‘Subsidies for solar energy are a waste of money’

'The bankruptcy of the Obama-subsidised Californian solar panel manufacturer Solyndra is nothing compared to the dozens of billions of euros that are squandered by Germany on subsidies to incentivise the solar energy sector.'

Source: The Economist, 15 October 2011

Wim Sinke responds to this article. He is staff member Programme & Strategy at the unit Solar Energy of ECN and chairman of the European Photovoltaic Technology Platform. His response was previously published in the digital trade journal Bits&Chips.

The Economist uses the Solyndra bankruptcy to illustrate that, in the broadest sense of the word, ‘subsidies’ are not helpful for the solar energy sector. In doing so, the European ‘subsidies’ for market development, in particular feed-in tariffs in some countries, are also addressed. The essence of the story in The Economist is that they are a waste of money I am the first to acknowledge that subsidies should only be provided to compensate for market failure. In some respects they are a necessary evil, but that does not make them entirely wrong.  When it comes to energy and climate, the international market is failing tremendously. The world is trying hard to make international agreements that should lead to CO2 emission reductions, among other things. It doesn’t take a pessimist to see that this will not be realised and certainly not in time. We have not yet reached the pain barrier of climate change and other energy related nuisances, which is why the urge to act is not very strong. That is how it works on a small scale for individuals and the same is true on a larger scale for countries.

Future growth sector

A number of countries, Germany being a well-known - and in my view shining - example, have therefore decided not to wait for international agreements and taken matters into their own hands. These countries act on the conviction that the introduction of sustainable energy can and must be sped up, without losing sight of their own well-understood self-interest. After all, there is little doubt about the fact that sustainable energy will become one of the most important sectors of economic growth in the 21st century.

Cutthroat competition

The main existing differences in opinion relate to the consequences of that conviction. Should you be at the forefront and thus try to become a strong global player, reaping the economic fruits of growth, or would it be better to step in at a later stage when sustainable energy has become more affordable?  Germany opts for an integrated approach in which energy policy and industrial policy go hand in hand. Germany is an industrial country at heart and the people are highly aware that it is impossible to join a high-tech sector once it has outgrown its infancy. Either you are in from the start or you will miss out. Even if you join from the start, it is not a matter of course that you will continue to play a role in the longer term. The opportunities and interests are huge and competition is therefore fierce.

Competitive prices

It is easy, even cheap, to say that Germany blundered with its policy, which is what The Economist is doing, in fact. It is true that many billions have been spent on market development and that meanwhile, many jobs in solar cell and module manufacturing have moved to Asia. But that is all in the game and there are many more jobs in the other parts of the value chain. Germany holds a strong, even dominant, position in these areas, too. It is thanks to Germany that the PV sector has come this far. If it hadn’t been for our eastern neighbours, we would still be living in the year 2000, or even the 20th century. Thanks to Germany and the efforts of several other countries, solar power will already be able to compete in large parts of the global electricity markets this decade. Mind you: not only on the level of consumer prices.  This would have been unthinkable without the gigawatts that have meanwhile been installed in Germany. If you don’t believe this, you are invited to download some of the following reports:  Solar photovoltaics competing in the energy sector (of the European PV-branch association EPIA), $1/W Photovoltaic Systems (White Paper of the US Department Of Energy at the Sunshot Initiative) and The photovoltaic reality ahead: terawatt-scale market potential powered by pico-to gigawatt PV systems and enabled by high learning and growth rates (of the German company Q-Cells).

Swimming on dry land

It is not so difficult to estimate roughly how much it will cost the world to make solar power competitive: a few hundred billion euros. This global ‘unprofitable gap’ can be established from the learning curves of solar modules and PV systems. Learning curves indicate the price decrease as function of the total produced and/or installed volume, with continuous innovation being a condition. The learning curves for solar power are very robust and have proven their validity over more than 3 decades. It takes a few hundred billion to realise a universally usable, sustainable technology with nearly unlimited potential. Peanuts for the world as a whole, but too much for a single country. Rather than thanking Germany for its investments in the interest of the rest of the world, some choose to do the opposite. Dry swimmers are criticising Dutch swimming champion Pieter van den Hoogenband.

Carbon tax

We have already heard the advice of The Economist. Not surprisingly, their alleged panacea is: abolish subsidies for conventional energy and introduce a carbon tax, allowing the market to do its work and preventing expensive disasters such as Solyndra and the European PV market development programmes. However, they seem to forget that it is the total incapacity to do either that has led to the challenged policy. Moreover, a carbon tax will promote the cheapest options only, and these are not always the options with the largest potential, the best sustainability profile or the largest public support base. It is not for nothing that the PV sector has always resisted a (premature) sustainable energy policy based on carbon tax (or similar policy) alone.

No lessons without errors

What we need is an intelligent energy mix of market incentives to speed up solar energy developments. The global learning process for determining the best mix will not be without mistakes, but there are no lessons without mistakes and no wisdom without lessons. The world can and must afford doing this. I believe that some modesty with regard to economic and financial advice on solar energy is in order. The free market ideal has lost some of its lustre in recent years, I believe.”