Project Development, Rooftop, Solar, Utility Scale

Can Solar Survive Without Incentives?

In 2007, I wrote an article entitled “Selling Solar Without Incentives.” The point I was trying to make then was that we shouldn’t use incentives as a crutch for supporting the business of solar PV. Too many times, I have seen companies depend upon it’s livelihood from the government (whether the government be city, state or federal), only to fail when the rules changed — and they always do.

Since writing that earlier article, my opinions haven’t changed — solar still makes sense without incentives. However, we live in very uncertain times, and we cannot predict what our energy future will be as a country. So, maybe we should take a broader view of incentives and their importance. It makes sense that we can’t depend upon our government to indefinitely fund incentives. When politics and politicians change, any renewable energy company that depends upon incentives for its future will, one day, have a rude awakening. However, my personal opinions on the importance of incentives have changed because there is much more at stake than the success or failure of an infant solar industry.

Today, we continue to depend upon oil (especially foreign oil) for our energy needs. For decades, the oil industry’s proposed solution to potential oil shortages has been ‘we need to develop more sources of domestic oil in untapped places.’ We have pumped most of the surface or near-surface oil deposits. We have drilled deeper and in more remote locations and tapped those sources. Now, oil companies are looking at sources of oil that were once considered too expensive to reach. And despite these source claims, we still depend on the Middle East for our oil. Whether foreign or domestic, costs are rising.  

If we do not solve our energy dependency on foreign oil, we will soon experience a day of reckoning. So, can renewable energy survive as an industry and we as a country, without renewable energy incentives — especially when the economy is already depressed and we are struggling as a country to make ends meet? We cannot afford to ignore the importance of building a strong renewable energy industry. 

Asian countries and Europe (with unsubsidized oil prices) are light years ahead of us in renewable energy. Germany — a world leader in PV and wind energy — became that way through aggressive incentive programs. This past year, I had the opportunity to see the solar industry in Germany up close. Major cities and even the smallest villages all over the country have rooftop solar (PV) installations. Hillsides that are too steep for crops are now covered with utility-scale solar arrays, and giant wind generators are on hundreds of hilltops. The one single conclusion I brought back with me was that Germany is dead serious about renewable energy. Germans understand that they (as well as the United States) face an uncertain future should foreign oil stop flowing.

So what are the facts? China and Germany have the most aggressive government supported renewable energy programs in the world and have become world leaders in both renewable energy production and in renewable energy manufacturing, warehousing and distribution. California, with the most aggressive solar rebate programs in this country, also leads the U.S. in solar manufacturing, warehousing and distribution. It is also cheaper for California installers to buy solar equipment made there than it is to ship it from overseas. (Here in Texas, much of our solar equipment comes from California.)

It appears that as the demand for solar installations increased, the demand for domestic manufacturing, warehousing and distribution of solar goods also increased (as have the local economies). It amazes me that New York and New Jersey, with fewer solar days than we have here in Texas, are also at the top of the leader board with solar manufacturing, warehousing and distribution. In short, these two areas of the United States have had a significant boost to their local economies because of their incentive driven solar industry. Now other states are following their lead by using incentives to attract solar.

But should we depend upon incentives indefinitely? This, too, could be as fatal to the industry as prematurely cutting the incentives.

Several years ago, while stationed in Fairbanks, Alaska, during the Alaska Pipeline construction era, I was responsible for keeping a fleet of over 500 military vehicles repaired. My problem was that the pipeline was taking all of the local spare parts for their construction vehicles, and leaving none for mine. For years prior to the pipeline project, the local auto parts business had been propped up by sales to the government.

Without local parts support, my solution was to create a supply of parts shipped directly from a government operated parts store in the lower 48. Interestingly, when the pipeline construction came to a close, the local parts houses started going out of business. In time, their prices also came down because the civilian market was able to buy locally as well. Had the local parts suppliers continued to do business with the government after the pipeline era came to a close, prices should have come down. However, without local manufacturing, it is doubtful prices would have been any lower than shipping items from the lower 48.

Like my experience with the Alaska vehicle parts industry, I believe that the more we support local solar industries, the more we will see reductions in the overall cost of the systems at the grass roots level. I believe, however, that it’s far too early to eliminate or reduce the rebates and tax incentives, even if some would consider it to be a crutch. This is because localized manufacturing isn’t fully developed. Like the Alaska parts industry, without local manufacturing, the industry cannot have a long-term price advantage over foreign (or non-local) equipment sources. 

I believe that for solar to grow and become stronger; the incentives need to stay in place — but not indefinitely. Some would argue that since the price of equipment has gone down — so should incentives. Again I may be incorrect, but it appears that solar equipment prices (PV in particular), are artificially low due to a temporary over-supply or under demand condition, similar to what happened in Alaska.

What might make more sense would be to allow the industry enough time to mature, then gradually phase out the incentives as the prices decrease from stronger more efficient local manufacturing, warehousing, and distribution. Wouldn’t it make more sense to increase demand through incentives for the foreseeable future, so the domestic industry can become self-supporting for the long-term?

In closing, let’s look at the worst case scenario. Let’s assume our decision makers kill incentives at the federal level as part of their budget cutting efforts. They also cut other programs that support budgets in each of the fifty states. Since the states, who are today in a financial crisis, cannot afford more federal spending cuts, local solar energy incentives may need to be cut to avoid severe cuts in essential services. Now let’s assume the solar industry eventually withers and dies (like renewables did after it’s false start in the 1970’s) and Middle Eastern oil stops flowing. Assuming domestic oil production won’t have time to offset our demand for foreign oil, we must then either tap our strategic oil reserves, risking our ability to defend ourselves or ration energy nationwide.

I truly believe — and again this in my personal opinion — that we shouldn’t be choosing between oil production and renewables. What we should be focusing on is energy, regardless of the source. Put another way, our energy independence will only come from aggressive support for all types of domestic energy, so rather than cutting incentives to any sector of the energy industry, we should be spending more.

One final thought — let’s stop thinking of rebates and incentives as a “crutch.” Instead, let’s think of them as an umbilical cord, and let’s not cut the cord before the baby is ready to be born.