Solar Subsidies Considered Harmful

California Senate Bill 1, the "Million Solar Roofs Initiative", with widespread support, looks to be on the fast track to becoming a law. Everybody (including me) thinks solar power is a great idea, so it's wonderful that our leaders are acting to speed up its adoption.

Isn't it?

I first heard about the Initiative on a radio program a couple of days ago. An environmental activist from Berkeley was promoting the plan on the basis that it would make it possible for low-income homeowners to afford solar power for their homes. Sure enough, in the current text of the bill there is a provision setting aside up to ten percent of the plan's funds for solar systems for affordable housing projects.

Besides this one provision, there is nothing in the bill that directs the funds towards low-income households. The actual purpose of the plan is to promote a healthy solar industry and diversify California's energy base, with no particular income level required for participation. Considering that low-income people in the Bay Area usually can't afford to own their own homes, it's more likely that they will end up subsidizing, through higher electicity bills, the installation of solar systems in middle to upper class homes.

Economics tell us that subsidizing the purchase of higher-priced goods discourages investment in and profitability of companies that try to provide lower cost solutions. And creates an unnatural incentive to inflate prices. Read what this executive who survived the last solar business bust has to say about subsidies: http://www.green-trust.org/pv.htm (scroll down to "An Experts View"):

When the solar business marketing relied solely on rebate programs, the market crashed when funds were no longer available. This hurt the manufacturers, suppliers and the consumers as well as giving solar energy a black eye.

And this article's cautions about subsidies:

Some advocates of solar power fear that perhaps too much money is flowing in ways that have not been well thought out.
Subsidies can backfire, tempting vendors to keep their prices high enough to capture the maximum subsidy offered, and propping up products that couldn't stand on their own. They can be so popular that they run out early, stranding consumers or vendors.

If the bill is passed in its current form, one interest group that will reap big profits is the small pool of contractors SB 1 authorizes to install qualified solar systems. Currently, three classes of licensed contractor (general, C-10, and C-46) are authorized to install solar systems. Even though a C-46 license is specifically for installing solar systems, SB 1 blesses only C-10 contractors. (See http://www.solarsebastopol.com/solarbill.html.)

Some argue that solar power must be subsidized so that it can compete with traditional energy sources like oil, which are heavily subsidized in direct and indirect ways. I have to admit there's a certain practical logic, in a world where the government subsidizes so many industries, in arguing for one's share of the pie.

The case for solar power is so compelling that the industry will be huge one day, whether it is helped or hindered by subsidies.

P.S. To be fair, there are a couple of good aspects to SB 1. It ups the amount of power that a solar energy system owner can sell back into the grid by a factor of 100. And, unlike the curerent subsidy program it would replace, it expands the definition of a solar energy system to allow for the possibility that there will be other solar technologies besides photovoltaic cells.