Sun Burned

This is a picture of Jeffrey Punton, from my hometown of Rochester, New York, standing in front of the solar panels that he installed at a cost of about $42,500. He figures that over the long term, they’ll save him maybe $8000 to $10,000 in power bills. But he’ll only lose a few thousand dollars on the deal, thanks to about $30,000 in government subsidies — in other words, thanks to those of you who pay taxes. He keeps the panels up as a conversation-starter so he can educate people about how little sense these subsidies make.

The story is here.

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31 Responses to “Sun Burned”

  1. 1 1 Mike H

    What if, as seems to have almost happened, the early subsidies prompted massive investment in solar technology, bringing down the price until they are competitive without subsidies?

    And what if, as may prove to be the case, the net benefit is worth the initial distortionary subsidies?

    Perhaps you can come up with a model like your hurricane one that demonstrates this effect, or proves it to be impossible under a broad range of realistic assumptions.

  2. 2 2 Harold

    There is a very good point here. The evidence clearly indicates that climate is changing, and we are causing it. What should we do about it?

    To avoid eventual catastrophe we need to develop energy sources other than fossil carbon. If we burn and release all the fossil carbon we could dig or pump out of the Earth in a timescale of a century or so, it will lead to catastrophe – that would be large areas of the Earth too hot to live in. This is a huge problem because fossil carbon is incredibly cheap – as long as we ignore environmental costs.

    A Pigovian tax would put the cost on the consumers of energy. Alternative energy sources would then be more viable. For example, carbon capture and storage will inevitably be more expensive than putting CO2 up a chimney. Optimistic estimates are somewhere around 10% more expensive. There is no way that a power station can do this unless either it is subsidised, or it costs to emitt the carbon. The problem is that politically we won’t stand for a 10% rise in energy costs through a tax.

    Coase tells us that such a tax may not be the most efficient. Possibly not, but I think it unlikely that avoidance will be effective. Partly this is because people do not accept that there is a problem – you won’t avoid something that you don’t believe is happening. Another aspect is the timescales are longer than usually considered when making such choices. If we want to move New York 20 miles further inland, we need to start now, so when the waters flood over the barriers in 50 years time there is no city there to damage. There is no chance this will happen, because for 20-50 years there will be no benefit. The other problem is that whilst we know there will be major effects, we do not know exactly what those effects are, so we cannot effectively choose which avoidance measures to take. Yet another reason is that the costs will fall disproportionately on those less able to take avoiding action. Most crucially, there does not seem to be very much action being taken at the moment.

    So in the absence of a political will to introduce a tax, there is a need for subsidy of alternative energy. Does this mean the solar pannel subsidy is a good idea? No, it does not. Solar panels this far north are a stupid idea, and will never realistically be a solution to the energy problem.

    Politicians jump on the bandwaggon – attaching a “carbon saving” tag to a policy makes it more acceptable to some. The cash for clunkers is an example, as it was partly sold on saving carbon by encouraging mmore fuel efficient modern cars. The cost per tonne of carbon saved was over $300. Use that same $300 in more effective ways and you could reduce carbon by 20 tonnes or more.

    Solar pannels on domestic homes are another way to look as though you are doing something, whilst wasting most of the money – or possibly subsidising your voters. Put that money into a nuclear power plant and we will really be saving some carbon.

    That said, solar power in sunny areas does make sense. Put a few big plants in the desert, and connect them to a continent wide high voltage DC grid, and we are talking cheap, almost carbon free energy. Trouble is you might be talking about $1 trillion investment.

    If we seriously want to tackle this problem, the areas I think we need to work on are: much more nuclear energy, energy storage (molten salt?, pumped hydro?), carbon capture, large scale solar and possibly tidal. Anything else is just fiddling whilst rome burns.

  3. 3 3 Harold

    I realise my penultimate paragraph contains a contradiction – $1 trillion is not cheap.

  4. 4 4 Jack

    For some reason these subsidies bother me much less than the corn/agricultural subsidies. Maybe they shouldn’t.

  5. 5 5 Eliezer

    My hero!

  6. 6 6 Thomas Purzycki

    Even if you believe that developing solar panel technology will solve all of our problems, why subsidize the sale of solar panels? Sure some of the money that customers lured by subsidies spend will be invested in research, but most of it will just go toward mass producing solar panels that will never be efficient enough to justify the resources used to build them. Wouldn’t it be more efficient for the government to fund R&D directly until competitive panels are developed?

