Ludvig,

The thread is about finance. In the quoted sentence, you cut off the trailing words “in the expectation of saving money”.

There are sometimes valid reasons for not adopting the cheapest solution, but if one knowingly adopts a more expensive solution, one is not doing so “in the expectation of saving money”.

However, if one has, for example, decided on some other grounds not to generate power by burning fossil-fuels, DCF does allow one to compare the alternatives. Do this analysis on photovoltaic cells and wind farms, and the conclusion is that wind farms are cheaper, so why would one use photovoltaic cells?

There are indeed non-financial reasons to install water tanks. The existence of restrictions is a particular one. However, DCF quickly allows the conclusion that it’s cheaper to extend the public water infrastructure than to have everyone installing water tanks. One could argue that this is a form of yield management – those who value water more highly pay a higher price for it by installing water tanks. But the difference in cost is significant, and there must be plenty of people who value water more highly than the current tap water price, but not highly enough to want to pay rainwater prices.

I don’t know that I can explain in simple terms how DCF impacts on the way that base load electricity is generated from coal, but non-base load power is not. It relates to the fact that coal fired generators are expensive to build but cheap to run, and things like gas fired generates are cheaper to build, but more expensive to run. Base load stations run all the time, and peak load stations do not. The finance types run the numbers, and the answer comes out – coal fired, or not coal fired.

The LPG car scenario is like the rain water tank. You pay money up front for the conversion to LPG, and then make savings down stream on the fuel. But if you don’t drive that much, then the savings on the fuel are not enough to compensate for the initial investment.

Sylvia Else. A well written argument on a difficult subject. All I can say is thank you and good luck as I understand where you are coming from.

Alright, thanks Sylvia

It all makes eminent sense now.

So can you tell me why I can’t access your website from the link at the bottom of your posts?

I also note that you have again (the first time was on another thread) suggested that I have stepped outside of the bounds of the discussion with my comments on other considerations.

Two points; there is no indication that the parameters of the discussion exclude such comments, and I feel that it is often appropriate to view things in a broader perspective.

And secondly I note the very different approach from you and me: one of confining things to tight parameters compared to one of taking a holistic view and always thinking about the subject in a wide context.

No criticism intended… just an interesting observation.

But I do express a bit of concern about many (most?) economists and profit-motivated people, and politicians, for not seeing things in the bigger picture, or not placing much significance in it if they do

Ludvig

The forum rules require that responses remain on topic. In a thread about finance, no matter how much you might feel that finance is overrated, a response that seeks to take the conversation in the direction of non-finacial matters is not on topic.

Similarly, in a thread about whether or not water is currently scarce, no matter how much you may be concerned about the effect of population growth, responses that seek to introduce the impact of population growth are off topic.

A hollistic approach may provide suggestions of where problems can lie, but it does little to indicate what can be practically done to address them. That requires detailed analysis.

In your concern about the focus on profit, and failure to focus on the bigger picture, I think you do economist and politicians a disservice. Ultimately, any proposed solutions have to be acceptable to the public. If there are difficulties in implementing some of the sustainable solutions, it's because groups with their own agenda have been telling the public that these solutions are available at no cost if only the government didn't support big business. The truth is otherwise. If the public believed that they had to pay extra for sustainable development, then the government would be in a better position to implement it.

Sylvia, this is a very interesting topic.
Like Ludwig, I would also prefer to discuss things from a broader perspective, but since it is your thread I'll try to be good ;)

Just one point I would like to stress though, because there is a financial connection to almost everything under the sun, is that: the more solar panels or water tanks are installed, the cheaper they will become as it will be possible to mass produce them. This will then give a better return for everyone.

So it doesn't really matter for what reason people are installing these things- whether financial reasons or environmental reasons. As long as enough people install these things for mass production, everyone will then reap all the benefits.

There's one other thing as well- if people install these tanks and panels in their investment properties they will benefit from the depreciation of those items, making them financially more attractive as well.

If only the govt would allow these things to be depreciated when installed in people's own homes, there would be a greater interest among home owners to think about installing the items.

Celivia

There's something of a myth going around that solar panels are produced in a sort of cottage industry. In reality, solar panel manufacture is already a multl-billion dollar world industry. We may see price reductions as the result of technological improvement, but not from economies of scale - we already have those.

Consumers have got used to consumer goods, and in particular electronic goods, constantly dropping in price. It is a characteristic of those goods that the materials of which they are made cost next to nothing, and production can be increasingly automated. This is not true of solar cells. The materials are expensive, and indeed require a lot of energy to produce. A typical solar cell takes 2 years or more just to generate the energy used in its manufacture. Such cells are so expensive that DCF shows that they would never pay for themselves, even if they lasted forever, which they don't.

The lead-acid battery is a good example of something that been around and mass produced for ages. There's one in pretty much every vehicle on earth. For all that, they still cost somwhere in the region of $100 per kWh of capacity. There are limits to the cost benefts that can be achieved with mass production. Some things are just expensive. Water tanks are probably another example, and their material feedstock derives from oil.

Allowing advanced tax depreciation on things does not affect their real cost. All it does is shift the cost burden from the purchaser to the tax payer. That makes good policy sense only if the taxpayer receives a benefit. In the case of solar panels, there is no such benefit. The taxpayer's interests are better served by the construction of windfarms, because they are cheaper.