The incentive works by creating an income stream for customers that they can use to finance the purchase of solar panels, which remain highly expensive even with existing state and federal incentives.
Who pays the difference between the 13-cent real-market cost and the 32 cents the utility will pay for solar? That subsidy will be spread among all 90,000 of the utility’s customers.
Fortunately for them, solar-generated electricity likely will account for less than 1% of the utility’s power generation even after the incentive. Utility executives estimate their customers will end up paying no more than about $1.30 a month extra on their bills. In addition, they say the program will be discontinued if the subsidy cost grows by much more than that.
The idea for the feed-in tariff came from Germany. Part of that country’s 2004 Erneuerbare Energien Gesetz (EEG) — the Renewable Energies Law — created a nationwide policy of feed-in tariffs: Germans who install solar panels on their homes, businesses or farms can sell the power at a guaranteed price that’s about 10 times the wholesale price of electricity in Germany. The electric utilities have to buy the sun power, but they tuck the added cost into the utility bills of all their customers.
Politicians liked the approach because it lets them spend billions of taxpayers’ dollars on a popular idea without having to raise a euro in taxes. And with the subsidy costs spread among the country’s entire population, the impact on an individual German’s utility bill isn’t too painful.
But the costs aren’t exactly nickel and pfennig, either: A 2007 article in the Berliner Zeitung estimated that by 2010, German utility customers collectively will be on the hook for about $77 billion. Quoted in that article, Manuel Frondel, a researcher at the RWI Essen economic research institute, called the support levels Kostenwahnsinn — cost insanity.
The real beneficiary of the EEG subsidies, of course, has been Germany’s solar industry — the manufacturers and installers of solar cells. The law made the installation of solar panels “almost a risk-free proposition,” the Berliner Zeitung reported, “with a steady return on equity of eight to ten percent, according to industry estimates.”
Responding to the artificially created demand, the number of solar installations in the country grew seven times between 2003 and 2006 to around 200,000 — and with it emerged a large, growing cluster of solar cell manufacturers and solar research institutions. One firm, Q-Cells AG, has become the world’s biggest producer of solar cells. Half the world’s solar installations and close to 90% of the photovoltaic power in Europe now reside in Deutschland, which is amazing considering the country is one of the cloudiest on the continent. (A solar cell in Germany generates about half the power the same cell can generate in Spain.)
A solar industry CEO quoted in the Berliner Zeitung gushed about thousands of new jobs and a new, globally competitive industry that “could even replace the car industry” as Germany’s most important industrial sector.
The EEG, in fact, seems so far to have worked better as a subsidized jobs program than as a subsidized power generation program. After four years of the EEG’s encouragement, photovoltaic power generation still accounts less than half of 1% of Germany’s juice. The EEG’s environmental impact is likewise minimal: According to an RWI Essen study, solar subsidies are the least efficient way imaginable of reducing the country’s carbon footprint — none of the renewable power sources will produce carbon reductions beyond those set out in an established emissions trading program.
Gainesville can expect much the same from its tariff tactic. It won’t get much solar power generation. The program won’t help the environment much. Its citizens may feel better about their already green self-image — “this is a very environmental community and we see this as benefit to the quality of life,” says Ed Regan, the utility’s assistant general manager for strategic utility planning. And the solar subsidy may work as an economic development play: It has generated some national and international visibility for Gainesville, and Regan says it could bring interest from solar system installation firms and even manufacturers. “We hope to see some real economic benefit.”
More power to him. But I asked Regan, from a consumer’s standpoint, why someone should invest in a technology that required a subsidy to make it economically viable — if I were a citizen of Gainesville who rushed out to install solar now, wouldn’t I run the risk of ending up in five years with a big clunky, inefficient solar installation on my roof that wouldn’t stand up to whatever advances in solar technology are likely to bring soon?
“It’s a little bit like buying a computer,” he answered. “You know it’s going to get better, but it won’t get better until people start buying them now.”
Great answer. But I’d consider putting aside the $20,000 or $30,000 it would take to buy a solar system now and using the interest to pay my increasing fossil-fuel bills until a truly efficient, market-worthy solar system comes along.
And in the meantime, I’d write a thank-you note to the German electrical customers for financing the advances that will ultimately make solar viable.