  7. 7 7 Mark

    “What if, as seems to have almost happened, the early subsidies prompted massive investment in solar technology, bringing down the price until they are competitive without subsidies?”

    Building them on residential rooftops is still probably not wise because even if that is the case, it would have been cheaper to use some economies of scale and get more electricity for the same dollar by building utility scale instead.

    Also, it probably never makes sense to put the things up in New York or New Jersey. Put it somewhere sunny and you get much more production for the same costs.

  8. 8 8 Ron

    I grew up in upstate New York where one of the rarest events is a sunny day. This is the equivalent of hauling coal to Newcastle.

  9. 9 9 Will A

    I personally believe that a Carbon tax is the most effective way to combat climate change. Let’s impose a tax and let the market figure out how to most effectively solve the issue with reducing greenhouse gas.

    Then with extra tax revenue we could:
    - Reduce/eliminate the corporate tax rates so our businesses will be more competitive.
    - Lower the income tax of all Americans so that we can consume more.

  10. 10 10 Mike H

    Installing Photovoltaics? You can now get 6 times the power for the same price you paid in 2000. That’s an average price drop of 15% per annum.

    How much of this would have happened without subsidies? Not none, certainly, but not all either. Without a mass market, companies have less incentive to develop cheaper panels. Government subsidies for panel purchases increase the size of the market.

    Also, while government funding for reaserch intp PV technology might well improve the technology, I don’t think the government is in the best position to actually bring the technology to market.

    Re: Building them on residential rooftops is still probably not wise because even if that is the case, it would have been cheaper to use some economies of scale and get more electricity for the same dollar by building utility scale instead.

    There are limits to economies of scale. Otherwise, there’d just be one big power station in Kansas, powering the whole of the USA. For any technology, there’ll be an optimum scale. Perhaps, for PV, that scale is very small? For example, in cities with lots of roof space and expensive land?

    Also, it probably never makes sense to put the things up in New York or New Jersey. Put it somewhere sunny and you get much more production for the same costs.

    This is certainly true – in an ideal world. However, if solar PV needs additional investment in order to be worthwhile anywhere, and a subsidy would spur that investment, it doesn’t greatly matter if the majority of those applying for the subsidy are in Fairbanks or Reno – the effect on investment will be the same.

    It would be nice if someone tried to model this mathematically, but I don’t have time.

  11. 11 11 prior probability

    Such subsidies are obscene … Another reason why taxes are just a form of theft …

  12. 12 12 mobile

    Does the sun even shine in Rochester?

  13. 13 13 Harold

    There was an interesting debate in the UK when feed-in tarrifs were introduced. George Monbiot – veteran environmental campaigner of the Guardian newspaper – well known for its leftward leaning, came down firmly against subsidy of PV in the UK.
    The example Monbiot uses is Germany, where cost of saving 1 tonne COP2 was somewhere between $300-$1000. Although, as Mike H pointed out, the reduced costs for solar PV developed by Germany may mean that energy costs in Africa become affordable.

    Monbiot had a bet in 2010 with Jeremy Leggett that solar PV would reach grid parity by 2013. Now that time is upon us, and we can see that subsidy has reduced considerably, but not to grid parity by a fairly long way.

    Insulation offers a far cheaper alternative for reducing carbon. It can have a negative cost. Unfortunately, the UK Govt has scaled back support for this, whilst fuel bills are higher to support solar PV. It would be far better to use the PV money on insulation.

  14. 14 14 Advo

    A couple of things about photovoltaics – many people complain about the intermittent nature of solar power. While that makes it problematic in, say, Germany, this is absolutely not a problem in southern climates where airconditioning is responsible for a large portion of electricity demand.
    Another problem are installation costs (costs other than for the hardware of the system). In Germany, it costs about $1.20 per Watt to install solar panels, in the US, $4.36 dollars. This is largely due to the fact that Germany with its massive solar power build-out has developed an efficient industry of installers with experienced personnel and low marketing costs, whereas the US hasn’t.

    This has led to the ironic situation that if you could install a photovoltaic system in Texas, in a region with dynamic electriticy pricing (e.g. high prices during the hot hours of the day), at German installation prices, it would be highly profitable.
    It’s kind of a collective action problem. IF Texas had installer companies as efficient as those in Germany, it would experience a completely unsubsidized solar power boom. But because it doesn’t, and because in the US installation costs now account for the majority of the entire system cost, this will never happen no matter how cheap the panels themselves get because in an undeveloped market, installation costs are too high to get the ball rolling.

