By Gordon Johnson
The fundamental problem with this thesis is that it is impossible to replace distributed (i.e., power this is accessible equally at all times of the day) baseload (i.e., energy produced at a constant rate) nuclear power with intermittent (i.e., energy that is only accessible during certain times of the day) peakload (i.e., power sources that provide the most output at select times of the day) solar power. Furthermore, given nuclear power costs roughly $0.015/kWh, while solar power costs closer to $0.25/kWh, if all of the world’s nuclear plants were to be replaced by solar plants, the cost to the rate-payer would go up by nearly 25x (we do not think this would bode well in countries facing high unemployment – U.S., France, Greece, Spain, Italy, Germany, etc.). Stated more simply, if you were to replace the world’s nuclear power with solar power, you would only have power during the day when the sun is shining the brightest (if a rain storm, or large cloud, happened to pass over, you would suddenly not have power – this could be a problem in less sunny regions). In addition, your cost of electricity would rise by roughly 25x. Under this backdrop, it seems many of the arguments suggesting solar energy can replace nuclear are delusional at their core.
Now, to the question posed in the heading of this entry: Are solar power incentives a nasty regressive tax on the poor/misinformed? Well, first, it may make sense to know what a regressive tax is. More specifically, in terms of individual income and wealth, a regressive tax imposes a greater burden on the poor than the rich – there is an inverse relationship between the tax rate and the taxpayer’s ability to pay as measured by assets, consumption, or income. Stated differently, a regressive tax tends to reduce the tax burden of people with a higher ability-to-pay (i.e., the rich), as it shifts the burden disproportionately to those with a lower ability-to-pay (i.e., the poor).
Thus, the cost to the utility appears to be significant, right? Well, it’s not that simple. That is, what the utility does when it pays the person who is using the renewable energy under a FiT program is simply redistribute the difference in what it is paying the renewable energy user (i.e., $0.35-$0.55/kWh) and what it pays for more traditional forms of energy (i.e., $0.045/kWh) to all of its ratepayers; in essence, the utility is not paying the exorbitant cost of incentivizing solar, but rather the collective ratepayers in any region which implements solar incentives are. This begs the question… can’t everyone equally share in the benefit of this structure? Well, unfortunately, due to the high cost of solar, the answer to this question is no. What do we mean? Well, when considering at present, the cost for a solar system is approximately $5.50/watt, and the average home installation is 5.5kW, the cost to anyone considering such an installation is $27,500 up front. Furthermore, given a solar system is a 20-year investment (meaning the returns on these systems are calculated over a 20-year period), the first 5-to-10 years of your investment in a home solar roof-top system, you will be cash flow negative. Admittedly, for those ratepayers in a FiT area who have a spare $27,500 to invest, which they don’t need access to in 5-to-10 years, an investment in solar makes a lot of sense (you are paid to use power). However, for the bulk of Americans who do not have a “spare” $27,500 to invest over a 20-year period, for which they will be cash flow negative for 5-to-10 years, solar is not an option. Despite this, however, because the utility redistributes the cost of solar to all ratepayers, whether you are using solar or not, you are paying if you live in a state that has significant solar incentives (i.e., California, New Jersey, Florida, North Carolina, etc.). As such, despite you not being able to afford putting solar on your roof, you are effectively being forced to subsidize your “rich” neighbor who does have the resources to put solar panels on their roof. Stated differently, a solar incentive is a form of a regressive tax on the “poor”. This begs the question… do many of the “poor” people in the States who have passed solar legislation understand this dynamic? Likely not.
When you add to this dynamic the fact that the majority of solar modules are produced in China, with U.S. solar module makers First Solar (FSLR) and SunPower (SPWRA) producing the majority of their panels in Malaysia, Germany, and Vietnam, the idea that solar installations in the U.S. create American jobs is another mistruth (this is an understatement). In fact, First Solar’s 290MW Agua Caliente Solar Project, which will receive nearly $1.5 billion in tax-payer funded money from the U.S. government, and is being supplemented, for the most part, by modules produced in Malaysia (thus, effectively, creating jobs in Malaysia using U.S. taxpayer dollars), being constructed in Yuma County, Arizona, will only create 15-to-20 full-time U.S. jobs (a cost to the U.S. taxpayer of nearly $85.7 million per full-time job; this does not appear like a good return on investment for the U.S. taxpayer).
Another form of incentive, more widely used in the U.S., comes in the form of a loan guarantee, or tax credit. While these differ from FiTs, they are effectively the same thing… money taken from the taxpayer used to subsidize high-cost solar power.
In short, the way solar incentives work is by taking money from the poor to subsidize the rich homeowners, businesses, and investors who can afford the high upfront costs of installing solar power (a reverse Robin-Hood structure), which is among the most expensive forms of energy available today. While the solar industry has grown considerably, increasing its lobbying power globally, which in-turn has allowed for a massive expansion in marketing (with the key selling point being you must support solar to stop global warming), it remains among the most costly and inefficient forms of electricity available when observing: (1.) cost/kWh compared to other forms of electricity (i.e., wind, hydro, geothermal, nuclear, etc.), and (2.) usage (solar power is only available when the sun is shining, and declines in output with less intense sunrays and cloud coverage).
While it goes without saying that many of the same people who support solar in the U.S., and other countries, don’t fully understand this dynamic, as they see material spikes in their electricity bills, despite limited job creation associated with the massive solar plants being constructed in their backyards, this could become more of an issue.
NUTSHELL:
This is a wake up call to the American energy consumer market to get over the Post Nuclear Hysteria spreading round the globe. It simply costs too much to replace Nuclear power with Solar. Worst of all, the Solar Power industry seems to create a lot of jobs outside of the U.S. It is interesting to note that China is taking the lead on Solar Power initiatives. When next you hear the argument for Solar as a mainstream power source you want to ask if Solar power incentives represent a regressive tax regime or not.
Very good piece, however there seems to be a general concensus on the fact that nuclear energy though cheap has a lot of negative implications if it goes bad , like the Japanese case. Looking outside the US,I believe that solar and other forms of energy have their place and are increasing in relevance.For the sake of our environment there has to be a shift towards safer forms of energy even in developing countries.
ReplyDeleteI agree with you...but tell that to France- is it not the largest per capita consumer of Nuclear energy? Some may argue that Nuclear can be made safe; further to this is the fact that Solar works only when the sun is up; and there is that issue of the costs. Great point though; as you have said, we should have safe energy. No doubt. Cheers.
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