The fallacy of subsidized parity in energy pricing

posted at 12:10 pm on March 20, 2012 by Ed Morrissey

Yesterday, the Washington Post told the sad tale of Germany and the rest of Europe regaining its senses on solar power.  After decades of heavy subsidies and price supports, the solar industry still can’t compete on a price basis with traditional forms of energy production, and thanks to the EU’s debt crisis, these countries can’t afford the subsidies any longer.  However, the Post’s report fails to understand the lesson and instead perpetuates the notion that subsidies don’t equal costs, which it confuses with price:

German policymakers indicated last week that they planned to cut once-generous subsidies as much as 29 percent by the end of the month, on top of a 15 percent cut in January, although some details were still being negotiated after protests from the solar industry. Britain and Italy have made similar moves, and in January, Spain abandoned its subsidies altogether, prompting outrage from the solar industry. …

Shiny black solar panels are as common a sight as baroque church spires in this industrial hub, thanks to government subsidies that have helped make Germany a world leader in solar technology.

Now, sudden subsidy cuts here and elsewhere in Europe have thrown the industry into crisis just short of its ultimate goal: a price to generate solar energy that is no higher than fossil-fuel counterparts.

That’s only true if one ignores the cost of the subsidies.  After all, taxpayers have to pay twice for solar power: once when they use it, and another when they pay the taxes that fund the subsidies, which act only to hide the true cost of solar power in the artificially-lowered price.  That’s amply demonstrated in the caption supplied with the photograph in the story:

Richard Schlicht, left, the head of a German solar power company, talks to Arne Juelich, the project manager of a warehouse under construction in Hanover, Germany. Just months ago, Schlicht would have made a fine profit off the solar panels he plans to install on the roof where they’re standing. After sudden subsidy cuts, he says he’ll be lucky to break even.

What does this tell us?  It means that the profitability of the solar-panel production industry came entirely out of the pockets of taxpayers, and not because the decades-old industry can compete on its own.  We also see this in the graphs supplied by the Post, which shows the massive amount of increase in gigawatt capacity from installed solar panels in Germany as taxpayers stuffed euros into the pockets of manufacturers — increasing 500% — while solar’s contribution to national energy production rose from 0.5% to 3.1%.  However, this figure is almost certainly incorrect, as I noted one month ago from official German government reports:

As Bjorn Lomborg writes for Slate, solar energy now accounts for a whopping 0.3% of Germany’s total power consumption after that $130 billion infusion, and forces Germans to pay far more than their Continental counterparts for their energy. …

The 0.3% figure comes straight from Lomborg’s article at Slate, but I’ve received two messages that says it should be 3%.  However, the data from the German Ministry for Economics and Technology shows that German consumption of hydroelectric, wind, and solar amounts to a combined total of 1.8% of all consumption for 2011, which was its best year ever.  That seems to reinforce Lomborg’s claim and not those from other sources.

It appears that rather than use German government figures for power, the Post used figures from the German Solar Industry Association. Not only that, but nowhere in the article does the Post mention that Germans have paid $130 billion in subsidies during their fling with solar-power support, which should certainly factor into any discussions about cost.  The article does mention that even with the low percentage of power produced by solar, it ate up half of all renewable-energy subsidies in Germany, displacing other technologies like biomass, for example.

The Post might have reported on the real costs of subsidized solar, which would explain to its readers why Germany and other European nations have finally begun to abandon the decades-long project of attempting to make the industry competitive.  Instead, the article makes it look as though the decision to cut subsidies was merely whimsical.


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So, when are we going to start thinking like the Germans on this one?

Khun Joe on March 20, 2012 at 12:14 PM

Come on, Ed. WaPo wants to create the idea that subsidies are just a magical money tree, not taxes that you and I pay.

Bitter Clinger on March 20, 2012 at 12:16 PM

Use a solar panel to power two 60 watt light bulbs, or about 8 13-watt CFL equivalents, for only $859 less installation costs. I don’t even want to compute the break even point on that “investment”.

WashJeff on March 20, 2012 at 12:16 PM

Where is the story of the American company who got a subsidy to buy solar panels from itself?