  15. 15 15 Jay

    @ Mike H

    Can you please cite a reference to backup the claim that not as much innovation would have occurred without the (massive) subsidies? I could just as easily argue that the subsidies disincentives the need to bring prices down just as they have in every other industry the government subsidizes. If a solar company can sell panels at a given price only with the customers receiving subsidies, where is the incentive to innovate and bring the price down?

    You may have an argument in a market that is already mature and subsidies allow lower income customers to afford what higher incomes are already purchasing, but there is literally no market for these things in a world without massive subsidies.

  16. 16 16 nobody.really

    My unsubstantiated solar rumors:

    1. When weighing the benefits of solar power, consider that (at least historically) construction of PV panels required a lot of energy. And most PV panels are created in China, where environmental regulations are lax. And then the panels are shipped, resulting in more energy consumption. In short, the initial environmental cost of a PV panel warrants consideration.

    2. Solendra failed in part because Chinese firms began selling PV panels to cheaply. Now Chinese PV firms are going bankrupt due to competitive pressure from other Chinese firms. Yet some Chinese PV panels are proving to have a surprisingly short life – What’d you expect for a nickel? – thus undermining the benefits of the lower cost.

    3. Why not invest in R&D rather than solar panels? Because there isn’t a strong enough constituency to defend R&D against budget cutters and rival energy businesses. Benefits available to the public broadly may survive budget cuts. But be careful what you wish for: Germany’s residential solar program has such public support that it can scarcely be stopped – for better and worse.

    4. People love to think of themselves as autonomous agents — neither intruding upon, nor being intruded upon, by their neighbors – even though we know as a matter of simple physics that this isn’t true. And it’s demonstrably untrue where electric generation and consumption is concerned. Thus, if a person installs PV panels and hooks them into the grid, it may affect the entire grid – but probably not so much that the utility can’t just roll with it. But if EVERYONE does it, the utility may need to impose more regulations or incur greater costs, much to EVERYONE’s chagrin.

    To get a little technical, each country establishes a standard number of electric cycles per minute. If generation exceeds consumption, this causes the number of cycles to increase, which can damage electrical devices. Thus, many devices – including solar panels — have sensors that turn off the device when wave forms deviates too far from expected norms. So, imagine a street in which all the houses receive electricity on the same circuit, and have solar panels from the same manufacturer. The panels all simultaneously begin generating electricity and dumping it onto the same circuit. The wave form on that circuit gets deformed, cycling faster and faster until – poof! – all the solar panels detect the deviation and turn themselves off, simultaneously. Now the amount of current on the circuit crashes. And when the cycle evens out, the solar panels go through reset mode – all of them, simultaneously – and come back on line. And the boom-and-bust process starts all over.

    This is, in short, a stooopid way to run an electric grid. But in Germany, so many people have already installed the solar panels that it has become politically infeasible to kill the subsidy program. Instead, the government keeps nibbling away at the subsidy – but darned if prices for PV panels don’t keep falling, leaving German households with roughly the same incentive to install new PV panels as before.

    5. Compare PV panels in Germany and Texas to wind turbines in Germany and Texas:

    A. Yes, due to economies of scale, German PV installation costs are lower. But Germany has the same sun intensity as Alaska; Texas has much more sun.

    B. Solar generates electricity throughout daylight hours, increasing as the sun’s intensity increases. Wind tends to generate electricity at dawn and dusk, and at night. So, all else being equal, solar is better, right?

    Well, all else isn’t equal; wind has cost advantages. But otherwise, yes, in most of the US where peak demand occurs during summer afternoons, solar is better. Solar panels permit utilities to avoid building as many other generators as they might otherwise have needed. (It’s a probabilistic thing.)

    In contrast, Germans use electricity for HEAT, so peak demand occurs in the middle of a winter night. Thus, solar panels do almost NOTHING to reduce the number and size of generators and other facilities German utilities must build to serve customers, and NOTHING to reduce the costs customers must bear for those facilities. Solar panels may reduce the number of watt-hours each customer purchases from the utility – but the price of the remaining watt-hours must go up to permit the utility to recover its costs, regardless.

    And here’s the really pernicious part: Even if everyone agrees that solar panels do almost nothing to reduce the cost that an average German household must bear for electricity, solar panels may help EACH individual household shift some of the burden onto its neighbors. That is, there may be little social benefit for installing the panels, but there may be real individual cost if you don’t. Thus, every German citizen is trapped in an arms race with his neighbors — all due to poor policy design.

