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How to Make the Sun Shine on Solar Energy
by Stephen Slivinski (Goldwater Institute Senior Economist)
Recent news from the solar industry includes headlines about Germany cutting solar subsidies and Arizona-based First Solar laying off 30 percent of its employees.
First Solar’s move comes despite a grant of $16.3 million from the federal government’s Export-Import Bank in 2010 to expand one of its factories in Ohio. To sweeten the pot for First Solar, the Ex-Im Bank guaranteed more than $400 million in loans to St. Clair Solar in Canada to buy solar panels from First Solar. It turns out that the Canadian company was a wholly-owned subsidiary of First Solar, so the U.S. government was subsidizing the company to manufacture and then purchase its own product from itself. Even with those heavy subsidies, First Solar is still dimming.
Like the U.S., Germany has offered generous solar subsidies in the past. But now with substantial solar-energy capacity – perhaps too much to persist without subsidies – and serious economic trouble, Germany is cutting its solar subsidy programs.
Solar companies and governments seem to be learning a basic economic lesson. Duke economist Michael Munger explains, “if an activity is profitable, it produces more in value than it uses up in costs. If an activity is not profitable, it uses up more in resources than it produces in value.” If subsidies bolster a company’s bottom line, then the market signal of a company’s profitability is “fake, and the activity still uses up more resources than it produces in value.”
In the end, doing away with subsidies may lead to a brighter future for solar energy. Subsidies have shielded solar companies from competition and sometimes protected flawed business models. It’s too soon to tell whether the solar industry can be a viable long-term energy producer in a cost-effective and economically efficient way. But we may never know if we continue to protect it – and other energy sources – from competition.