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Encouraging Solar Energy to Stand on its Own two Feet

By Gary Hunt | Wed, 17 October 2012 22:42 | 0

The search for market equilibrium is an elusive quest in the solar energy industry.  But the addiction to subsidies, carve-outs and other political favours has done little to improve the success potential for solar.  Quite the reverse, by creating the conditions that made possible and induced China to expand its aggressive export strategy of market dominance and deploy its zero sum game of taking market share from regional players the solar industry and its political patrons has effectively slit their own throats.

Cost of 4kW Solar: US v Germany

The question is how do we pull the solar energy future out of the ditch and get it back on the road re-positioned to be competitive on its own merits and strengths while changing the counterproductive business model, tax policies, market conditions, regulatory requirements and political meddling that now stand in its way?

The solar power industry continues to struggle to find market equilibrium amidst the chaos and volatility it finds itself.  The news is regularly full of near death experiences which have unfortunately come true for many solar market participants or fears of loom disaster on the horizon including:

Related Article: The Art of Solar War

It was not supposed to be this way.  Solar energy offered the most potential to disintermediate the traditional utility business model with distributed energy alternatives from photovoltaic modules on every roof to concentrated solar thermal options of utility scale.  There was enthusiasm for advances in technology that would improve module efficiency, trackers that would follow the sun and soak up its promise, and there were pioneers who stuck their neck out to invent and perfect new solar technologies to improve performance and efficiency. Yet solar energy seems more today than ever like Sisyphus continuing pushing that rock up the hill only to have it roll back down again.

This nearly perfect storm of unintended consequences from subsidies, feed-in-tariff backfires and political correctness run amok has been compounded by a nearly perfect quest for market dominance by China that sought to achieve its goals in a zero sum game by destroying regional competitors with the backing of its state sponsors eager to expand exports and build capacity to serve its own energy future.

The solar energy industry in the US and EU has been reduced to a leasing and installation franchise of China’s export industry.  We are spending subsidy money to install the least efficient, falling-priced commodity solar modules rather than creating market conditions to incent the evolution to newer, better, more efficient solar technologies. This never made sense except for political correctness.  The unintended consequences of this foolishness is a false sense of solar energy progress which does little to improve the competitive long term position of solar in the energy mix.  We compound this error by our equally foolish policies on regulation that drive up the balance of system costs in the US to more than twice what they are in Germany ( see figure above).

Today, as a consequence, China’s strategy of global market dominance is backfiring.  Excess production capacity and export growth has produced global glut, falling prices, and ferocious regulatory, legal, trade and political fallout for China around the world with anti-dumping duties, countervailing tariffs and other trade restrictions looming to punish China for political expediency rather than fix the market dis-equilibrium mess we created.

Related Article: What the US can Learn from China's Solar Industry

Achieving market equilibrium requires some tough love for solar energy and its market participants to create the conditions precedent to allow the market to find balance the old fashioned way—by earning it on the competitive business, technology and sales playing field.

Here are a few suggestions:

Empower the market to find equilibrium on its own with Master Limited Partnerships. The current growth in domestic energy production in oil and gas is being fueled in large part by the genius of the master limited partnership created by the Tax Reform Act of 1986 (TRA) and the Revenue Act of 1987 (IRC) to stimulate oil, gas and natural resource production.  This creative approach has worked spectacularly, minimized government interference, and improved both the allocation of capital where it has the best chances of market success and reducing the gaming of the tax laws by flowing through the income to the parties with skin in the game.  Applying the MLP rules to renewable energy on an equal footing with oil and gas and other natural resource development opportunities levels the playing field and provides a way for the market itself to pull solar, wind and other renewable energy projects out of the ditch on a merits basis not political correctness.

End Federal Subsidies and Declare Victory on State Renewable Portfolio Standards.The most effective barrier to market abuse by China is to end gaming of the subsidies system that has fueled it.  Creating artificial demand by renewable portfolio standards may produce good headlines for politicians but it is manipulating the market just as corrosively as anything China has done in its quest for global market share dominance.  To fix the China market manipulation problem we must fix the US and EU market manipulation inducements so that the market can work to find equilibrium.  It is time for the addicted to confess their addiction is a problem they must face squarely in the search for market equilibrium and long term survival and success.

Focus National Energy Policy on Creating a Thriving Competitive Market for Energy Innovation without picking the technology winners or losers. Our national energy policy has been broken for a long time.  As a body politic we too must face reality.  We can’t continue to spend money we borrow from China and others to permit our politicians to game the market while pandering to their base.  The government’s one true and most beneficial job is to create the competitive level playing field market conditions that allow all market participants to invest and work hard to provide high quality products and services that customers want to buy because they are a good value not because the government mandates it or subsidies it.

I recognize this may seem like fantasy, but if the proponents of solar energy and other clean energy alternatives really want it to succeed they must get off life support, be free from the addiction to unsustainable subsidies, and given a chance to grow and thrive on their own in a healthy, competitive market environment where innovation and hard work create sustainable market equilibrium.

By. Gary Hunt

About the author

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