Still, I look forward to riding in a plane powered by solar energy, though it may be a dicey on the red eye.

Bishop on March 20, 2012 at 12:16 PM

Use a solar panel to power two 60 watt light bulbs, or about 8 13-watt CFL equivalents, for only $859 less installation costs. I don’t even want to compute the break even point on that “investment”.

WashJeff on March 20, 2012 at 12:16 PM

Not to mention that $50 light bulbs are the new efficient.

Bitter Clinger on March 20, 2012 at 12:19 PM

Who cares? Not the cover-up media!…as long as a certain campaign gets money back for the tax money given…everythings good!

KOOLAID2 on March 20, 2012 at 12:23 PM

Bishop on March 20, 2012 at 12:16 PM

Or when the hood ornaments on Mack trucks get replaced by small windmills.

docflash on March 20, 2012 at 12:24 PM

Yesterday, the Washington Post told the sad tale of Germany and the rest of Europe regaining its senses on solar power.

…let’s regain our senses……FREE predator…!!!

KOOLAID2 on March 20, 2012 at 12:26 PM

Schlicht would have made a fine profit off the solar panels he plans to install on the roof where they’re standing. After sudden subsidy cuts, he says he’ll be lucky to break even.

That’s right. Because the market doesn’t want the product. The market by the way, is YOU. What the government is saying with these subsidies is that you are not making the proper decisions with your money and life. Therefore, the anointed will put a gun to your head and force you to pay for an inefficient product while misallocating resources and impoverishing everyone.

RadClown on March 20, 2012 at 12:27 PM

MSM=stupid

gerrym51 on March 20, 2012 at 12:28 PM

Bishop on March 20, 2012 at 12:16 PM

Or when the hood ornaments on Mack trucks get replaced by small windmills.

docflash on March 20, 2012 at 12:24 PM

That would be such a drag..

Chip on March 20, 2012 at 12:29 PM

Sure Germany and the rest of Europe has discovered that solar and wind power are expensive failures but they don’t have Presidebt 0bama in charge.

jukin3 on March 20, 2012 at 12:29 PM

Not to mention that $50 light bulbs are the new efficient.

Bitter Clinger on March 20, 2012 at 12:19 PM

I did that calculation ast week, it takes about 6000 hrs of use to break even on thus lights. Now if the LED dies for any reason, you lost money.

WashJeff on March 20, 2012 at 12:31 PM

KOOLAID2 on March 20, 2012 at 12:26 PM

Kool, settle, the message was received. Go over to my favorite place and you’ll see. Hint, you were there earlier. Oh and OT

Bmore on March 20, 2012 at 12:31 PM

Where is the story of the American company who got a subsidy to buy solar panels from itself?

Still, I look forward to riding in a plane powered by solar energy, though it may be a dicey on the red eye.

Bishop on March 20, 2012 at 12:16 PM

That’s when the aircraft switches to unicorn power.

gwelf on March 20, 2012 at 12:34 PM

I did that calculation ast week, it takes about 6000 hrs of use to break even on thus lights. Now if the LED dies for any reason, you lost money.

WashJeff on March 20, 2012 at 12:31 PM

So you leave the light on for close to a year and, viola, you have broken even.

Why is math so hard for you wing ding dongs?

Bishop on March 20, 2012 at 12:34 PM

After all, taxpayers have to pay twice for solar power: once when they use it, and another when they pay the taxes that fund the subsidies

Does this count the payment to those who produce solar energy and sell it back to the power companies at a rate higher than regular energy?

We have a little company here called SAS, you’ve might have heard of them. Well, they built a solar farm on their campus that produces just enough energy to sell back to the power company.

LoganSix on March 20, 2012 at 12:34 PM

Solar energy quintessentially embodies the Left’s dream of getting stuff for free. They won’t give it up easily.

