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For Explosive Growth in Solar Energy Industry, Prices Must Come Down

I was delighted when someone sent me this Time Science piece on The Coming US-China Solar War because it finally lays bare the conflicting arithmetic confronting the US solar industry — arithmetic that typically gets lost in all the hype and rhetoric that afflicts commentary on the US renewable energy industry. What the article says, in essence, is that we cannot have our cake (in the form of affordable solar energy in the US) and eat it, too (in the form of a vibrant solar energy equipment manufacturing industry).

US manufacturers struggling with the collapsing prices of PV panels and other solar kit (think Solyndra and Evergreen) are complaining of unfair dumping by Chinese manufacturers and lobbying the government to consider slapping tariffs on Chinese imports. At the same time, the costs of solar kit has not yet come down to the point where most consumers will consider buying it – even with generous rebates and tax credits from local governments and utilities faced with renewable energy portfolio standards – because the payback period is only just this side of the second coming of the Lord. So, if we’re going to have the explosive growth of solar energy generation in the US that we all hope for – and that we must have eventually if we’re to get off carbon based energy – costs must come down even further, especially since our massively indebted government simply cannot afford to extend the present subsidies indefinitely (or even beyond next week) realistically.

Sticking import tariffs on Chinese panels and other solar gear would, of course, push prices up, which means that, even if it made US manufacturers competitive, they’d still go out of business because we’d be even less willing to buy it unless even more subsidies are shoveled into the equation, clearly a road to madness. Under that scenario, everyone loses, including the many tens of thousands employed in the solar installation industry.

This awkward situation is really no different from that faced by, say, US machine tool manufacturers in the 1970s when low cost Japanese imports were decimating Cincinnati Milacron. It’s no use complaining that emerging economies (as Japan was then and China is now) have hugely lowered labor costs and employ unfair tactics in the form of government subsidies: it’s how emerging economies emerge. It’s always been that way – it’s how the US captured the cotton textile industry from Britain in the late 19th century.

We’re perfectly happy to make use of computers and other electronic equipment that used to be made in California and Texas 25 years ago and is now made largely in China. And those who install and maintain said computing equipment are pleased to have their jobs. We need to get used to the idea that the same situation is going to prevail in the solar industry and the notion that renewable energy is going to be the springboard for a massive renaissance in US manufacturing is a pipedream. The final paragraph of the Time item sums up this situation beautifully and should be recommended reading for everyone interested in the growth of solar energy generation in the US.

A side benefit of a more comprehensive and realistic assessment of the prospects for solar energy (and other cleantech) in the US is that our government might be tempted not to continue playing VC at the taxpayers’ expense in the clean energy industry. I notice that Ener1, Inc., a lithium ion car battery company funded in part by a $118 million DOE grant in 2010, filed for bankruptcy last week, following another stimulus funded battery company, Beacon Power, which filed in November.

Graham Russell is founder and principal at Trupoint Advisors, which helps companies achieve strategic success through sustainable business initiatives. www.trupointadvisors.com. Russell writes and speaks on the subject of sustainable business and teaches sustainability in the University of Colorado Denver MBA program. 

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5 thoughts on “For Explosive Growth in Solar Energy Industry, Prices Must Come Down

  1. We should make use of solar panels for running of electrical equipments viz,. computers, televisions and other electrical devices on the basis of solar energy. We can run these devices irrespective of artificial electrical energy. A large amount can be saved from proper usage of solar energy………

  2. We cannot afford to give-up on American manufacturing of clean energy products – Especially PV cells. Continued government subsidies and tariffs should make them competetive in the long run. We simply cannot just give the sector to China because they have cheaper labor and more subsidies than we do. Continued demand should increase competition, and if we just capitulate, then that is just wrong. Even with our fiscal issues, the amount of money spent on subsidies and incentivies is miniscule.

  3. Completely missing from this article is the fact that the payback for solar installation is largely determined by the continuing low prices set for fossil-derived electricity. And those prices are artifically low because they do not account for the negative health and environmental costs that fossil energy embodies (and those prices also reflect significant ongoing governmental subsidies for the fossil fuel industries). Instead, those health and environmental costs are ‘externalized’ to other entities – basically, anyone and any organization that winds up paying higher prices for negative health consequences or other unwelcome side effects of using such large amounts of fossil fuels for our energy. Additionally, the taxpayer pays for all those governmental subsidies for fossil fuels.
    If those costs and subsidies were forced to become ‘internalized’ into the economic calculations of providing fossil-derived energy, then the payback period for solar installation would shorten dramatically. And over the long haul, consumers would not pay exorbitantly higher overall costs. Instead, their increased direct costs for energy would be offset by significant savings on health care and expenses for other products and services whose prices currently contain some of these ‘externalized’ fossil costs. And under such a scheme, U.S. manufacturers of solar products might well continue to be profitable since their prices would not have to drop so low to compete with subsidized fossil fuels that offload such significant ‘external’ costs to other entities.
    Unfortunately, the process for re-internalizing some of these costs is fraught with uncertainties, and is generally resisted for a variety of reasons – mostly by those in the fossil fuel industries who will continue to profit under the current system.

  4. Thanks for the comments and interest. It’s not so much that any of this is “right or wrong” (although I do feel our fiscal situation is so dire that we have to reign in government subsidies across a wide front of activity- including subsidies to fossil fuels), it’s just that this type of intervention in the face of overwhelming market forces hasn’t had much success historically. Coincidentally, there’s an interesting item in this week’s Bloomberg Business Week that tends to echo my analysis (written ten days ago). You might be interested:

    http://www.businessweek.com/magazine/where-the-us-solar-industry-is-shining-02092012.html?chan=magazine+technology+channel_news+-+technology

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