    6. Allegedly there was a finite California fund subsidizing residential rooftop solar panels. Now, if you care about maximizing the benefits of solar, you want the panels to be installed where they will do the most good – say, in the sunny south California desert. But if you care about LOOKING like you care about the environment, you want the panels installed on your own house – preferably on the front where everyone can see them.

    The people living in the California desert are conservatives who don’t believe in, or give a fig about, solar power. So the subsidized panels were all acquired by hippies living in foggy San Francisco.

    Thus endeth the (probably apocryphal) lesson.

  17. 17 17 Peter Tennenbaum

    RE: Post#3–

    One trillion isn’t cheap? It would appear otherwise–that the US has unlimited funds (to burn) when it periodically decides to drop bombs. Bombs are a culturally engrained innovation that never grows old.

    Of course defense (sic) contractors must keep replenishing supplies–we must maintain readiness in the face of unprecedented threats If, however, all the (recent) war money went into rebuilding US infrastructure then life might well be far different.

    Worse: Last I checked, we were losing wars that absorbed many multiples of trillions. Is anyone upset over a genuinely colossal misuse of taxpayer money? Excuse the apparent change of topic, but examples of questionable subsidies abound, while few people discuss the truly gargantuan war machine. It appears that “someone” manufactured consent for these “vitally important projects” although a war budget gene will surely be found and people will feel fantastic knowing that modern science is making tremendous strides in the sociological sphere.

    Sadly, this isn’t a “fee market” issue so it receives scant attention, especially the losing part. Then again losing face is far worse than losing money (for those that have money… or are still able to print it).

  18. 18 18 maznak

    To subsidize solar power in places where there is not enough sun to begin with is extremely stupid, costly and socialist thing to do. And anywhere else too, for that matter. The shale gas revolution has shown that it is human ingenuity and free markets that bring solutions. Not taxes, regulations and bureaucrats. As for the effects of CO2, I tend to agree with (not so popular here) Lubos Motl.

  19. 19 19 Zero M. Ocean

    @16 Nobody.Really

    Dude (perhaps dudette), where do you get all of the information you post sometimes?

  20. 20 20 Mike H

    @ Mike H “Can you please cite a reference to backup the claim that not as much innovation would have occurred without the (massive) subsidies?”

    I can cite a reference to back up half my claim.

    First would you agree with this: Industries with large, competitive markets tend to have lots of innovation paid for by the private sector? Handphones, web services, oil and gas exploration…

    Supposing you do agree with that, let’s proceed.

    Now, as [1] points out, subsidies have driven and will continue to drive adoption of solar technologies.

    These subsidies would increase the size of the market. As long as they don’t also decrease the competitiveness that would, therefore, increase the amount of private-sector investment into improving the cost/price of solar technology.


  21. 21 21 Harold

    #18 This is why we cannot rely on adapting to climate change. There is such a strong force that just won’t accept it is happening. Any benefit from increased CO2 is siezed upon, and then the costs are ignored. The cited piece refers to the fact that plants need CO2, and more CO2 will benefit some plants. This is widely known, accepted and included in the IPCC reports and mainstream climate science. Nothing in the piece attempts to balance the benefits of increased CO2 with the costs. It is pure, one sided bunkum, yet still has the power to pursuade Motl that increasing CO2 concentration in the atmosphere is a good thing. If so many people will ignore evidence, they will not make any adaptations.

  22. 22 22 maznak

    Harold: the main question is, should we hurt the global economy on the scale we already do and more? Given that probably for instance the BRIC countries and others will not join the efforts, so it looks like a one sided punishment for mostly Europe, which is the most zealous one in this regard. Second, the climate models have probably been already falsified, because I have not heard that any of them have had predicted the recent 16 years of non-warming. Third, the whole IPCC looks more and more like political, not scientific project. The climatologists themselves have several times admitted that their goal is to whip up the hysteria. Looks like a very doubtful enterprise to me.
    BTW, I am a 45% shareholder in a decent sized solar power station. The incentives in my country were simply too attractive not to take advantage of them. I like the cash flow, but still in my shoes of citizen and engineer by training I think that it is simply foolish to build those things, even northside from the Alps.