Archivarix on March 20, 2012 at 12:37 PM

You all are a bunch of Solarists, or sumptin’

D-fusit on March 20, 2012 at 12:38 PM

I blogged about this very topic just the other day, coming at it from a different angle:

Thieves stealing US oil reserves

And by “oil,” I am of course referring to the leftover cooking oil and grease stored behind restaurants, which thanks to rising gas prices has suddenly become popular as a source for biodiesel:

The federal government should closely study this news as a picture-perfect example of how a market economy works. If you create an artificial shortage of one product — as the government has done with its refusal to increase or take advantage of North American oil fields — then alternative substitutes will see a price rise as well….
…in a very short period of time, leftover grease went from having negative value — i.e. you had to pay someone to dispose of it for you — to being free, to costing 11.5 cents a pound, to costing 42 cents a pound. Why? Because the price of traditional gas at the pump has gone up.
… If the only way to make “green energy” economically viable is to intentionally inflate the cost of petroleum-based fuels, then even when we adopt some alternative energy source, its cost will remain inflated to the consumer, due to supply-and-demand pressures on the energy market as a whole…
…Our fantasies of subsidizing our way to energy independence run straight into the brick wall of market economics; as this story proves, the overall energy market — petroleum-based, alternative, what-have-you — is a unified economic entity, and when you inflate the cost of gas, you inflate the cost of everything, including “green fuels” like kitchen grease.

Zombie on March 20, 2012 at 12:39 PM

obummer and Chu don’t give a hoot about us, the Republic, or the Constitution. Their liberal, marxist agenda for the destruction of the country takes precedent. Even in the face of European stupidity and failure.

ultracon on March 20, 2012 at 12:40 PM

Sure, in Germany it’s taxpayer money, but here in America we have Obama’s “stash.”

/

toby11 on March 20, 2012 at 12:41 PM

Simply put, solar science has not borne the necessary results. Neither has wind power. Maybe we need to concentrate on algae.

BKeyser on March 20, 2012 at 12:44 PM

But oil subsidies are A-OK, right?

RanchTooth on March 20, 2012 at 12:46 PM

O T

Bmore on March 20, 2012 at 12:31 PM

.
Thank you.

listens2glenn on March 20, 2012 at 12:47 PM

We won’t be able to cut the industry and consumer smashing subsidies until we get the liberal socialist progressive out of the white house, clean them out of the senate, and avoid putting republican progressives in their places.

In other words we’re stuck with this until we can get honest people with brains in office in place of the turds currently plugging the toilet. We’re screwed for now.

Wolfmoon on March 20, 2012 at 12:48 PM

Thank you.

listens2glenn on March 20, 2012 at 12:47 PM

Lets hope it works. ; ) Oh and OT again.

Bmore on March 20, 2012 at 12:50 PM

Neither has wind power.

BKeyser on March 20, 2012 at 12:44 PM

Wind is an even more expensive failure than solar.

Rebar on March 20, 2012 at 12:53 PM

Why is math so hard for you wing ding dongs?

Bishop on March 20, 2012 at 12:34 PM

I would not want to risk buying a $50 light bulb and hope that it works as long as they say it will. If the ROI is too far out, its not worth it.

WashJeff on March 20, 2012 at 1:05 PM

But oil subsidies are A-OK, right?

RanchTooth on March 20, 2012 at 12:46 PM

Define oil subsidies.
And see if you can justify your comment without referencing the standard manufacturing tax deduction that ALL manufacturing companies get – even green energy manufacturers.

dentarthurdent on March 20, 2012 at 1:09 PM

I would not want to risk buying a $50 light bulb and hope that it works as long as they say it will. If the ROI is too far out, its not worth it.

WashJeff on March 20, 2012 at 1:05 PM

Bingo. Libs don’t understand long-term calculations like dollar cost of money and opportunity costs – i.e. what else could you have done with that $50 that would have made or saved you MORE money over that length of time.

dentarthurdent on March 20, 2012 at 1:11 PM

Ed,

What? No link to the Ramirez cartoon? (Even if it’s a repeat?)

parke on March 20, 2012 at 1:12 PM

But oil subsidies are A-OK, right?

RanchTooth on March 20, 2012 at 12:46 PM

I don’t think the oil producers get subsidies.They get tax breaks on equipment and such.

docflash on March 20, 2012 at 1:17 PM

I would not want to risk buying a $50 light bulb and hope that it works as long as they say it will. If the ROI is too far out, its not worth it.

