The Red Faces of the Solar Skeptics

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Today’s Economist
March 10, 2014

Nancy Folbre is professor emerita of economics at the University of Massachusetts, Amherst.

If the faces of renewable energy critics are not red yet, they soon will be. For years, these critics — of solar photovoltaics in particular — have called renewable energy a boutique fantasy. A recent Wall Street Journal blog post continues the trend, asserting that solar subsidies take money from the poor to benefit the rich.

But solar-generated electricity is turning into a powerful environmental and economic success story. It’s also threatening the balance sheets of electric utility companies that continue to rely heavily on fossil fuels and nuclear energy.

As their costs per kilowatt hour have fallen through the floor, solar arrays have hit the rooftops.

The average price of a solar panel has declined an estimated 60 percent since the beginning of 2011, and this year the total photovoltaic capacity in the United States is projected to reach 10 gigawatts, the energy equivalent of several nuclear power plants. (By one estimate, photovoltaic costs crossed over to become cheaper than electricity generated by new nuclear plants about four years ago.)

An analysis of remodeling and construction permit data from 77 municipalities around the United States reveals that solar installations — primarily photovoltaic rather than solar thermal — grew by a third last year alone. With a relatively short payback period, these home-improvement investments are now within the reach of many middle-class families.

In both Europe and the United States, generous public subsidies including tax breaks and feed-in tariffs requiring utilities to buy back consumer-generated electricity that feeds into the grid have allowed solar photovoltaics to achieve vastly lower unit costs. But these subsidies are dwarfed by historical taxpayer support of both fossil-fuel and nuclear-generated electricity. The International Energy Agency warns that continuing fossil-fuel subsidies contribute significantly to global environmental problems.

As Japan’s experience with the Fukushima Daiichi nuclear power plant disaster suggests, nuclear power imposes significant risks on nearby residents and even entire national economies. Yet the United States continues to offer significant loan guarantees for nuclear power plant construction, as well as providing public insurance that strictly limits utility company liability in the event of an accident.

Last year the British government signed a contract guaranteeing a generous long-term price for nuclear-generated electricity from a French utility. The financial implications are essentially the same as for a feed-in tariff.

Rick Murphy, general manager of Grandview Tire and Auto in Edina, Minn., which installed solar panels on its roof.

Jenn Ackerman for The New York Times

The big news is that solar photovoltaics are now cost-effective in many European countries even without public support. A recent article in The Financial Times quotes Jason Channell of Citigroup as saying: “We’re at a point now where demand starts to be driven by cold, hard economics rather than by subsidies, and that is a game changer.”

An investment analysis by the financial services company UBS contends that an “unsubsidized solar revolution” has begun that could eventually supply as much as 18 percent of electricity demand in Germany, Spain and Italy.

The report goes on to suggest that electric utility companies serving these markets may see their profits take a hit. The UBS analysts say that consumer-supplied solar electricity tends to reduce the spikes in electricity demand on the power grid (so-called peak load) from which these utilities have traditionally derived much of their revenue.

Rooftop solar is relatively easy to synchronize with consumer demand. In areas where air-conditioning accounts for a significant portion of electricity consumption, the same sunshine that is increasing demand is also increasing supply. New information technologies can enable households to automatically switch on appliances such as washing machines at the optimal time of day. If the price of local battery storage falls, consumers can become even more self-reliant.

Plenty of smart money has been moving into large-scale renewable energy projects, with significant investments by Google, Apple and Microsoft. Google is planning six new solar power plants in California and Arizona.

Public support for photovoltaic technologies is accomplishing its intended goal — speeding the development of innovative and environmentally sustainable technologies. It’s also worth noting that solar installations are relatively labor-intensive, helping revive demand in the building trades. The Solar Foundation’s Solar Job Census estimated that there were almost 143,000 solar workers in the United States in 2013, a nearly 20 percent increase over employment totals in 2012.

Subsidies are not the ideal public policy for promoting clean energy. As a recent analysis by the Carbon Tax Center points out, a carbon tax devised to protect low-income households from bearing a disproportionate share of higher energy prices would yield more efficient overall results, as well as encouraging solar power.

But in our subsidy-encrusted energy economy, some subsidies are better than others. As farmers say, make hay while the sun shines.

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