Setting the Record Straight on Solar Subsidies
Share this post
The U.S. has a long history of supporting energy infrastructure through the U.S. tax code. Yet, renewable energy seems to be singled-out as a special benefactor to government assistance. In reality, all forms of energy benefit from some sort of subsidy, which fall into various categories, including direct payments, special tax breaks, grants, loan guaranties, and intangible benefits (such as use of infrastructure, drinking water, and creation of greenhouse gas waste products by the fossil fuel industry).
The energy market is not a level playing field, but instead a shifting gray area where public and private interests are forced to dance in an awkward tango. Smart policy can shape a market that functions in the public good, providing reasonable energy rates while also protecting natural resources. When out of whack, policy results in an environment where the public interests – breathable air, drinkable water, livable climate – are omitted from the cost/benefit equation.
In a recent study of historical US Federal Energy Subsidies, the authors found that “when the first 15 years of subsidy life are compared, government support for the oil, gas and nuclear industries as a percentage of inflation-adjusted federal spending far outweighed the support granted to renewables … adjusting for inflation, between 1918 and 2009, the oil and gas industry received a cumulative $446.96 billion in subsidies compared to just $5.93 billion given to renewables in the years between 1994 and 2009. Meanwhile, the nuclear industry benefitted from a cumulative $185.38 billion in federal subsidies between 1947 and 1999.”
These historic investments in energy allowed our economy to become what it is, and far from demonizing government support we should laud the dividends that energy investments have paid for our society. We have two industrial revolutions and a dot com era which all drove America as the powerhouse on the world stage for the last sixty years. However, rather than being blinded by history we should shift policy to respond to the times. In an era where C02 emissions are threatening the very survivability of the planet, as well as leeching billions of dollars from our local economies each year, the need to dramatically change course is obvious.
Renewable energy subsidies, far from being a hand-out, serve to allow emerging technologies the opportunity to reach the economics of scale they need to compete with established sources. It is not “picking winners” to suggest that solar subsidies seem miniscule when compared to the 6,000,000 gallons of water used per hydrofracking well, unlimited license to dump C02 in the atmosphere given to coal plants, and tax advantages that allowed Chesapeake to pay less than 1% of federal income tax on $5.5 billion in income tax (Source: Own Energy).
Infographic Courtesy Environmental Law Institute
Is Net Metering a Subsidy?
Net-metering laws for solar photovoltaic power have recently come under fire. These laws are designed to accelerate renewable energy deployment by requiring utilities to provide a fair retail credit to customers who feed clean solar power into the grid during times of over-production (i.e. sunny days when typical household energy use is minimal but commercial and industrial demand is highest; at night all net metered customers must purchase their electricity from the utility because the sun is down). The beauty of net metering is that residential solar electric systems can help mitigate peak load straining on the grid from heavy commercial and industrial customers that draw their maximum amount of electricity from 12 p.m. to 4 p.m. on hot sunny summer days. Without this solar panel production, utilities are forced to fire up emergency sources of power on hot sunny days such as extremely expensive and dirty oil-fired power plants.
Those who believe that fossil fuel energy should remain our primary energy source would have you believe that net metering laws are tantamount to a subsidy for the solar industry. Two recent studies refute the notion by showing us that California’s net metering law will result in a $92 million benefit to all California ratepayers. These benefits include reducing fossil fuel dependency, reducing investments in inefficient transmission lines, cost savings from meeting emissions reductions and renewable energy requirements. The clean energy economy in California has produced an estimated 43,000 jobs and $10 billion in private investment.
In Vermontm a modest net metering law is anticipated to produce benefits of 3.5 to 4.5 cents/kWh for all ratepayers:
Graph courtesy of Vermont Public Service Commission
But What About Solyndra?
In addition to biased attacks on net metering laws (and reports that Germany has more sunshine than California, which we prefer not to dignify with an answer), we are hearing false tales about President Obama’s influence on the U.S. solar industry.
Although Obama talked a good game during his 2008 campaign, in reality the President achieved very little in regard to clean energy policy (though the pressure is on him to incease his efforts over the next 4 years). While we have yet to see a truly equalizing force, such as a national carbon credit system, what we did see was a DOE loan guarantee program as part of the 2009 stimulus. And, no doubt, the collapse of Solyndra, a DOE-backed company, was a tragedy and a debacle. However, to understand Solyndra you need to understand the tectonic shifts in the solar industry supply chain.
Solyndra’s business plan was predicated on the high price of silicon back in early 2000 to 2007 that was hampering photovoltaic manufacturing growth and keeping the cost of panels at $9 to $10 per watt. Solyndra’s answer was a photovoltaic panel that did not require silicon, as they had developed a technology that used other elements (cadmium, indium, gallium, selenide) to produce the photoelectric effect. When the cost for raw silicon plunged by more than 40% during the Great Recession, Solyndra’s differentiation strategy evaporated and led to its demise. It had nothing to do with U.S. government policy.
Solyndra was not the only casualty in the solar market during the incredible pricing freefall of solar photovoltaic modules, but the winner in this storm has been the residential solar market, where a homeowner can now buy a solar array for 26% of the cost of the same system six years ago.
The astonishing change in pricing has resulted in a solar industry that has grown more than 400% since 2006, now employs over 120,000 Americans (a 13% increase from 2011 to 2012) and has resulted in enough capacity to power more than 1 million average American households. Today, market forces have pushed solar closer to the ‘holy grail’ of grid parity, the point where solar installations are more cost-effective than coal. In New Mexico this already proves to be true with a large scale solar project recently purchased to provide power for less than half the cost of coal.
Life Beyond Subsidies
The solar industry knows full well that a subsidy-less future is coming and is eager for it, because the reality of renewable energy being not only an environmental ‘win’ but an economic ‘win’ will result in dramatically greater adoption in the United States than we’ve seen to date. If we want inspiration from a nation that has achieved a degree of economic freedom with their renewable energy investments, we need only to look to Germany. While we can envy their policies, we do not envy their climate! Even Maine and New Hampshire get 33% more sunshine than Germany, meaning our potential to benefit from our solar resource is bright indeed.