LAST week, EDF, one of the world's biggest energy firms, announced it would invest $50m in a firm called Nanosolar, which aims to produce cheap solar panels. Nanosolar believes it can sell panels for a little as $1 for each watt of capacity—less than one-third of the best deals currently on offer. If true, that's great news, especially since it would reverse a worrying trend.

It used to be an axiom that solar power grew steadily cheaper as time passed. Solar panels were once too expensive to install on anything but satellites. But as the technology improved, they became cost-effective, first in isolated spots such as weather stations and oilrigs, and later on lonely farms and houses far from the grid.

By 2004, solar panels were coming very close to generating power at the sorts of prices regular grid-connected customers pay in places where electricity is expensive, such as Japan. Enthusiasts confidently predicted that solar cells would soon supplant grimy old power plants, and spare the world the tiresome chore of digging for coal, uranium and natural gas.

AP

Keep the government away from these

Fans of solar power were so sure of themselves they came up with their own version of Moore's law for the sun's power, rather than that of computer chips. Every time the volume of solar cells produced around the world doubled, they predicted, the price per watt would fall by 20%. After all, it had done so reliably for the previous 40 years.

But in 2004, everything changed. Prices of fossil fuels began to climb, and worries over global warming and security of supply intensified. Those factors might have been enough to boost investment in solar by themselves. At any rate, the riches that undoubtedly await the first firm to create cheap solar power were already luring venture capital.

But governments such as Germany's, who wanted to give solar and other forms of renewable power an extra boost, began subsidising wind turbines and solar panels in order to speed their adoption. This was supposed to have three benefits: it would reduce emissions of greenhouse gases, spawn a fast-growing and lucrative domestic industry, and help to lower the unit costs of solar panels, thanks to the bigger volumes. Indeed, the three goals are interdependent: solar power will have to be deployed on a massive scale if it is to make much of a dent in emissions, which will only be affordable if it becomes much cheaper.

But Germany's subsidy, which takes the form of a generous tariff for solar power, has had the opposite effect. So many firms rushed to install solar panels in such profusion that the world ran short of the type of silicon used to make them. The price of silicon—and thus of solar panels—rose. Many firms began to pursue radical new panel designs, simply to reduce their silicon consumption.

Meanwhile, Germany has wound up with more solar panels than any other country in the world—a perverse result for such a cloudy place. It also has fewer wind turbines than it might otherwise—again, an odd outcome for a blustery country. The German government has decided that the subsidy is too expensive, and wants to revise it—just the sort of unpredictable behaviour that tends to alarm rather than entice investors.

Of course, Germany is not the only country that subsidises solar power, and such subsidies are not the only cause of inflation in the solar industry. Lots of silicon factories are under construction, so an end to the present bottleneck is in sight. Several firms like Nanosolar insist that their wares will soon be competitively priced without subsidies. And fossil fuels are also subsidised, insofar as their prices do not include the cost of the pollution they generate.

Moreover, tackling global warming is not necessarily an unreasonable use of taxpayers' money. But that does not relieve governments of the obligation to get good value for money. Fans of California's solar subsidy claim it will achieve similar results at a tenth of the price. Better still would be a hefty carbon tax, or a strict cap-and-trade regime, which would provide a boost to all low-carbon power sources, not just those that find favour with prodigal bureaucrats.