Can Feed-In Tariffs Be Fixed?

There is a sort of knee-jerk defense being made of Feed-In Tariffs, which are subsidies meant to encourage erection of solar panels in Europe and some American states. 

Germany’s industry has negotiated a subsidy reduction and is moving forward, while England’s industry has gone on a solar strike following announcement of a government review. Ontario, Canada quietly reversed course while everyone else was looking at Egypt.

Generally a feed-in tariff tries to calculate the costs of an installation, the value of the resulting energy, and pay the difference between the two over time. It’s a great deal. Rates for renewable energy are set by public utility commissioners, and the “avoided cost” of fossil fuels is used to calculate the subsidized rate.

The result has been a boom in states enabling the tariff. California’s boom is the largest, but other states like Florida are now getting into the act.

But there are two problems with the scheme.

  1. This is a long-range subsidy created by governments that always have a short-term time horizon.

  2. Tariffs are harder to re-set than the prices of panels.

The first is a problem for system owners, the second should be a legitimate problem for government. After all, it’s our money going into the subsidy.

The British move to review its tariffs has set off a panic in that nation’s nascent industry. It’s the old story of uncertainty being bad for business. The review, by itself, is even worse for the business than an immediate cut might have been.

But those arguing for adjustments have a point. Panel prices are on a continual, awkward downward slope. They have been cut nearly in half, to a little over $3/watt, over the last decade, and every indication is that progress will accelerate, with new technology and mass production, going forward.

Of course, a panel is not a system. Most analysts double a panel’s cost to get the installed rate (although why an expensive panel thus costs more to install than a cheap one is beyond me).

The big news here is that China is not jumping on the feed-in tariff bandwagon. It’s treating each deal as a separate negotiation, and thus adjusting subsidies as prices fall.

Can we live with the same? Until installed prices for solar energy reach the level of burning coal, the market will need some boost in order to grow. But subsidy rates should be based on market forces, and costs are constantly changing.

Rather than defending growth and profits in a knee-jerk manner, we can avoid a political backlash by figuring out ways to share our falling costs with both customers and governments.

I’m open to suggestions. Having the industry figure out something reasonable on its own beats waiting for government to panic and do something stupid.

 

 

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Dana Blankenhorn has covered business and technology since 1978. He covered the Houston oil boom of the 1970s, began making his living online in 1985, and launched the Interactive Age Daily, the first daily coverage of e-commerce, in 1994. He has written for a host of off-line and online publications including The Chicago Tribune, Advertising Age, and ZDNet. He has covered PCs, networks, telecommunications, cable technology, Internet commerce, the Internet of Things, Open Source and Health IT, He began covering alternative energy at his personal blog, Danablankenhorn.com, in 2007.

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