WashJeff on March 20, 2012 at 1:05 PM

Bingo. Libs don’t understand long-term calculations like dollar cost of money and opportunity costs – i.e. what else could you have done with that $50 that would have made or saved you MORE money over that length of time.

dentarthurdent on March 20, 2012 at 1:11 PM

That’s because they are all Psych majors.

HomeoftheBrave on March 20, 2012 at 1:22 PM

I would not want to risk buying a $50 light bulb and hope that it works as long as they say it will. If the ROI is too far out, its not worth it.

WashJeff on March 20, 2012 at 1:05 PM

In other words, you hate Polar Bears.

Nice.

Racist.

Bishop on March 20, 2012 at 1:22 PM

Not to mention that $50 light bulbs are the new efficient.

Bitter Clinger on March 20, 2012 at 12:19 PM

I did that calculation ast week, it takes about 6000 hrs of use to break even on thus lights. Now if the LED dies for any reason, you lost money.

WashJeff on March 20, 2012 at 12:31 PM

I have standard incandescent light bulbs in two of my bathrooms that have never been changed in 11 years. Each bathroom has 6 bulbs over the mirror. Replacing those with $50 bulbs might take a lifetime to break even, if ever. I think LED lights could make sense, but not at that price. Unless the government mandates we buy such bulbs, they aren’t going to make it. Cheaper alternatives or competition with better LED technology and manufacturing techniques will bring the price down to where the market will pick it up…if the government doesn’t intervene and screw it up, that is.

BillyWilly on March 20, 2012 at 1:25 PM

Wind is an even more expensive failure than solar.

Rebar on March 20, 2012 at 12:53 PM

Yep, wind-generated energy customers have to pay for the wind farm-generated energy, have to pay higher taxes for the government subsidies for the wind farms, and have to pay for the wind farms’ down time during winder-than-usual conditions. It’s insane.

Somebody should do a chart showing the actual cost-per-kilowatt-hour of these “green” energy scams once all the taxes, subsidies, etc., have been figured in. It would probably be astronomical.

AZCoyote on March 20, 2012 at 1:26 PM

Still, I look forward to riding in a plane powered by solar energy, though it may be a dicey on the red eye.

Bishop on March 20, 2012 at 12:16 PM

Obama can speak with authority on the subject of solar energy when he uses solar to power Air Force One for his fundraising junkets.

talkingpoints on March 20, 2012 at 1:33 PM

That’s because they are all Psych majors.

HomeoftheBrave on March 20, 2012 at 1:22 PM

They couldn’t handle psych – that involves some actual science – more like gender studies, basket/dreadlock weaving, modern protest, etc.

dentarthurdent on March 20, 2012 at 1:44 PM

I have standard incandescent light bulbs in two of my bathrooms that have never been changed in 11 years. Each bathroom has 6 bulbs over the mirror. Replacing those with $50 bulbs might take a lifetime to break even, if ever. I think LED lights could make sense, but not at that price.
BillyWilly on March 20, 2012 at 1:25 PM

Ya – me too. I’ve mentioned in other threads on similar topics – my house is 11 years old and I still have quite a few incandescent bulbs that the builder installed. I see no value in replacing any of them with a $50 bulb – or even a $10 bulb for that matter.

dentarthurdent on March 20, 2012 at 1:47 PM

It appears that rather than use German government figures for power, the Post used figures from the German Solar Industry Association.

Think about this: How many times does a story get written for the media by a special interest group?

I’d say it’s more common than not. Like the bogus statistic that claimed a woman was abused in America every 9 seconds.

tom on March 20, 2012 at 1:52 PM

Wind is an even more expensive failure than solar.