  23. 23 23 Floccina

    The tax that pays for the solar panels is hidden from most voters but a c02 which would be much cheaper per tonne of c02 averted (MIT estimated that a co2 tax would be 6-13 times cheaper than CAFE for example).

  24. 24 24 Floccina

    Addition to my comment above:

    Politicians are smart.

  25. 25 25 Mike H

    In 10 weeks of winter, my solar panels have generated 10 micrograms of energy, saved me 396000000 micrograms of Australian dollars, and saved 245000000000 micrograms of CO2 emissions.

    Even if electricity prices don’t rise, the panels should pay for themselves within 5 years. Electricity prices are projected to rise.

    The installer received some “renweable energy credits”, which allowed him to give us a discount. I don’t know how many, I think the discount was about (between double and half of) 20%.

    These REC’s must be bought by energy companies, who surrender them to the government at a rate specified by law. The market price is currently about $36.50 for 1 REC which represents 1MWh of renewable energy.

    Note that I live in a sunnier place than Jeffrey Punton.

  26. 26 26 Harold

    10 micrograms of energy is about 900MJ, I think -I may have got my noughts miss-placed. I don’t know how to convert AS$ to units of mass.

  27. 27 27 nobody.really

    I may have got my noughts miss-placed.

    Having reviewed the math, let me say that nobody really thinks you have misplaced naught.

    Glad to be of help.

  28. 28 28 Al V.

    I am surprised that nobody has raised the point about global warming that Steve raised in “The Big Questions”, which is basically that we should not prioritize investment in reducing the impact of global warming over other forms of economic investment.

    If I remember his point, it is that reducing the long-term impact of global warming is an investment in the economic (and physical) well-being of theoretical future humans. Meanwhile, we could reallocate that investment to improve the economic and physical well-being of people who are already alive.

    As a hypothetical example, let’s say that China invests $100M in a new coal-fired power plant, and doing so creates electricity that can be used to create jobs for 10 million Chinese citizens, lifting them out of poverty and ensuring that they will live happy and productive lives. At the same time, the CO2 produced will kill 20 million people over the next 50 years by raising sea levels and reducing the utility of existing crop land. Is that a bad or a good trade? The 10 million people who benefit are already alive, while the 20 million people who will die don’t exist yet, and may never exist (after all, the Earth could be hit by a killer asteroid 5 years from now).

    Prioritizing future theoretical people over current living people is a form of discrimination, isn’t it?

    P.S. I’m not saying I subscribe to this argument, only that it is an interesting one.

  29. 29 29 nobody.really

    Prioritizing future theoretical people over current living people is a form of discrimination, isn’t it?

    P.S. I’m not saying I subscribe to this argument, only that it is an interesting one.

    This is a GREAT argument. Indeed, Landsburg posed a couple of fascinating hypotheticals touching on this topic last year (?) — and the bastard’s been keeping us (me) in suspense ever since.

    (I tell you, gift horses aren’t what they used to be; mutter mutter whippersnappers mutter buggy whips mutter mutter off my damn lawn….)

  30. 30 30 Al V.

    @nobody.really, we need to get Landsburg to put a Like button on the comments. I would always “like” yours.

  31. 31 31 nobody.really

    From the Congressional Research Service, 8/7/13:

    To control escalating surcharges on consumer electricity bills, German policy officials have been rapidly reducing financial incentives for solar PV and have instituted a solar PV capacity support limit of 52GW, at which point incentives will no longer be available for new projects. Similarly, Italy has placed limits on financial support—also paid through consumer surcharges—for all renewable electricity generation. In 2012, Italy’s renewable electricity surcharge represented approximately 20% of the average electricity bill. As of June 2013, financial support limits for solar PV in Italy were reached and feed-in tariffs are no longer available for new projects. Spain has completely suspended FiT incentives for renewable electricity and has implemented retroactive incentive reduction policies that affect revenue, cash flow, and investment returns for existing operational projects.

    EU countries are transitioning from electricity production-based incentives (i.e., feed-in tariffs) to market integration incentives such as market premiums, bonus payments for remotely controlled wind and solar projects, and flexibility premiums for renewable generation that can reduce grid instability…. While retroactive measures may be fiscally necessary, they will likely affect future renewable electricity deployment by introducing an element of policy risk that causes financing costs … to rise…. However, carbon policies and declining technology costs may support future EU renewable electricity market growth.

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  3. 3 Rochester man installs solar panels on his home to help educate taxpayers about the wastefulness of subsidies | AEIdeas
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