Time to Rethink Solar Subsidies

Solar prices have dropped by more than half in the last five years. Solar purchase or feed-in subisidies over the past decade were created by the governments of Japan, Germany, Spain, and other countries. America’s combination of state subsidies, especially California, combined with the U.S. tax credit for solar, have also contributed to accelerating the solar learning curve. In the latest Solarbuzz survey, 34% of solar module purchases are below $2.00 per watt, with the lowest retail prices about $1.06-1.10 per watt for silicon modules and $0.84 per watt for thin film modules. The long sought $1 per watt price point has been reached.

Unfortunately for the solar industry, record low natural gas prices have moved the ‘grid parity’ target lower again. And, the global recession has pinched all of the economies that were funding fast solar growth, resulting in greatly reduced or eliminated solar subsidies and reduced demand growth.

Where to go from here? Dieter Helm’s new book The Carbon Crunch: How We’re Getting Climate Change Wrong- and How to Fix It offers some interesting alternatives. He argues for a carbon tax on all energy sources (not a cap and trade system). A carbon tax would favor solar but also encourage natural gas as a medium term solution over coal and oil. It would be a new source of revenues for struggling government budgets. And it would generate a source of money to fund a broad range of new technology to help solar, such as better energy storage, and reduced solar installation costs.

Green activists won’t like his proposals. Neither will proponents of a expanding a regulatory approach to limiting fossil fuels. So it just might be the right approach for the next policy phase in evolving the world’s electricity fuel sources. And help restimulate the solar market in a time of economic slowdown.