Cut Solar Subsidies?


Does Vinod Khosla, the famous venture capitalist, think solar power doesn't need the economic crutch of subsidies? In a recent news report, he says, "I'm not asking for subsidies, I'm saying we'll compete...The solar industry is poised for breakaway growth, not because it's cleaner (in terms of carbon emissions), but because it's cheaper,"*. Subsidies can repress a market as much as they appear to help. They create a sense that there is no need to compete on even ground with competition (coal in this case). In reality, alternative energy needs to be cheaper. Taking away subsidies might just be the push solar power needs to move the technology to the next level. An interesting exercise is comparing the removal of subsidies in solar to the removal of subsidies from New Zealand agriculture.

(Updated Oct. 20)::* Concerns have been raised as to the contextual issues regarding Vinod's quote above, for perhaps a more accurate reading of what is on Vinod's mind, please see the comments, and associated links.New Zealand is the perfect guinea pig to see how people behave with subsidies, and without. In 1984, due to a series of economical, global, and political events New Zealand decided to remove almost all subsidies from their agriculture, stating that it was the subsidies themselves that were a large part of the problem. A (dated now) report in 2003, showed that New Zealand agriculture took around 6 years to recover from the quick switch, and has continued to grow into one of the most efficient and well respected agricultural markets in the world. Their efficiency and diversity have increased dramatically. Farmers no longer rely on government money, but instead create a dynamic and responsive environment that can outpace their previous growth.

The report highlights:
"Output and net incomes for the New Zealand dairy industry are higher now than before subsidies ended--and the cost of milk production is among the lowest in the world."

Interestingly the report also had a list of 7 reasons: "Why New Zealanders don’t like subsidies".

1. Resentment among farmers, some of who will inevitably feel that subsidies are applied unfairly.
2. Resentment among non-farmers, who pay for the system once in the form of taxes and a second time in the form of higher food prices.
3. The encouragement of overproduction, which then drives down prices and requires more subsidization of farmers’ incomes.
4. The related encouragement to farm marginal lands, with resulting environmental degradation.
5. The fact that most subsidy money passes quickly from farmers to farm suppliers, processors, and other related sectors, again negating the intended effect of supporting farmers.
6. Additional market distortions, such as the inflation of land values based on production incentives or cheap loans.
7. Various bureaucratic insanities, such as paying farmers to install conservation measures like hedgerows and wetlands—after having paid them to rip them out a generation ago, while those farmers who have maintained such landscape and wildlife features all along get nothing.

Here is my hypothetical list of: "Why Treehuggers don't like subsidies for solar"

1. Resentment between Solar companies who feel their technology is slighted because it uses thermal instead of PV.
2. Resentment from non-solar purchasing poor, who pay increased taxes so the rich can save money on their 'green' lifestyle.
3. The encouragement to 'under-perform', why spend 10 million extra to get a better solar collector when it is already enough to make money on the subsidy.
4. The encouragement to create more poor efficiency solar collectors, creating more waste and hazardous pollution.
5. The fact that the subsidy money passes from buyers, to the electric companies, and solar companies without real advancement of the technology.
6. Additional market distortions, such as the benefits of wave power, wind power, clean nuclear, bio-fuels, or other energy alternatives overlooked because the subsidies make competition more difficult.
7. Various bureaucratic insanities, such as teasing us with millions of solar homes, then taking it away. (I'm sure there are better examples here...)

While farming and solar power subsidies may not appear to share much in common, it could be that we are holding ourselves back. I think Vinod is on the right track, we need to have tough love, and make solar work without any crutches. ::UPI ::The New Farm