Rebar on March 20, 2012 at 12:53 PM

And wind is right up there with the other hypocrit enviro-wacko green lib scams:
Oil field bad – a few ducks died in a pond
Wind good – hundreds of thousands of birds dead

Coal power plant bad – mercury in exhaust
CFL good – a little mercury in your house no problem

any development bad – covers animal habitat
solar farms good – thousands of acres of land covered with panels ok

dentarthurdent on March 20, 2012 at 1:54 PM

Here is an example of how a solar project in New Jersey is raping the taxpayers and might very likely be lining the pockets of a state representative. The Great Solar Panel Rip-off

RZuendt on March 20, 2012 at 2:17 PM

None of this actually address the most insufferably stupid and destructive aspect of these subsidies. The subsidies are going to alternative energy producers that are using tech that has already been developed. When the government does that it is directing resources away from the development of new tech that would compete with current alternative energy tech, thus accomplishing the exact opposite of what the government claims it is trying to do.

The only way the government could actually advance the technology would be by directly subsidizing research and development expenses for completely untested companies. If you think the current alternative energy policies of governments are FUBAR, try that for some truly astonishing levels of graft and corruption.

Government is good at brute force. The more intelligence is required, the more government should be kept out of the room.

fadetogray on March 20, 2012 at 2:22 PM

Subsidies are MAGICAL, unless their given to OIL companies. Then those subsidies become EVIL!

GarandFan on March 20, 2012 at 2:33 PM

Use a solar panel to power two 60 watt light bulbs, or about 8 13-watt CFL equivalents, for only $859 less installation costs. I don’t even want to compute the break even point on that “investment”.

WashJeff on March 20, 2012 at 12:16 PM

Best of all, the lights work during the daytime, and not at night.

slickwillie2001 on March 20, 2012 at 3:27 PM

would not want to risk buying a $50 light bulb and hope that it works as long as they say it will. If the ROI is too far out, its not worth it.

WashJeff on March 20, 2012 at 1:05 PM

Bingo. Libs don’t understand long-term calculations like dollar cost of money and opportunity costs – i.e. what else could you have done with that $50 that would have made or saved you MORE money over that length of time.

dentarthurdent on March 20, 2012 at 1:11 PM

Personally, I love my LED recessed lights in the kitchen. However, to validate both of your points, I didn’t buy them for an ROI. I purchased them because the quality and brightness of the light is outstanding. No possibilty of the light exploding and spreading mercury over the kithen is a plus, too.

RedinPDRM on March 20, 2012 at 3:29 PM

I purchased them because the quality and brightness of the light is outstanding. No possibilty of the light exploding and spreading mercury over the kithen is a plus, too.

RedinPDRM on March 20, 2012 at 3:29 PM

That’s fine if you want to spend the money for a particular reason. My objection is to the government trying to mandate any of this on us and using our tax money to subsidize it.
I also don’t have to worry about my incandescent bulbs blowing up and spewing mercury.

dentarthurdent on March 20, 2012 at 3:48 PM

Sort of OT, but we recently installed a power gate and planned on using solar power. We were warned off of that by the installer and a friend who had tried it. They said it was unreliable. So we spent big bucks to have electricity brought to the site.
Unreliable? For a small gate? We’ve been told over and over how solar and wind power is here and working. Not so much.

tj4osu on March 20, 2012 at 6:07 PM

Use a solar panel to power two 60 watt light bulbs, or about 8 13-watt CFL equivalents, for only $859 less installation costs. I don’t even want to compute the break even point on that “investment”.

WashJeff on March 20, 2012 at 12:16 PM

That’s interesting. Personally I would love to be “off the grid” and as self sufficient as possible, but what I don’t understand is why the is the cost so high? Does anyone know if the cost is in the panel manufacturing or the installation. I wouldn’t think installation would be all that difficult.

DoubleClutchin on March 20, 2012 at 7:31 PM

The 0.3% figure comes straight from Lomborg’s article at Slate, but I’ve received two messages that says it should be 3%. However, the data from the German Ministry for Economics and Technology shows that German consumption of hydroelectric, wind, and solar amounts to a combined total of 1.8% of all consumption for 2011, which was its best year ever. That seems to reinforce Lomborg’s claim and not those from other sources.

Probably because those jet-setting cosmopolitans in the MSM didn’t realize that a comma is the decimal sign and that periods are thousands separator. They read the stats and took the comma to be misplaced. At least that’s their alibi and they’re sticking to it.

AH_C on March 21, 2012 at 1:14 PM