Subsidies are harming, not helping, the solar industry

By Michael Schaus
  • Monday, February 15, 2016

By Michael Schaus

Pouring millions of taxpayer dollars into the “green energy” industry might make some well-intentioned big-government environmentalists feel good about themselves, but it’s doing very little for their cause.

In fact, the reliance on subsidization is slowly eating away at the industry’s ability to produce viable alternatives to traditional sources of energy.

This has become blatantly apparent in Nevada, now that the Silver State has reduced its net-metering rebates for rooftop solar.

Advocates of rooftop solar have shown righteous indignation, demanding that the Public Utilities Commission “save solar” by restoring artificially high net-metering rebates. Solar Companies have threatened to pack up their toys and leave the state — taking thousands of jobs with them. Sen. Harry Reid has even gone so far as to introduce federal legislation designed to “save” the industry by federally mandating certain aspects of the net-metering program.

But the truth is, net-metering is nothing more than a cleverly designed expansion of the massive subsidies upon which solar companies have learned to depend.

As Paul Nahi — the CEO of one of America’s premier solar companies, Enphase Energy — wrote in an opinion piece for Forbes in 2013, subsidies of all stripes stifle innovation, and protect the least efficient companies within an industry:

Healthy companies depend upon sound business models in a competitive environment. Lousy companies that are limping along on subsidies will slow the growth of the industry… A robust, renewable energy market will remain hampered if the energy industry continues to chase the next subsidy.

How right he was.

Net-metering is a subsidy program that forces utilities — such as NV Energy — to purchase the excess power produced by rooftop solar panels, resulting in customers receiving “credits” for the solar power they don’t use during the day.

Nothing would be wrong with this set up, if it were voluntary. But net-metering is a coercion by the state. The program forces NV Energy to purchase excess solar power at prices far above what is normally charged by other providers — regardless of whether or not that power is actually needed.  

In other words, non-solar ratepayers ultimately subsidize the artificially high rebates doled out to solar customers.

After it was announced that those rebates would be reduced, solar companies didn’t scramble to innovate their product, or adjust pricing models. Instead, they clamored for the preservation of a government-mandated wealth-redistribution scheme.

Their outrage borders on petulant, given the mountain of subsidies the industry already gets from state, local and federal politicians, hungry for solar campaign contributions. Hundreds of millions of dollars have been handed out to the industry by the Governor’s Office of Economic Development, and the industry as a whole receives billions of dollars each year from state, local, and federal government agencies.

This massive subsidization of the industry is not doing solar companies any favors. In fact, it is doing irreparable harm to the future efficiency of the industry,

As illustrated by the panic in Nevada, solar is desperately uncompetitive with traditional energy — only making inroads into the market when government has stepped in and either subsidized, or mandated others to subsidize, the industry’s unsustainably low prices.

Solar’s uproar over the PUC’s tweaking of net-metering rates, however, shouldn’t necessarily be written off as a mere temper tantrum. To some extent, the threatened flight from the Nevada market is a corporate necessity, since solar companies — as currently structured — are largely incapable of providing the kind of value that consumers demand, at a cost they are willing to pay.

As the Taxpayer’s Protection Alliance pointed out in a 2015 study on Solar, the industry’s focus on earning privileged subsidies from government has greatly skewed investment within the industry as well. Rather than focusing on innovation, advancement and cost competitiveness, subsidized companies have focused on political favors and on schemes to take advantage of their taxpayer-funded privileges.

This reliance on government for firms’ profit margins not only illustrates the industry’s refusal to innovate, but also the danger of such reliance for the industry’s long-term stability — as solar companies in Nevada are now learning.

Solar may, indeed, have a lot of potential for Nevada’s energy future. But as long as government largess — rather than sound business practices or innovative products — keep the companies in business, the industry will not have entrepreneurial incentives to take the kind of technological leaps necessary to compete in a fair and open market with traditional energy. 

If advocates of rooftop solar are serious about transforming the industry into a viable and competitive piece of America’s energy future, companies will need to remove their economic training wheels first.

It’s time for solar to prove its value — without the crutch of government cronyism.

Michael Schaus is communications director of the Nevada Policy Research Institute, a nonpartisan, free-market think tank. For more visit http://npri.org.  

 


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