No Good Deed Goes Unpunished: The High Cost of Solar

Residents of Hawaii were dismayed to see this recent front-page headline: “Hawaii Solar Savings Spark Higher Electric Bills.”

Since so many consumers have sought electrical savings from installing solar panels, the state-monopoly electric utility is losing revenue and now needs to make it up in higher rates.

At least Hawaii’s perennially sunny weather will likely mean that the return on investing in solar panels will still pay off for residents, as they mostly only need to buy electricity at night.

The calculus is far different in the cold and dark northern climes of Germany. A recent article in Der Spiegel, “Solar Subsidy Sinkhole: Re-Evaluating Germany’s Blind Faith in the Sun,” points out that the German government has invested more than €100 billion ($132 billion) in solar subsidies over the past 11 years, yet,

For weeks now, the 1.1 million solar power systems in Germany have generated almost no electricity. The days are short, the weather is bad and the sky is overcast.

German citizens get dinged a “green energy surcharge”—an additional €200 ($265) a year for the average family—over and above the cost of their actual electricity use, for which they already pay the second-highest rates in all of Europe. Because German policy is so solar-dependent, when the sun doesn’t shine (a/k/a “winter”), Germany has to import its power from nuclear-power generators in France and the Czech Republic, and even resorted to powering-up an old oil-fired plant in Austria. Not exactly “green.”

As Der Spiegel concludes:

Solar energy has the potential to become the most expensive mistake in German environmental policy.

Not surprisingly, the decision to pursue this policy was based on calculations assuming “conditions that hardly ever exist outside a laboratory.”

A not-unusual situation when it comes to projections for proposed government “investments.”

Ignoring such experience, and apparently neither learning from the fed’s big losses in “renewable” energy, New York State passed the “Power New York Act of 2011,” calling for increased reliance on solar energy. As most of us are aware, New York also habitually suffers from “winter”. Also bad and overcast weather. Yet the cost-benefit analysis commissioned by the very legislators who set these solar energy goals concluded that solar energy is a great option for New York State.

This despite the study’s actual findings. As distilled by the New York Times:

The financial scenarios vary widely. It could cost New York State ratepayers anywhere from $300 million to $9 billion to install solar power between 2013 and 2049. The report said that under the most likely conditions, the cost would be about $3 billion and the installations would increase electric bills by up to 3 percent in any given year. In other words, the costs exceed the benefits.

Needless to say, cost-benefit calculations and investments in solar can and should be made only at the individual level, divorced from subsidies, “rebates,” and other schemes passing costs along to others. Solar can certainly make good economic sense, especially for those of us in sunny locations. If combined with the repeal of state utility monopolies, solar holds even more promise, with the benefits of competition and innovation, such as customers being able to connect to two-way grids allowing them to sell excess energy generated back to their utility provider. Indeed, if one thinks only of the incredible innovations in telecommunications since the repeal of Ma Bell’s government-protected monopoly, the possibilities may be virtually endless.

But if continued along the line of current centrally-planned “renewable energy” schemes, no one should be surprised to see shortages and higher costs in yet another realm of government’s expanded heavy hand.

Mary L. G. Theroux is Chairman and Chief Executive of the Independent Institute.
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