Two recent stories appeared in the New York Times whose divergent messages should have raised a few eyebrows about solar energy. One noted that soaring stock of SolarCity,
founded by Elon Musk, and now a Wall Street darling (although perhaps
part of a tech stock bubble, heavily debated). The second, and more
ominous, told how Spain’s repudiation of the price it paid for solar electricity, including retroactively, was hurting the many investors in solar in that country.
It highlights the risks inherent in a business that relies on government
subsidies for most of its business. Photovoltaic panels are a niche
product that have expanded rapidly due to extremely generous subsidies
(including price guarantees), equaling around half to two-thirds of the
final price, depending on the location.
(True, the American oil and gas industry receives tax breaks, but they are trivial compared to what renewables get.) Since the 1970s, it has been an element of faith amongst proponents
that renewables would come to dominate the energy business because,
primarily, they have a better environmental footprint that fossil fuels.
More practically, they point to the inevitability of higher prices for
fossil fuels, tightening emission regulations, and widespread support,
particularly financially, for the products.
Unfortunately, none of these is quite as reliable or inevitable as
thought. Oil and gas prices do not show any tendency towards long-term
increases any more than other minerals do, despite the manner in which
commodity bulls promote every cyclical increase as permanent. Renewable
costs will certainly come down, but with flat or lower fossil fuel
prices, the crossover point where they are competitive is much further
out than usually projected.
Second, regulations can change. Governments are notoriously fickle,
as the case of Spain shows. The 1990s saw great enthusiasm for the
electric vehicle mandate that California and other states enacted, which
ultimately were completely abandoned. Similarly, mandates for renewable
energy content that some US states have imposed on electric utilities
will almost certainly be relaxed, when the true cost of meeting them is
recognized (as in Spain).
“’It seemed so safe,’ [Justo Cruz Rodrigues] said. ‘It was a
government guarantee.’ But the Spanish government has changed its mind.”
See NYT.
Third, subsidies do come and go. If your product cannot compete
without subsidies, you are at the mercy of the government and the party
in power. Apple doesn’t worry that its iPad or iPhones will become
uneconomic, because they are already economic without significant
government assistance. If the US should reduce subsidies for
photovoltaics, sales could plummet. Perhaps the risk is not as great as
building a house on the shore, but there is a degree of risk involved.
On the other hand, products which are profitable because of taxes
have much lower risk. If governments put large carbon taxes in place
that made renewables attractive, the chances that they would be
rescinded at a later date are far lower than that a subsidy would be
reduced or removed.
I will discuss the 60 Minutes story on Cleantech next, but just note:
when they say some companies are making money or repaying loans and are
therefore “successful,” they don’t differentiate between money from
sales and money from subsidies. To a very real degree, many of these
loans are being “repaid” with taxpayer money.
http://www.forbes.com/sites/michaellynch/2014/01/08/the-riskiness-of-renewable-energy-investments/
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