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MasterResource

MasterResource

MasterResource is a blog dedicated to analysis and commentary about energy markets and public policy.Precisely because energy is the lifeblood of the modern economy –…

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Who Will Survive the Coming Solar Energy Meltdown

“Without these subsidies … ‘On-grid PV,’ would be virtually non-existent. It only exists because the solar industry lobbied government officials to compel citizens to purchase this otherwise non-economic energy source.”

“Included in the list of failed solar companies is Solon of Germany whose corporate slogan was ‘Don’t Leave the Planet to the Stupid.’ Fortunately for taxpayers, it appears Solon will be leaving the planet.”

A recent Wall Street Journal article, Dark Times Fall on Solar Sector (December 27, 2011), surveyed the latest solar industry fallout, as well as overviewed the financial condition of the surviving companies.

But the article seems to mistakenly equate the fallout to viability as if better profits would mean sustainability. The industry is not viable, but this is unrelated to the recent fall-out. The industry was growing and profitable in the recent past and was equally non-viable then. The difference is that with profit-enabling government subsidies intact, many established U.S. and European manufacturers are now competing with China. And they cannot compete.

Risky Business

There is a measure of justice in this recent turn of events. The old adage “he who lives by the sword dies by the sword,” comes to mind. In this case, one might say, “the industry that lives by government intervention dies by government intervention.”

The U.S. solar industry has seen remarkable growth in the past six-to-eight years, principally on the backs of taxpayers and ratepayers who have been forced to shoulder a significant percentage of the cost of these solar photovoltaic (PV) systems to make them appear financially viable as on-grid resources.

The solar industry has amassed a ridiculous collection of additive subsidies, which total upwards of 80 to 90% of the total lifecycle cost. They have lobbied every conceivable legislative body to garner special hand-outs for installing the systems and production subsidies (Net Metering) for operating the systems.

This industry is artificial. Without these subsidies this market segment called “On-grid PV” would be virtually non-existent. It exists only because the solar industry lobbied government officials to compel citizens to purchase this otherwise non-economic energy source.

In fact, they did such a good job of creating an enormous demand, that it attracted the attention of manufacturers and governments around the world, governments whose only subsidy is perhaps favourable lending to those companies that wish to sell into this artificial marketplace.

Global Subsidies, Calls for Protectionism

So now those same solar companies, which lobbied so heavily to plunder the public coffers, are through some grand act of justice being forced out of the business by Chinese manufacturers, who can produce panels at much lower cost. This industry built on government intervention in the marketplace is now dying because of possible Chinese government intervention in the marketplace. I call that just deserts.

So what is the response of the U.S. solar industry? It’s mixed, but continues on the same self-serving path it has followed. Some panel manufacturers are trying to block solar imports from China, which leads me to believe they’re not really that concerned with green-house gas emissions after all.

Solar installers are against the restrictions, because the cheaper panel prices are increasing the sales of PV systems and they’re as happy as ever to continue riding the subsidy gravy train. Both segments are guilty of participating in a massive plunder of public and private moneys.

It is almost comical watching manufacturers and installers fight over the import restriction policy. The manufactures want the restrictions so that they won’t have to compete against the low-cost panels from China, and the installers like the low prices so they have more business, thus showing little concern for the U.S. manufacturers who created the subsidies in the first place. Is there no honor among the plunderers?

The oversupply of panel production is the direct result of government subsidies for solar. The article, in part, credits the oil price boom for the investment surge, but solar is not a substitute for oil. Installing solar panels does not reduce our oil imports. Solar PV offsets electricity and only about 1% of our electricity is made from oil, so I can’t believe investors invested in solar in response to high oil prices, nor for the reason of climate concerns, since solar is a very expensive means of reducing GHG emissions.

Reality Check Needed

It is far more reasonable to assume that investors invested simply based on a belief that subsidies and mandates would continue for many years. The subsidies created an artificial demand, which those investing in the industry surely understood was unsustainable. But apparently they did not correctly foresee the competition.

And fortunately for the taxpayers, who were helpless against the massive lobbying efforts of the industry, the Chinese manufacturers have come to the rescue. So if we’re being forced to buy panels, at least we can buy less expensive ones.

The best possible outcome for the U.S. taxpayers at this point is:

1) those companies most responsible for the solar subsidies lose interest because of the competition, and

2) there is a widespread realization that our utility mandates are accomplishing little except supporting the Chinese solar panel manufacturing industry.

Hopefully, these two outcomes will result in a shuttering of the political forces sustaining the subsidies and the subsidies will finally end.

PV Grid Parity: Still Illusory

One other point worth noting about this article is that the cost of PV is finally down to about $1/watt, which is the price many in the industry claimed was the price needed for solar to reach grid parity without subsidies. Well, $1/watt is finally here and solar is still far from grid parity. The truth is even if China could sell panels to installers for 1¢/watt, the systems would still be too expensive. Even with free PV, the cost of installation, mounting structure, inverters, wiring, etc. make the systems financially unsustainable.

The article concludes with the statement that “as technology advances and costs drop, solar-panel makers can supply power without a need for heavy government subsidies.” This leaves the reader some hope that on-grid solar PV will wean the world off fossil fuels, but this is wishful thinking. There is no guarantee that the prices will ever reach the point of grid parity without subsidies.

PV would reach grid parity if the total installed cost plus the net present value (NPV) of the operations and maintenance cost were at or below about $1/watt. But given that the PV panels alone cost $1/watt, and the total system cost for utility scale PV arrays is still $3.75/watt not including the NPV of O&M costs, I don’t see on-grid PV as a rational bet. Unless of course, one gets to bet with other people’s money and can ignore the moral implications.

