Subsidies Are Not Forever

A deal to amend Germany’s solar PV feed-in tariffs (FiTs) with a significant cut across its various bands has been revealed, if not finalised, and has inevitably been met with some degree of consternation by the sector, which perceives the move as a threat to its future.

The European Photovoltaic Industry Association (EPIA) has, for example, expressed its concerns in an open letter to German Chancellor Angela Merkel, saying that the decision ‘sends the wrong message about renewables at a critical time for the industry and for efforts by Germany and the greater EU to achieve our future energy goals.’

In what may be argued is a rather resigned response, perhaps almost an acknowledgment that such a move was inevitable and even desirable, the letter also adds: ‘No one believes that PV support schemes should last forever — not even for much longer — and everyone knows that these need to be smart, sustainable and properly adapted to changing market conditions.’ The main thrust of the concern is evidently the rate of reduction, with the letter adding that ‘gradual and measured reductions of support schemes have helped shrink significantly the competitiveness gap between PV and conventional electricity sources.’

The logic is that cutting the tariffs – subsidies if you will — to a level more acceptable to both public and politicians will see them become more sustainable in the long term, thereby securing the industry’s future, while at the same time engendering a competitive driver that will see costs fall steadily to the point of out-competing the conventional energy resources which dominate the landscape to this day.

The challenge is to pace these reductions at the right level to sustain progress in technology, efficiency and economic advances without endangering the development of emerging technologies which initially need financial support to be adopted.

Curiously, the developments in Germany came in the same week that a campaigning President Barack Obama declared that the oil and gas industry in the U.S. receives some $4 billion in direct subsidies every year. ‘I am asking Congress – eliminate this oil industry giveaway right away. I want them to vote on this in the next few weeks. Let’s put every single member of Congress on record: You can stand with the oil companies, or you can stand up for the American people. You can keep subsidising a fossil fuel that’s been getting taxpayer dollars for a century, or you can place your bets on a clean-energy future,’ said Obama in an early March address in Nashua, New Hampshire.

This remarkable statement begs the question: how soon is too soon to phase out subsidies for the energy sector? And, if the renewables sector is happy to acknowledge that subsidies should indeed be reduced to zero over the coming years, why can’t other long-established energy sectors, too?

Image: Kuzma via Shutterstock

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