Solar lobbyists demand government protection to prop up industry

by Clint Bolick
Goldwater Institute
 
It was like a scene from Atlas Shrugged: Polly Shaw of China-based Suntech told an Arizona House Government Committee hearing that massive solar production subsidies and even bigger consumer subsidies were not enough. If the Legislature passed House Bill 2701 and repealed the Arizona Corporation Commission’s rules that require utility companies to purchase increasing amounts of solar energy over the next 15 years regardless of the projected $1.2 billion cost to consumers, her company would pull its operations and a few dozen jobs from the state.

The Committee rejected her threat, approving the bill 5-2. But the next day, Governor Jan Brewer and Speaker of the House Kirk Adams, who co-sponsored the bill before deciding to kill it, successfully pressured the primary sponsor, Representative Debbie Lesko, to withdraw it.

Solar may be the most-subsidized industry in America, and is perhaps the only product that the Arizona government forces people to buy regardless of cost or technological feasibility. Solar doesn’t yet make sense as a wide-spread energy policy, and the mandates vastly exceed the Commission’s rate-making authority. That is why the Goldwater Institute is challenging the rules in court and 51 legislators co-sponsored the bill that would repeal them.

So, the solar lobby invoked the one word that will make normally sensible elected officials do crazy things: jobs. Yes, Suntech will employ 75 people. But between the lavish subsidies and costly mandates these may be the most expensive jobs ever created. Nevertheless, the strategy eventually worked; the bill is dead for now.

Suntech’s Shaw claimed the bill would “obliterate the demand for solar,” which may be true if that demand primarily is government-created. Mandate-based industrial policy didn’t work out well in the Soviet Union and it won’t work in Arizona. What’s especially perplexing, though, are the supposedly “pro-market” politicians who think its time has come.

Arizona should stop spending more and more in a frenzied competition with other states over who can give the biggest subsidies to solar and instead create a favorable tax and regulatory climate for all businesses, large and small, in any industry.

Clint Bolick is director of the Goldwater Institute Scharf-Norton Center for Constitutional Litigation.


Comments

  1. Stephen Kohut says

    Let’s see here, the Brewer and Adams want the AZ electric utility customers to subsidize solar power that costs $0.40/Kw-Hr to produce instead of buying that nice, cheap nuclear, coal, hydro, and gas power that costs $0.02~$0.07/Kw-Hr to produce all to save 75 jobs that wouldn’t exist with the government mandates and subsidies at an annual cost of HOW MUCH? Who needs Dimocrats in office when you have RINO’s. Anyone who knows anything about capitalism knows to let the marketplace decide on how products (energy here) should be produced most competitively.

  2. Cola drinker says

    Uh, what about the government protection that props up the Goldwater Institute and their avoidance of income taxes by characterizing themselves as a tax-exempt organization.

    Complain all you want about the solar subsidy, but please give equal consideration to whether we’d have that natural gas and nuclear “market” if not for similar subsidies.

  3. First, Mr Kohut, typical solar PV on a residential rooftop costs (before any incentives) about $0.20/kWh at the retail level (where it is produced and used). This compares with ~$0.11 average cost/kWh (over a 24hr period) from APS at a retail level and ~$0.20/kWh for on-peak, summer usage. And the APS and SRP costs reflect current and historic incentives enjoyed by gas, oil, coal, hydro, and nuclear.

    Second, the total number of jobs in AZ in the solar (PV and DHW) industry is probably about 3000. Those are the jobs at stake — not just the 75 at Suntech/Goodyear.

    Third, solar (both PV and DHW) have been around AZ for 30 years with and w/out government incentives and will continue to be either way. The current incentives that have resulted from the ACC’s REST have greatly accelerated the solar industry which should give the state a solid foundation to build on when PV grid-parity arrives (2015? @ $0.15?/kWh). (I’m not sure on the impact on DHW and other solar thermal technologies (e.g. cooling) but I see the same trends on a smaller basis.)

    Fourth, if the effects of current and past subsidies of the conventional electricity were removed, real-time pricing were implemented, and the true costs of water usage at all thermal plants (inc. nuclear and solar thermal) were taken into account, specific solar incentives would probably not be needed. I wonder if the Goldwater Institute would be willing to push for the changes needed for that sort of a level playing field.

  4. What about the amount of money the state spends per year propping up the residential and commercial development industry?

    Anyway, it is hard to take this article seriously when it compares these actions to the Soviet Union. I mean really, that is just silly.

