Solar power investments don’t pay off
Ivanpah is a 640,000 megawatt-hour solar farm in California that received $1.5 billion in taxpayer-funded federal loans. The project benefited from a loan-guarantee program where taxpayers bear the risks and the solar industry gets favorable rates to protect its profits.
The Ivanpah plant has failed to provide the energy it promised consumers. But this is barely news. Despite decades of strong financial and popular support, government investments in solar power have yet to pay off.
Research by the Institute for Energy Research shows solar power is subsidized in excess of 345 times more than generation from either coal or oil and natural gas. In fiscal year 2013 alone, the federal government spent $5.3 billion subsidizing solar energy, as reported by the Energy Information Administration. This funding, and the millions before it, has resulted in less than 1 percent of total U.S. electricity coming from solar energy technologies in 2015.
Subsidizing the solar industry has resulted in a continual retreat of the goalposts without any of the promised benefits ever coming to fruition. The argument in favor of government funding for new technologies is that temporary public assistance helps protect investors and helps jump-start the industry. But those receiving the support always forget about the temporary part of that argument. Each time a deadline looms and a program is about to expire, wind and solar trade agencies push for an extension for just a few more years.
Solar and wind were predicted to be competitive by 1990 if they were assisted by tax credits and federal funds for research and development, according to a 1983 study. With the help of current tax credits and subsidies, utility-scale solar photovoltaic facilities will become competitive by the end of this decade, according to a 2013 study. The 1983 study was not close to accurately predicting the renewable energy future and there is little chance the 2013 study will do any better as solar power remains one of the most expensive forms of generating electricity, according to estimates by the Transparent Cost Database, an open source project of Open Energy Information.
When subsidies are removed, investments in solar power plummet because the technology is not economical. One major subsidy, the Investment Tax Credit, was set to expire in 2016 until lawmakers in Washington extended the life of the credit six more years, until 2022. Before the extension some solar developers determined they would probably not meet the deadline and withdrew from their projects.
The market for solar is clearly driven by the tax credits and protectionism procured through the political process, not by serving the energy needs of average people.
The direct beneficiaries of subsidizing solar power are not new innovators. The funding actually concentrates in the hands of large and established companies. Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University, shows that most of the funds for the Section 1705 Loan Guarantee Program, which passes the obligation for repayment of a loan on to the government if the borrower defaults, went to large, established companies rather than to startups. Of the program’s approximately $30 billion, 64 percent was captured by just four companies.
Solar power manufacturers and investors benefit from massive government programs, but ultimately it is you and I who foot the bill through higher taxes. Our money ends up going straight to the bottom line of solar energy companies. For too long we have fruitlessly subsidized large solar industry favorites, and the time has come for solar energy producers to either prove their worth on their own, or exit the market.
Randy Simmons is director of the Institute of Political Economy and professor of political economy at Utah State University. He also serves as president of Strata, where Josh Smith is a policy analyst. This has been adapted from InsideSources.