Perhaps it will someday be necessary to wean ourselves off fossil fuels for reasons of supply limits or environmental issues. If that happens, normal market forces will rebalance both the supply and demand of energy in logical and rational ways. Till then we’ll just have to suffer through yet another economic bubble created by government intervention in markets.

Will we never learn?

As a final note, included in the list of failed solar companies is Solon of Germany whose corporate slogan was “Don’t Leave the Planet to the Stupid.” Fortunately for taxpayers, it appears Solon will be leaving the planet.

By. David Bergeron

This article was provided by MasterResource




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  • HK Chaudhary on January 12 2012 said:
    It's true that 'solar companies, which lobbied so heavily to plunder the public coffers,are through some grand act of justice, are being forced out of the business by Chinese manufacturers, who can produce panels at much lower cost. 'However,in my view and experience Chinese installers might offer you solar panels at cheap rates but the quality is not above speculation. So invest wisely. :-*
  • Mark Turczynski on January 12 2012 said:
    I guess I should expect a blog like this on a website called oilprice.com. A 2008 energy report produced by the Texas Comptroller of Public Accounts quantified the federal energy subsidies in 2006 as 65% tax incentives, 29% direct spending and 6% everything else. This same report also disclosed that 80% of all federal subsidy dollars spent went to the coal, oil & gas, and ethanol industries in 2006. That same year, the solar industry received only 2.9% of all federal subsidy dollars. Oil and gas got 26%, that ten times more than solar.Solar is trying to reach grid parity with subsidied energy. No wonder it is having a rough go at it.
  • Craig H on January 12 2012 said:
    Net Metering is the ability to sell power back the utility at the same rate they are charging you. Your solar system will produce more than you use during the day. You build up a bank of credits and at night when the system is off you draw on those credits. This is what you are railing at ? Give me a break. Speaking of Subsidies:What would happen if the US Navy brought all their ships home and left the Straight of Hormuz - is that military cost factored in ? What would the effect on the cost of oil be then ? The Navy does not have to escort freighters laden with containers of Chinese solar panels do they ? More importantly the Chinese want to sell us cheap solar panels so we can get cheaper electricity.Grid Parity is the ability to measure traditional electric cost against solar. With .15 electric rates and a 10 year payback we are at grid parity now in many states without subsidies.
  • Fred Banks on January 13 2012 said:
    Mark, by and large solar and wind are failures at the present time,although I suspect that in very large countries like the US, there are regions where they can succeed. I dont intend to try to find or figure out where however.One thing seems obvious however, wind has failed in Denmark, and if that country (and Germany) were not able to hook into the grids of surrounding countries, they would sing a different tune about renewables.
  • C.M. Augustijn on January 18 2012 said:
    The conclusion that there will come a meltdown in solar producers and therefore, solar energy has failed seems a bit contradictory. First of all, every new technology, product, service etc, goes through a cycle to mature. Many competitors will try to get the upper hand and the best combination of quality, price AND marketing, will survive. If the cheap solar panels from China prove to be doubtful in quality, other producers in other countries have a right to exist. Also consumers are free to choose. If cheap would be the only measure, everybody would drive around in a Tata Nano. So the meltdown that will leave the mature companies in business, is more a step in its success. To come to the question if it is economically viable to produce energy with solar panels, has more to do with how we will use them. It is first of all, a bottom up-thing, which we are not used to. Every consumer who can read an instruction manual, who has a good roof can decide to buy and install them with the help of a friend, if he doesn't want to spent money on this. And if you have gas delivered to your house, you could decide to combine the solar panels with your own micro energy turbine, that heats your house, warms your water and gives electricity when the sun is not shining. This is the nightmare of every energy company, that has invested heavily in coal, nukes or even megalomaniac alternative energy projects.
    People getting of the grid and produce their electricity and heat themselves at home, in a very efficient way, will drive solar sales in the near future, but also provides a new market for mainly gas powered micro turbines and small efficient energy storage systems. So maybe it is time utility companies start to think smaller, instead of trying to do away with the new and call if a failure.
  • jsm on February 10 2012 said:
    Can you quantify the "massive lobbying" efforts by the solar industry? If you were an unbiased source, you would justify this statement, and even put it in context with some comparative figures for the lobbying done by the oil and gas industry.
  • PaulWDent on February 12 2012 said:
    There are at least three US companies delivering PV panels at $1/watt profitably without government subsidy. Then we have all the Chinese manufacturers that will fall into line with this pricing. You can buy opanels from tghen tofday at $1/watt. As l0ong as balance of system components and installation costs less than another $1.1/watt, we have capital cost parity with coal. In fact, I am working novel ways to make system componets much less than $1/watt.
    However - recurring cost is zero for PV. The sun shines free, unlike burning coal, which is about 4c/KwHr. So reality is, PV is an econoimic no-brainer and our energy problem is about to be over. There will be PV-fueled economic boom, as the cost of everything that depends on energy will fall, and people that make the investment in PV, whether residential or industrial, will find they have more disposable income to spend on other things.
  • Robert Budding on April 21 2012 said:
    Other commentators have correctly noted that oil, gas, and coal already receive massive subsidies, and oil is responsible for drawing us into endless wars in the Middle East. Add in the fact that pollution isn't priced into fossil fuel pricing and it's clear that solar needs massive subsidies just to be able to compete on a level playing field. I'd be fine with eliminating subsidies for solar, as long as subsidies for fossil fuels are removed, too, and if a pollution tax is levied on fossil fuels.

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