  5. Stephen Kohut says

    Ken,

    Having been in engineering/management positions for two of the ten largest industrial electricity users in AZ, one with its own major power plant, the other with gas cogeneration and a solar field, having access to PV OEM data, I’m an very familiar with the producer cost structure of the power industry.

    The numbers I quoted are the typical fully loaded US producer costs per KwH, not retail sales figures. These figures are very close to European fully leaded producer costs per KwH recently published in the WSJ.

    The numbers are that brutal and stark. Without massive ratepayer/taxpayer subsidies solar only works for situations where a grid connection is not financially feasible and there si no other cheaper alternative. No subsidies, no PV. That’s how it works out. The only green power that is directly competitive with nuclear/gas/coal/hydro is geothermal at about $0.06/KwH. Wind is the next closest but at $0.15/KwH it is also not directly competitive. The only reason there are PV solar, wind, etc. industries is because of government mandates and forced subsidies. That’s the simple truth.

    I for one have no desire to pay for or subsidize expensive power for another’s undeserved profits or “green” feel good mantra. It’s about the money Arizonans are shelling out needlessly.

  6. Bob Bohanon says

    Ken, you obviously have a stake in the solar industry. Most of us do not stand to make anything on solar and find it a waste of taxpayer’s money. Too much hype about solar. Keep trying to convince yourself you aren’t wasting our money and time.

  7. Stephen,

    I appreciate your objective input and your background. Calculating the costs are, as you know, not as straight forward as one would like. However, take a 5kW system that costs $30,000 and produces 9000 kWh/yr. At a (high) 8% after tax cost of money over 30yrs, the annual cost is $2666 or $0.296/kWh. At 6% it’s $0.242, at 4% it’s $0.193.

    Many of our customers (yes, I am in the business and was even before the utility rebates existed) are in a ~40% marginal tax bracket. If they finance the system cost from savings or secured by their home, their effective cost of money is ~60% of the nominal cost, so 4-6% is not uncommon.

    Their savings is at a retail level just as it would be if they replaced their A/C unit with a more efficient one.

    Check out APS’ new Time Advantage peak rates at $0.19825 and $0.24445/kWh (plus tax!).

  8. Stephen Kohut says

    Ken,

    The numbers still come out to $0.38/Kw-Hr.
    First, no system lasts 30 years. They have a 20 year live. Seconds, let’s look at unsubsidized installed cost, which is about $45K for 5KW and run the numbers.

    Average system costs = $95 per square foot
    Average solar panel output = 10.6 watts per square foot
    Average solar energy system costs = $8.95 per watt

    Let’s make two calculations to measure the total electric energy output over the lifespan of the solar energy system. The first adjustment is to convert solar direct-current (DC) power to alternating current (AC) power that can be used for household appliances. The conversion of DC to AC power results in an energy loss of 10 percent for a solar energy system. The second calculation is to approximate total electric output by multiplying the average peak hours of sunlight (about 3.63 hours per day) times 365 days times 20 years (the product lifespan).

    For our 5-KW solar energy system costing $45,000, the conversion to KWH is as follows:

    5 KW times 90% = 4.5 KW – (Conversion of DC to AC power)

    4.5 KW times 3.63 hours = 16 KWH per Day

    16 KWH x 365 = 5,962 KWH – (Average Annual Output)

    5,962 KWH x 20 years = 119,246 KWH – (Total output over 20 year lifespan)

    So a $45,000 5KW solar energy system produces about 119,246 KWH of electric over its lifespan meaning the average cost equals $0.38 per KWH. ($45,000 divided by 119,246 KWH).

    It’s a dud without massive ratepayer/taxpayer sunsidies.

  9. Stephen,

    We are regularly installing residential systems in the Phx area for less than $6/Wp. That is the gross price including city sales tax and permitting fees. The utility incentive is about 50% as you know; fed tax credit is 30% of the remainder or 15% of the total.

    Check PVWatts on the NREL web site for a good calculator of AC production and a good explanation of the numerous derating factors.

    BTW, I have some PV modules that I bought as factory seconds in 1984 that are still working just fine 25+ yrs later. It is the inverter which has a shorter life and will usually need to be replace once during the design life of the system.

    (Your rough calc should be about 78% DC-to-AC derating and 6.3 hrs/day, gives 8968 kWh/yr. By your methodology, with a $30,000 capital cost, it works out to ~$0.17/kWh.)

