What are Solar Feed-in Tariffs & Incentives for, Really?

March 23rd, 2012 by Zachary Shahan



A common statement we hear in discussions about solar energy evolution and solar energy incentives in the U.S. is that the solar industry just needs a few more years of government incentives and it can be broadly cost-competitive without any government support. While this is likely to be true, I think this line of thinking skips over some very important points and creates some long-term dangers for the solar industry — and what’s happening in Germany these days is a good preview of where such statements lead.

Before getting into that, though, here are a few thoughts on the purpose of solar power incentives, in my mind:

Solar incentives are awarded to help advance and promote a clean energy option that will address tremendous health costs of dirty energy not accounted for in the price of electricity from those sources, also known as market externalities (that would be about $500 billion a year from coal power, for example). Similarly, these incentives help to address grid externalities. Solar power is a great job creator. Incentives for solar return to society in the form of more jobs and tax revenue. Solar power is a domestic energy source that can help relieve international tension and war costs. Other energy sources, such as fossil fuels and nuclear, have gotten government subsidies for decades, and sometimes even more than a century. It seems only fair to give solar comparable lifetime subsidies.

Now, as reported last June, a study very conservatively calculating the true value of solar power found that government incentives in place today are justified simply because of how they correct for market failures (the issues above).

The bottom line: solar incentives are not just in place for the arbitrary reason of bringing solar to grid parity; they are in place to correct for market failures and improve society (improve public health, grid efficiency and security, the economy, and more).

So, saying, or even just implying, that the purpose of solar incentives is to bring solar to grid parity is incorrect… and it can also be dangerous….

The Story in Germany

In Germany, as you may recall from Bloomberg’s Golden Goal chart, solar power has hit grid parity. Unfortunately, a lot of people there and in EU leadership were under the impression that the purpose of solar incentives was to get to that point, and they can now be cut.

Craig Morris of Renewables International tore that argument apart in an article published today, and also added a little more context to the situation in Germany. Here’s some more historical context:

For years, even representatives of the solar sector itself have quite foolishly been saying that the goal of feed-in tariffs was grid parity. Major politicians and energy organizations have taken these people at their word and are now arguing that feed-in tariffs were simply a startup mechanism for solar, which is now mature and should be able to stand on its own. EU Energy Commissioner Oettinger is one good example, and Maria van der Hoeven – executive director of the International Energy Agency – stated as much this week as well when she wrote specifically of the recent cuts to feed-in tariffs in Europe: “Renewable energy is swiftly coming of age, reducing the need for public support…. the cuts are a sign that some renewable energy technologies are coming into their own and moving towards a stage where public support will no longer be necessary.”

Yes, not necessary, but they are still warranted!

Going on, Morris notes some of the reasons why feed-in tariffs are still warranted, even if they are unnecessary:

… there is always going to be a need to: ensure that all renewable power generated is paid for (priority on the grid),

prevent excess payments for such power (the retail rate will soon be far above FITs for solar in Germany, so the lower rate should continue to be paid – just as has always been done for wind power and power from biomass),

make sure that subsidies continue for renewables for at least the next 200 years – after all, we are still forking it over to the coal sector, which has been profitable for at least the past two centuries. In calling for an end to governmental support for photovoltaics, we are merely leaving subsidies up to the conventional energy sector – can you think of anything nuttier?

Anything nuttier? I can think of a few things, but not in the energy sector.

Image credit: solar hot water panels and PV electric panels courtesy shutterstock









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