Let the Sun Set On Solar Subsidies

Posted on Sat 05/08/2010 by

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By Nicolas Loris

The country that leads the clean energy economy will lead the global economy. We’ve heard some version of that story a number of times from President Obama, whether it be in his State of the Union address or trying to sell the stimulus at wind and solar manufacturing plants across the country. Countries like Spain and Germany are leading the race in the clean energy; as President Obama says, “they’re making real investments in renewable energy.” But what’s at the finish line? If Spain and Germany provide any indication, it’s a slumping economy, and both countries are cutting back the subsidies:

E&E reports:

Only two years ago, Spanish solar energy companies feasting on generous government subsidies expanded at a feverish pace, investing €18 billion (then worth roughly $28 billion) to blanket rooftops and fields with photovoltaic panels. They briefly turned the country into the top solar market in the world.

Then came a monumental case of sunburn. The market crashed under a wave of subsidy cuts, fears of possible forced tariff paybacks and allegations of fraud involving energy produced at night being sold as solar power to collect super-premium prices.

Spain’s subsidies for solar were four to six times higher than those for wind. Prices charged for solar power were 12 times higher than those for fossil fuel electricity. Germany and Spain received about 75 percent of the world’s photovoltaic panel installations that year.

Spain is not the only European country cutting solar subsidies. On July 1, Germany will cut the price paid for electricity from roof-mounted solar panels by 16 percent and that from larger solar power stations by 15 percent. France cut its solar subsidies in January by 29 percent after the installed capacity more than doubled from 105 megawatts in 2008 to 250 megawatts last year. Italy, considered by analysts the first market where solar is likely to become competitive without subsidies, is considering a gradual decrease in tariffs between 2011 and 2013.”

It would be encouraging to see solar and wind be cost competitive without subsidies and reducing government dependence will determine if that can be the case. Germany’s Environment Minister Norbert Roettgen is taking a more sensible approach, saying, “Our solution is innovation instead of subsidies.” That’s an approach we can support and it should be the approach for all energy sources.

Nicolas Loris is a Research Assistant at The Heritage Foundation’s Roe Institute for Economic Policy Studies. Loris studies energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.

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