Amtrak, Solar Cost Comparisons & the 2-4x Myth

On board an Amtrak train returning from New York recently, I thought about the state of funding for the rail service and the conundrum Amtrak management finds itself in every budget cycle. During the federal appropriation process there is a cry from many in Congress about subsidizing a rail service that they say cannot make money and is not cost effective. And yet, if Amtrak received federal subsidies on par with what the air travel and automotive industries receive, it would be highly profitable, convenient and utilized by a much greater cross section of the population.

But, you ask, what could Amtrak funding possibly have to do with solar cost comparisons in the energy industry? A lot, as it turns out. At a recent venture capital forum I heard some funding experts go on about how they would not invest in solar technology until photovoltaic (PV) solar products could compete with grid power without having subsidies applied. Judging by recent investment activity, however, clearly they are in the minority — but not exactly alone. Many media outlets report weekly about how PV is too expensive, regurgitate a much-used statistic that PV costs two to four times (2-4x) more than utility grid power which limits wide scale adoption. The fossil fuel and nuclear industries churn out press about how renewables, in particular solar, are just not cost effective and only the most green-minded people will pay the premium to feel good about themselves. But as with the Amtrak situation, the solar industry is not playing on a level playing field. It used to be that the railroads received enormous federal subsidies, but that was before the airlines and the industries associated with car travel put up bigger lobbying efforts and now command significant taxpayer money to support their highly subsidized business models. Amtrak is not profitable because it doesn’t receive adequate government support. The railroad operator receives roughly $2 billion each budget cycle. A mere pittance when you consider that the FAA is essentially one large subsidy for the airlines with a yearly federal budget of $15 billion-plus and embedded federal subsidies for travel by road run about $47 billion-plus annually. Clearly when some of our erudite congress members say things like “Amtrak is a waste of taxpayer money” and “It can never be profitable or compete with other forms of travel” they are blind to the serious subsidy inequities and market skewing that their own legislative chambers have created over the years. The same subsidy inequities — and resulting market skewing — exists in the renewable energy market since the industry is constantly being compared with highly subsidized energy from oil, coal, natural gas and nuclear. In particular, solar PV industry’s raw $/kWh cost (no subsidies at all) is continually compared to the cost of energy from coal fired utilities which have an enormous amount of embedded government subsidies throughout the generation and delivery value chain. Consider these direct energy market interventions as a result of federal, state and local government policy that are pointed out by the highly esteemed Carol Werner of the Environmental and Energy Study Institute in her report “Subsidies: Historic, Current and the Skewing of Market Signals”: 1. Grant of access to domestic onshore and offshore resources 2. Direct budgetary outlays for R&D and resource assessments 3. Government ownership of energy enterprises or supporting service organizations 4. Import/export restrictions 5. Provision of market-related information 6. Below-market provision of loans or loan guarantees 7. Direct regulation of wholesale or retail energy prices 8. Purchase requirements and regulations that alter rights and responsibilities in energy markets or provide exemptions to certain actors 9. Provision of insurance or indemnification at below-market prices 10. Special tax levies or exemptions for energy-related activities This unbelievable number of subsidies, incentives and outright giveaways are applied all the way through the energy lifecycle, including the phases of research and development, extraction, transport, production, consumption and decommissioning and are extremely difficult to uncover, define, track and assign a value. These market interventions are overwhelming in magnitude, highly complex to parse and attribute, and remarkably, only tell part of the cost comparison inequity problem. Add the external costs of environmental degradation, enormous health related and military costs and you can see that the statement that “PV is 2-4x more expensive” than fossil fuel and nuclear energy is just plain outrageous. A recent study by the German Aerospace Centre (DLR), Institute for Technical Thermodynamics and the Fraunhofer Institute for System and Innovation Research (ISI) concludes that photovoltaics, wind energy and hydro renewables external costs are significantly below Euro 1 cent/kWh, while power from coal and natural gas average in Euro 5-7 cent/kWh. These external costs combined with large government fossil fuel subsidies clearly demonstrate that PV is less expensive than current energy production methods no matter where the studies are done. And while most solar companies have strong roadmaps to future performance and cost enhancements coming in the form of thin-film advancements, nanotechnology adoption, silicon wafer advancements and lower cost manufacturing , make no mistake that PV in its current form is significantly more competitive than fossil fuel and nuclear if we simply level the playing field. The “PV is 2-4x more expensive” mindset is a troubling bit of lore that pervades not just media outside the industry but also inside the solar industry. A recent article by a senior PV company manager states, “With the PV industry 2-4x more expensive than power generated by coal burning utilities, we have to increase efficiency and decrease cost.” I believe it is time for the solar industry to set a new standard for how to talk about PV costs in relation to the marketplace. The industry needs a consistent set of cost comparisons that clearly states the cost (whether retail, wholesale, or manufactured cost) and includes subsidies and externalities that are not currently accounted for or highlighted adequately. Dr. Jon A. Krosnick from Stanford University has been studying U.S. citizens’ thinking on climate change and finds that in the last year the number of Americans who believe global warming is the single biggest environmental problem more than doubled. A Washington Post/ABC/Stanford poll found that 70% of U.S. citizens believe our government should do more than it is currently to reduce the effects of global warming in the future and are especially concerned with health consequences from burning fossil fuels. Undoubtedly the external costs discussed here do matter hugely to the ultimate end user and it is time we as the PV industry succinctly “market” our cost benefits to include all social, health, environmental, and military costs in a standard, concise and understandable manner. Given the recent news that the Artic ice cap is melting much faster than modeling projections, we can waste no more time by allowing old world industries and their mighty lobbying dollar to continue to skew the comparison facts. It is unimaginable to me that a technologically advanced civilization would readily commit environmental and economic suicide when we have most of the necessary clean tech tools already developed. Not effectively leveling this cost comparison playing field now is one step closer to that potential unimaginable outcome. Dave P. Buemi is President & CEO of the strategic business consulting firm Prescient Marketing, which helps renewable energy technology entrepreneurs reach commercialization and assists mature renewable manufacturing companies with locating new manufacturing facilities globally.
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