Are Subsidies the Answer?

RE Outlook 2003 – The intention of Renewable Energy subsidies is to allow the industry to lower costs by increasing manufacturing and build a sustainable business. What happens to all of the manufacturing capacity when the subsidies disappear?

RE Outlook 2003 – January 21, 2003 – The intention of Renewable Energy subsidies is to allow the industry to lower costs by increasing manufacturing and build a sustainable business. What happens to all of the manufacturing capacity when the subsidies disappear? The demand goes down and the investment in production equipment is left stranded. California’s subsidies are generally lower than in Illinois. The solar business in California has been experiencing an unprecedented boom and the Illinois response has been disappointing. Last year, due to the demand in California, photovoltaic (PV) distributors were sold out of the lowest cost per watt products and the higher priced products were dwindling. Module and inverter manufacturers could not keep up with the demand. Illinois rebates pay for 50 percent of a system and generous grants exist to cover up to 60 percent of the total installed price, with the easiest net metering program in the country allowing for grid connection in less than a week. Only 50 home systems have been installed since the rebate program began. What compelled individuals with homes using utility power to buy a solar electric system? Not subsidies but fear. The two biggest growth spurts in the domestic PV market were Y2K, accompanied by fear of the grid going away forever, and California’s 2001 energy crisis, accompanied by the fear that grid electricity might never be stable again. The fears never materialized, but PV sales soared in California. Without the fear, the Illinois rebate program has not created a big demand. My outlook for the 2003 RE business is that a boom market is being created with subsidies similar to what happened in the late 1970s. A solar heating industry was born of subsidies and it promptly died when the subsidies ceased. Solar sales people were selling 40 percent tax credits, not solar equipment. From my viewpoint, this is proof that subsidies are not the answer. Using Illinois as an example, subsidies don’t always create a market when people don’t understand the intrinsic value to installing a RE system. As states experience unprecedented budget crises, the incentives will inevitably face cuts and make it very hard for businesses based on the subsidized marketplace to survive. Incentives will not create a sustainable, thriving RE business for the long term any more than a business plan built on such subsidies makes for an attractive investment, long term. (A more in-depth version of this article will appear in a future edition of Home Power Magazine.) About the Author: Mark W. Wilkerson, vice president, Business Development at SunWize Technologies has been working in the photovoltaic industry for the past 19 years and with SunWize for the past ten. He has authored several articles for solar and telecommunications industry magazines and is currently serving on the Midwest Global Warming Leadership Council and the Board of Directors of the Stelle Telephone Cooperative, the nation’s first solar powered telephone company. He is also a founding member of the Center for Sustainable Community, a one year old non-profit organization with the mission of providing the context for individual achievements in sustainable endeavors. He can be reached at mwwpv@stelle.net
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