The Solar Energy Bubble Bursts

My recent post about the costs of Germany’s policy of subsidizing solar energy inspired predictable attacks by true believers in a future powered by solar energy. I was criticized for citing the German magazine Spiegel, a center-right popular magazine. Well, I cited Spiegel for certain facts, and if you don’t believe Spiegel, perhaps you will believe the reputable environmentalist writer Mark Lynas, whose sources are German government statistics. (And if you think Lynas is discredited because he supports GMOs and nuclear energy, even as he thinks global warming is real and dangerous, then you cannot be reasoned with.)

Lynas writes:

Solar continued its enormous growth rate between 2011 and 2012. Production rose from 19.3TWh (terawatt-hours) in 2011 to 27.6TWh in 2012, representing an impressive increase of 47.7%. In terms of total electricity generation, solar’s percentage rose from 3.2% in 2011 to 4.6% in 2012. This is an extraordinary achievement by any standard.

Unfortunately, this “success story” comes at a high cost in German taxpayer subsidies and German consumer electric prices, with negligible benefits in terms of global warming mitigation. Lynas continues:

My conclusion so far is that unfortunately Germany’s ‘renewables revolution’ is at best making no difference to the country’s carbon emissions, and at worst pushing them marginally upwards. Thus, tens (or even hundreds, depending on who you believe) of billions of euros are being spent on expensive solar PV and wind installations for no climatic benefit whatsoever.

The German story must be viewed in the context of the global collapse of the subsidized solar energy bubble. The whole thing was built on politically unsustainable subsidies from beginning to end. On the demand-side, feed-in tariffs in Germany and other European countries as well as the United States, along with tax breaks or in some cases other subsidies to homeowners who purchased solar PV installations, artificially inflated the demand for solar panels, which resulted in higher utility bills for rate payers and money channeled from taxpayers indirectly to manufacturers — many of them in China. On the supply-side, China, using its tried-and-true mercantilist industrial policies for boosting targeted industries, rapidly ramped up its production of solar panels, driving many German and American manufacturers out of business.

Unfortunately for the solar miracle, Chinese supply-side subsidies outraced disproportionately German demand-side subsidies, leading to global overcapacity and plummeting prices. China is now the victim of its own success in trying to corner the global solar panel market via government-subsidized dumping. Its solar manufacturer Suntech has been forced into bankruptcy and the Chinese regime is cutting solar subsidies.

As a champion of rational and legitimate industrial policy, I have nothing against government support of important industries, and as a historian of technology I can think of many cases in which governments successfully subsidized initially unprofitable technologies, including aviation, jet engines, nuclear energy, and computers. But I think there are real differences between the international solar subsidy wars and other cases.

For example, when the military used procurement policy to serve as the major initial customer of a fledgling industry, there were genuine military uses for the technology before civilian uses were found. That was the case with jet engines, rockets, satellites, and the early computer industry. Such military procurement cases cannot be used as precedents for government rigging markets to create artificial demand, or artificial supply, for uneconomical technologies like present-day solar power that may remain uneconomical forever compared to alternatives.

Nor can I think of any case in which governments successfully subsidized a technology to displace other technologies which did the same jobs equally well but more cheaply. The two objectives of solar energy — generating abundant and reliable electricity and reducing CO2 emissions — can be achieved equally effectively but more cheaply using other, currently-available energy sources such as natural gas and nuclear.

Solar energy enthusiasts demand that governments massively subsidize both the demand and supply of solar energy, not only to displace dirty energy sources like coal, but also to displace other “cleaner” (natural gas) or “clean” (nuclear) energy sources. Even a carbon tax regime that is neutral among energy sources would be rejected by many people who have an irrational attachment to a particular source of unconventional energy, such as solar. If you got rid of specific subsidies to specific forms of energy and instituted a carbon tax, thanks to the abundance made possible by fracking natural gas would probably undercut solar, wind, hydro and biomass (and nuclear, too, because of the up-front costs of construction).

One day solar energy, using technologies yet undreamt of, may power a civilization on earth vastly richer and more advanced than our own. Frankly, I doubt it — the diffuse nature of solar energy, wind, and photosynthesis would probably make them poor choices for energy generation for an intelligent technological species on any planet that has abundant fissile materials that can replace atmosphere-heating hydrocarbons — but who knows what time may bring? But this is 2013, and in 2013 it is clear that the policy of excessive demand-side and supply-side subsidies to solar panel manufacturers and the resulting global glut is responsible for a massive misallocation of resources in a world suffering from a contained global depression. At least some of that money might have been spent on energy R&D rather than on premature deployment of existing solar technology.

Photo Credit: Woo He/FeatureChina; Flickr User: campact