utilities requires heavy capital expenditures, Wall Street riddled our utilities with massive debt making it incredibly difficult to be profitable, let alone be able to invest in and modernize multi-decade old infrastructure.
In California, this aging infrastructure has been found responsible for climate catastrophes like wildfires that have ravaged millions of hectares across the state while also releasing enormous amounts of greenhouse gases into the atmosphere.
But who suffers the most from this combination of negligence, profiteering, and incompetence? American families. They are the ones left to cope with rising energy bills, rolling blackouts, deleterious air quality, energy indebtedness, exacerbated climate change, and in the worst of cases, the tragic loss of property and loved ones.
So, amidst another global energy crisis, America is faced with yet another critical decision. Do we invest in restarting our domestic oil and natural gas capacity, or do we rethink our approach and pursue a clean energy security strategy that can stand the test of time?
The Solution Is Staring Us in the Face
Fortunately, we already have an obvious solution, and it’s staring us right in the face. Literally. Solar energy is clean, unlimited, and readily available. Naysayers may claim that the sun only shines half the day, but these misperceptions are no longer prohibitive.
Solar is just one part of the clean technology value chain that can transform the energy landscape. By integrating on-site battery storage, it is already possible for solar-powered homes to operate independent of the grid. This combination makes solar a viable option for 70% of American households.
Importantly, under this model, an individual home or neighborhood becomes its own mini-utility and is no longer reliant on a flailing electric grid (the electricity generated can also replace natural gas usage over time). For example, if solar had been in place during the 2021 Texas power crisis, we could have potentially avoided statewide outages that led to hundreds of deaths and approximately $200 billion in property damage.
It’s also worth noting that a decentralized solar grid would do absolute wonders for the climate. Today, the U.S. power sector accounts for 27% of U.S. greenhouse gas emissions. A mass transition to solar would not only significantly decarbonize our power grid, but it would enable other sectors to decarbonize as well, such as transport and commercial buildings.
Despite these clear benefits, solar is utilized in less than 4% of U.S. homes. A major reason has been cost. The average residential solar system in the U.S. runs between $25,000 to $30,000.
But why is it so expensive?
Rethinking the Solar Business Model
A big contributor to the cost problem are the solar companies themselves. Residential solar providers are more or less construction companies. Some of their biggest expense items are the panels and labor – which means they are highly levered and low margin.
In order to even be profitable, many of them have resorted to selling financing products to customers. Neither of these business models scale efficiently, making mass adoption cost restrictive.
But the residential solar model doesn’t need to exist this way. By isolating and removing many of the soft costs, a solar company can operate akin to a software business, and as a result, provide a cheaper product to consumers. (Disclaimer: Palmetto operates a distributed model and claims to be less expensive than competitors.)
Make Solar Affordable for Everyone
Whether smartphones or electric vehicles, history shows that for any valuable product, as prices go down, adoption goes up. But time is a luxury we can’t afford, particularly with wars being waged and climate change proceeding at an unrelenting rate.
So why not make the biggest infrastructure investment of our lifetime for us to achieve energy security? Assuming the high end of $30,000 per household for solar panels and battery storage (which could be up to 30% cheaper under different models), it would cost $2.1 trillion for the U.S. government to fund residential solar across the country.
Taking it one step further, the federal government could also direct hundreds of billions towards the manufacturing of the panels themselves, transforming a now-nascent industry into a domestic powerhouse.
In other words, for roughly the same amount of President Biden’s Build Back Better package, America would become completely energy independent, and nearly every household would get energy for almost free. Not to mention the millions of jobs that would be created from domestic manufacturing to sales to installation and maintenance.
The bottom line is that we can no longer wait for the perfect solution. The right solution is already here. And while we implement solar over the coming years, we can refocus future capital investment on the next leap in energy technology.
Make this the Apollo project of our generation from which Americans achieve energy independence and sustainable energy through mass adoption of affordable clean technology.