Subsidizing Commodities Never Makes Sense

This is the second in a series of posts about the unintended consequences of renewable energy subsidies and rules in competitive falling price markets.

In the previous post I reviewed the unintended consequences of Germany’s generous above market prices feed in tariff subsidy in a fall global PV price market. The result was that German taxpayers spent a lot of money to promote solar energy market growth hoping to create a sustainable domestic market of clean energy producers and a growing market share of electricity sales from renewable energy to meet emission reduction targets.Instead they created a bubble now bursting because excess solar installations are driving up subsidy costs even while global PV prices are falling.

So German taxpayers will pay out more subsidies than planned leaving a big hole in the national budget. They pay higher utility bill surcharges for the renewable energy only to see the cash suctioned up by China’s efficient export machine undermining domestic German solar energy manufacturing just as in Spain and other countries with above market FiT subsidies.

The second unintended consequence for feed in tariff subsidies of photovoltaic panels is that the Government is spending money to promote the oldest, least efficient, and most easily commoditized solar technology thus playing to China’s export growth strengths, instead of investing in the next generation of more efficient, better performing and lower total cost technologies German engineering and manufacturing expertise is so capable of producing.

Average solar photovoltaic panel efficiencies are about 14% today.  Better solar technologies today near 20% efficiencies.  Compare that to the 60%+ efficiencies of natural gas combined cycle generation or the 85%+ efficiencies of baseload nuclear power.  But in Germany today nuclear is, well—radioactive!  The German government has decided in its wisdom after the Fukushima Daiichi disaster following the Japanese tsunami to phase out German’s nuclear power generation fleet at a cost of $1.7 trillion according to a Siemen’s estimate.  But it is going to take a lot of solar panels at 14% efficiency to replace all that 85% efficient nuclear power.

Germany’s feed in tariff accelerates installation of the most inefficient solar technology. Solar PV receives 56% of all green energy subsidies while producing only 21% of subsidized energy and that energy is only 14% efficient.

Wind energy in Germany which today supplies five times more energy than solar at the same cost. Small scale hydro provides six times the energy output at the same subsidy cost.  Solar subsidies also drive out spending on energy efficiency. But renewable energy is not Germany’s only goal. It also faces tiff targets for emission reduction so the lower the efficiency in producing energy from non-fossil sources the harder it is for German to meet the emissions reduction goals.  Thus the practical consequence is the cost of cutting a ton of CO2 emissions, is €5 from adding insulation in an old building to improve energy efficiency, or €20 in a new gas-fired power plant or €500 into a new solar energy system.  The Munich-based Ifo Institute for Economic Research says its research concludes the benefit to the climate is the same in all three examples but they have radically different costs and impacts.

So what did German politicians do?  They whacked nuclear and bet the farm on solar thus risking both their renewable energy goals and their emission reduction goals.  Oh, don’t worry they will achieve both of those goals but the cost will be staggering!

The lesson is never trust politicians with your wallet or your national priorities—they will spend both on politically correct short term choices until your money runs out.