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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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Subsidies: The Poisoned Chalice of Renewable Energy

“Solar subsidies are a placebo which is giving the general public a sense of security about our energy future and is robbing the motivation of those entrepreneurs that could actually address our energy problems.”

“In the near term, perhaps our bigger concern than climate change is anthropogenic energy policy.”

In a recent Economist on-line debate, the affirmative motion “This house believes that subsidizing renewable energy is a good way to wean the world off fossil fuels” was surprisingly defeated.

In his closing remarks, the moderator softened his strident opposition to the negative case, even admitting that “subsidizing renewable energy, is wasteful and perhaps inadequate [to address climate-change concerns].”

Beyond the Climate Debate

The debate, indeed, reopened the question whether anthropogenic greenhouse-gas forcing was a serious planetary environmental concern. But such focus short-changed what I think is the more important question for the Economist. Not only are the renewable-energy subsidies (such as for solar) wasteful and potentially insufficient, they are outright diabolical if indeed there is a looming environmental crisis.

I am not evaluating the whether anthropogenic global warming is real and potentially cataclysmic; I’m arguing that if there is a valid concern about the enhanced greenhouse gas effect, not only will the subsidies not solve the problem, but may very well prevent or postpone a legitimate solutions.

Grid Solar: Radically Uneconomic, Intermittent

I’ve written before about why on-grid solar power is absurdly uneconomic and has almost no hope of becoming a viable alternative to current generation technology–or even competitive with other more viable renewable technologies. I’m asking the reader to accept this position for the sake of understanding the potential implication of my claim.

I think it is safe to say that public opinion towards solar is very positive, and there are many in the field claiming that on-grid solar is at or near grid parity.  But it only appears this way because of massive governmental subsidies/ratepayer surcharges for installing and using solar PV.  In reality, it is hopelessly inefficient from an economic sense to be a fix for our CO2 concerns.

The Real Problem of Subsidies

Here is the real problem:  Subsidies make solar appear viable today, so where is the motivation for an entrepreneur to risk money, or even focus on developing real energy alternatives when solar is “almost” there?  How can an inventor justify striving with the effort it takes to really develop something great when he is competing against a straw man technology which can provide power at almost the same cost of traditional power sources today?  But of course it really doesn’t. 

The answer is he can’t justify the effort, so the next great thing is not developing, at least not with the sense of urgency it should be.  Why enter a contest when you are competing against someone with an unfair advantage?  You may be the faster swimmer, but your competitor is using flippers.

Solar subsidies are a placebo which is giving the general public a sense of security about our energy future and is robbing the motivation of those entrepreneurs that could actually address our energy problems.  Subsidies are much worse that just wasteful, they’re diabolical. They lull us into thinking we have almost solved the problem and they hinder us from seeking the real solutions.

An Analogy to Leprosy

“Necessity is the mother of invention,” and it’s fairly easy to see this is often the case.  Need is a great motivator.  We need to feel the pain of our situation to really challenge and change it.

Leprosy maims it’s victims by robbing them of their sense of pain.  The leper can put his hand on a hot surface and not feel the heat.  He can twist an angle and will keep walking.

In the same way, on-grid solar subsidies will allow a homeowner to continue using much more electricity than he can afford (or the planet can sustain) and he will not know it.  If he felt the pain of the real cost, he would use less power.

But he does not feel it, since subsidies hide the pain, like leprosy.

Summary

Subsidies defeat market forces on both sides of the equation.  They reduce potential supply by hindering entrepreneurs from developing new energy supplies, and they increase demand by artificially keeping the price of energy down. There could hardly be more cleverly disguised means of exasperating a potential climate issue.

If solar PV does not develop into a viable alternative, which I believe it won’t for many decades, not only will we have wasted billions of dollars; far worse, we would have defeated normal protective market forces which would have better prepared us for a potential necessary change in energy use.

In the near term, perhaps our bigger concern than climate change is anthropogenic energy policy.

By. David Bergeron

This article was provided by MasterResource




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  • Fred Banks on December 20 2011 said:
    The leading academic energy economist in the world, ME, is in favor of subsidies. The point is though to subsidize the right things. And what are these. Well, we can discuss that after the cognac has been opened and goes around the table a couple of times. I'm tempted to say however that things should only be subsidized that make economic sense, but that is not completely logical. We live in democracies, and when voters can elect people like George W. and Mr O., they might get nasty if they didn't recieve a little slack. Let me put it this way; give them some renewables and alternatives, but a lot less than they would choose if they had the opportunity.
  • chris on December 20 2011 said:
    As a conservative the 'American way of life is non negotiable' so the solar/oil subsidies must stay.

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