Fifteen years ago, at $25 a barrel for petroleum (in today’s dollars), I supported subsidies for installation of solar water-heating and photovoltaic energy systems. I wrote testimony. I met with legislators. I worked with bankers on financing strategies for Hawaii’s solar industry. The case for subsidization then in some ways was similar, but at $100 a barrel for petroleum at least one thing is different today: Oil prices have quadrupled.
Hasn’t the PV "infant industry" grown up, yet?
Granted, this is a more complex question than it seems on the surface. The answer involves whether electrical utility regulation is economically efficient. Under Hawaii’s Soviet-style "clean energy" goals, it is not. Unbundling electricity generation from distribution — like unbundling checked luggage from your air fare — has not happened in Hawaii. You may not like it, but it’s more efficient. This kind of "decoupling" clarifies which generating technologies are cheaper. Renewables can be compared to oil, straight-up, if the grid is regulated as a natural monopoly and power plants are deregulated and contestable. But, under Hawaii decoupling the utility remains monolithic, its revenue decoupled from its production. Hawaii decoupling obscures the information content of the electricity price "signal."
A few of the arguments we used to advance for PV subsidies carry the same weight as before; some, not so much.
A small PV industry as a potential renewable energy alternative once could argue that "learning-by-doing" would reduce its cost if its lessons were learnable by all. Surely, 15 years later, our education is complete.
Photovoltaic panels now are cheaper because they’re made in — and imported from — China and the mainland. Importing PV panels doesn’t "keep money in state." Besides, if the cost of PV equipment has fallen one-third, does its state subsidy need to be one-third? I get with PV that the fuel is cheap ("free"). It’s still not cheap enough?
PV subsidies don’t "correct" for fossil fuel subsidies. One bad policy is not negated by another bad policy. Besides, the impact of federal subsidies for all fossil fuels is approximately one one-hundredth of 1 cent/kilowatt hour, so, talk to the hand.
Subsidizing research and development is not the same thing as subsidizing rich people to put PV on their beachfront homes. R&D has a public benefit; those homes are private. Hawaii spends almost as much on residential PV subsidies, $170 million according to reports on Council on Revenues’ forecasts, as the U.S. Department of Energy spends on its advanced research on fundamental scientific knowledge in energy (less than $200 million). Public funds should be spent for public benefits, not private ones.
As for industry trends, if future, lower-cost PV installation emerges as a consequence of consolidation and economies of scale, those benefits can be appropriated privately by PV firms and consumers. The case for public subsidies fades quickly.
Creating jobs is almost never bad, and my PV colleagues often cite solar job-creation and the associated multipliers as justification for subsidies. Of course, every job has a multiplier, not just PV jobs. More important, if at $100/barrel, the PV industry still needs to subsidize jobs it is using up too many resources — too much GDP — per kilowatt of electricity. The same public dollars spent on some other job would have been more socially productive. Take public education. Even dollars spent on public parks have a greater public benefit than private PV systems, not to mention private dollars not taxed to begin with.
So, it’s not that hard. Except for two economic complications, if electricity from PV (installed) is not cheaper than oil-fired electricity, it just isn’t cheaper. If it is cheaper, knock yourself out, you don’t need our money.
The first economic complication is what pidgin economics calls the "bucks for lolo" problem. An information breakdown — information asymmetry — prevents households from doing their own math on whether a PV system is cheaper than Hawaiian Electric. A subsidy helps "the lolo" do their homework. My view: Do your own homework, cousin.
The second economic problem is more serious. Fossil fuels emit atmospheric carbon. After manufacture, shipment to Hawaii and installation, PV doesn’t. Fine: pay for carbon emission. Tax it or, better yet, make a market for atmospheric carbon so I can get paid for planting trees. Subsidizing green energy does not fix the problems of brown energy, and it is an incentive to consume more energy!
Fifteen years ago, in a world without Amazon.com or social networking, taxing carbon or making a market for carbon may have sounded oh-so complex. Nowadays? Google "e-Bay." Subsidizing PV as back-door atmospheric carbon solution is less effective than going through the front door. Pay to emit atmospheric carbon, get paid to sequester it. That’s the solution.