  10. This solarization push hurts the poor, lower middle class and middle class the worst because the deliberate structuring of punitive rates on cheaper energy to make expensive solar more “attractive” or “competitive” is going to put a number of people on candles and wood heat.
    We had to bail out an elderly woman last year because she was on two forty watt bulbs, and an electric blanket – no household heat whatsoever. She was on $400 a month Social Security, barely eating then. The place looked like a cave, it was so dark all the time. She would boil and filter one thermosful of coffee and drink it for two days until it ran out, stone cold and a day old. We couldn’t believe she’d only be getting $400 a month so we shipped her off to Social Security to get it corrected. She came back happy – eligible for Medicaid and got a housing increase… $200 a month. Wow. Through the whole gamut of state services and Social Security and what could she get? $600 a month. Like WHAT can she rent, and eat and pay utilities on $600 a month? Oh, and car insurance? And gas for the car? Forget maintenance.

    No way in hell is she or anyone in her financial situation going to afford rate increases in anything.

    She actually was (WAS, until she saw the numbers) a huge fan of solar, but totally out of the market to buy even a battery, much less even ONE solar panel. These sorts of electrical, oil and propane rate hikes to promote the golden calf of solar will hurt people like her, the elderly on Social Security.

    People worry about the air quality – the first thing that goes will be oil and propane deliveries – the efficient furnances will be OFF and yet heat will be needed on those cold nights … wood.

    Poverty and wood-burning and pollution are very closely associated. What’s the present and the future? Big job losses, housing foreclosures are still rising, nothing’s selling, people can’t relocate and the solar industry and the lawmakers are bitterly clinging to their expensive and luxury ticket pet projects and taxes.

    Solar and energy “efficient” are a luxury of the rich. The punitive rates make the rich feel like they are doing something for “the planet,” but in fact are just crushing those less wealthy.

    The well-to-do hate trailer homes. Maybe if people had more disposable income to keep instead of being sucked dry through artificially-contrived pricing through tax machinations, they’d upgrade.

    There’s always some counter, like “Well, it’s ONLY $60,000 up front or $25,000 up front or $10,000 up front” which displays an ignorance of the financial realities of many people in this state. They don’t have it. But they will be forced to pay more for electricity and heating fuel so that richer people will be motivated to switch to the more inefficient solar.

    We were handed an invoice for $65,000 to solarize out house, $8,000 just for the water heater. Affordable? The guy two houses down has had a house for sale for two years now – $150,000. ABout the same sq footage as ours, so the solarization would be the same. He’s gonna get a loan for more than half the last year before the bubble burst value of his house? No way! No bank will approve that and he can’t carry two loans, his mortgage AND the solar.

    IF — IF we were to do that and then need to sell to relocate, in THIS housing market of collapsing prices, there is NO WAY we’d be able to recover that cost in the price of the house.

    Progressivism: Always punitive, never positive.

  11. Stephen Kohut says

    KEn,

    Get off the subsidy band wagon. That’s the problem! I and no other taxpayer/ratepayer wants to pay for otherwise expensive and noncompetitive infrastructure. Without throwing other people’s money at this, its a dog. I’ve had more solar contractors than I ever wanted to meet trying to sell my company a commercial PV install. Guess what? The numbers don’t work there either.

  12. Stephen,

    I have appreciated the fact-based dialogue on costs, etc. As for your last comment, I am not a big fan of subsidies either. However, are you (and the Goldwater Institute) willing to fight for the revocation of subsidies going to conventional energy sources (and price adjustments to pay the gov’t back for past subsidies from which conventional sources still benefit)? What about real-time pricing of electricity (which is really a service rather than a commodity even though we talk about costs/kWh)? What about subsidies for water here in the desert including water used by the thermal power plants?

    Solar subsidies have been falling fast (e.g. APS from $4/Wp in 2005 to less than $3/Wp in most cases today). They will continue to fall and will probably disappear in the 2015-2017 time frame at which point they will not be needed. Do we want AZ to be well situated at that time to take aggressive advantage of inexpensive solar PV or would we rather be playing catch-up and stuck for the medium term with expensive natural gas-produced electricity? Please do check the most recent APS time-of-use rates to get a glimpse of the future (e.g. super peak, July-August as high at $0.49/kWh in effect this year).

  13. Stephen Kohut says

    I will be working to get the subsidies and renewable mandates killed in both the legislature and Corp Commission. Step one is getting the right candidates through the primary, which does not include Barry Wong.

    The reason for future massive rate increases IS mandated costly renewable energy not the lack of it. Get real Ken and stop trying to sell people on your subsidized green energy heroin by telling them how good it makes them feel and that someone else will pay for it.

Leave a Reply