Propped Up
New Solar Subsidies Come with Some Major Problems

Solar power can’t yet compete with fossil fuels on its own merit, at least to the degree that most greens want it to—it’s simply too expensive—so to kickstart the fledgling renewable energy source governments have to rely on subsidy schemes. Feed-in tariffs are one of the most popular options here; they involve guaranteeing solar producers long-term above-market rates for the electricity they contribute to grids. The problem with this route, as Germany has found to its citizens’ detriment, is that it’s expensive. Consumers typically eat the costs of these subsidies (in the form of a green surcharge on power bills in Germany’s case), and these price hikes have a tendency to disproportionately affect the poor.

There’s another form of government support that’s picking up traction, though, which involves auctioning off solar production contracts to the lowest bidder. India has aggressively pursued this strategy, but has seen companies eager to gain a foothold in what will eventually be a lucrative market go too far in this race to the bottom, raising doubts about the profitability of the auctioned-off projects. As Bloomberg reports, this isn’t an issue unique to the south Asian country:

While the new mechanism has produced a bonanza of contracts for well-capitalized developers, industry executives are concerned that many of the projects won’t make money or get built, endangering company finances and national green targets.

“You don’t want to end up in a situation where companies go bust and you have a non-sustainable way of setting the right price level in the industry,” Samuel Leupold, vice president of Denmark’s biggest utility Dong Energy A/S, said in an interview in London. […]

Michael Polsky, chief executive of one of the largest private clean-energy companies in North America, Invenergy LLC, bid unsuccessfully at Peru’s auction in March. He doubts the winning companies can profit from their offers. “None of them are financially viable,” Polsky said.

Rather than tripping over themselves trying to devise complicated new schemes to get renewables up off of the ground, policymakers would be far better served devoting their attention and their governments’ dollars towards the research and development of more efficient solar panel (or wind turbine) technologies. Greens place a high premium on sustainability but seem to forget what that word means when it comes to industry, so here’s a timely reminder: propping up energy sources incapable of expanding their market share on their own is not a formula for lasting success.

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