Subsidy Removal, $1/W Installed, or Both?

Solar energy, photovoltaics, solar cellsThe panel of speakers for the opening plenary session at the recently held American Solar Energy Conference featured an all-star cast. The moderator was NPR’s Ray Suarez and the panelist included Amory Lovins, Chief Scientist of the Rocky Mountain Institute, Denis Hayes, Executive Director of the Bullitt Foundation, Catherine Zol,  US DOE Assistant Secretary, and Brad Albert of the Arizona Public Service utility.  The challenges and the opportunity for a rapid change to clean energy and solar energy were on full display.

Supporting one of my favorite rants, part of the conversation touched on the large amount of direct and indirect government subsidies that the brown fuel energy generation companies receive which significantly distort market signals. Brown fuel industries receive 10X the subsidies that clean energy receives, and the 100+ years of subsidy history has resulted in large embedded advantages. New clean energy products and services are expected to “compete” in this highly skewed market. Brown fuel energy generation entities are also not required to pay for externalities such as using the local environment and atmosphere as a garbage dump.  Taxpayers foot those bills in the form of health care and environmental degradation costs.  But externalities are a subject for another blog post.

At one point, Catherine Zol talked about the long-term effort being made by the DOE and industry to bring the price of solar enrgy down to $1/W installed (completed array in the ground, currently ~ $4.5/W for larger distributed generation installations). While this effort is highly important, it would also make sense to immediately begin dismantling the large subsidies given to the coal, natural gas, and oil industries which would level the playing field in terms of cost when comparing solar to traditional brown fuel sources.  Earthtrack and EESI are good sources for learning about these subsidies.

Reducing the brown fuel industries subsidies would have an immediate affect on the solar energy industry. The cost ofphotovoltaics, solar cells solar energy brown fuel generated energy would increase, making solar energy more competitive. Solar PV project finance pro formas would show an immediate increase in the internal rate of return, a key metric. Financing entities, who only invest in solar when there is adequate annual payback on their invested capital, would immediately increase their involvement in the industry. At this time, attracting large numbers of project financing entities is the number one problem for the PV industry in the near term because of the recession’s impact on the availability of credit in financial markets, and in the longer term due to minimal returns on investment.

While reducing the cost of solar energy further is important, the DOE and the President can make far quicker clean energy deployment progress by leading congress and the country on a systematic and organized dismantling of the legacy brown fuel subsidies which reduces the hurdle for clean energy and solar project financing entities. Of course, the current inability of our leaders in D.C. to pass climate change legislation where C02 would have a cost assigned to it, is a good illustration of how difficult it is for Capitol Hill to move away from the status quo.

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