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e-Journal

 

Why Not the Sun? Advantages of and Problems with Solar Energy
(Released December 2008)

 
  by Ethan Goffman  

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The Economics of Solar Power

Contents

Without government subsidy, solar is not yet a competitive form of energy. Numerous sources agree that currently, "in direct competition with electricity generated from fossil fuels, solar cells almost always lose" (Derbyshire). Subsidies are needed. "For the expansion of solar energy to be successful," Greenpeace explains, "there must be a clear commitment from governments" (3). Still, such subsidies are expected to be only temporary; solar advocates believe that as technology and economies of scale improve, solar will far outstrip fossil fuels in economic competitiveness.

Solar advocates also point out that fossil fuels have long received government subsidies, that "the oil and natural gas industries received substantial government aid during their early histories and continue to receive tax breaks for exploration, favorable terms for drilling leases on government land, and so forth" (Derbyshire). Bradford estimates that "global government support is currently skewed toward the nuclear and fossil-fuel infrastructure, with about ten times as much money going to these conventional power sources as to all renewables combined" (172).

Because solar provides advantages that the economic laws of supply and demand, in a vacuum, do not account for, many governments choose to subsidize solar as a clean and renewable energy source. Conventional fossil fuels generate costs that the users do not pay for—what economists term externalities—that are shared by the wider community and may occur at a future time. Pollution is the most obvious of these, in the form of harming local air quality, and through generating greenhouse gasses. In addition, fossil fuels are a limited resource that will eventually run out; future generations may therefore "pay" for our use of coal, oil, and natural gas today. The fact that we must deal with often unstable and unfriendly governments to attain fossil fuels is another reason to seek renewable options. Exclaims one solar advocate, "although the investment is high, it is important to remember that the energy source, sunlight, is free. There are no annual fuel or pollution-control costs like those for coal, oil or nuclear power" (Zweibel).

workers on roof
California solar companies say they plan to hire new workers.
Job creation is another argument often put forward for solar power. Indeed "green jobs" have been suggested as a major potential stimulus for the United States' faltering economy. Explains Bradford, "installation jobs cannot be exported: they must remain in the locations where systems will be used. . . . These relatively highly paid, skilled jobs will help sustain an educated and prosperous middle class in any industrialized economy" (164). Green jobs are a major platform of the incoming Obama administration and are popular at the local level; "States are clamoring for renewable energy projects such as wind farms and solar power plants because of the potential jobs they create, in addition to reducing global warming and increasing the country's energy independence" (Yung).

To offset externalities, and increasingly to create green jobs, many governments subsidize solar and other renewable energy. These subsidies occur in several forms. Feed-in tariffs have been the most successful, notably in German. Feed-in tariffs require utilities or consumers to pay extra for solar energy on the grid; the money then goes to individuals who have installed solar. This system incentivizes not only solar installation, but installation of the most efficient solar possible. (Greenpeace 49) Cash rebates and tax deductions are other incentives used for solar energy: "The most direct [incentives] are tax credits and rebates paid to owners of renewable energy facilities. . . . The production tax credit (PTC) is a per kilowatt-hour tax credit for energy generated by qualified energy resources" (Derbyshire). These methods are bottom-up, and "are usually supplemented by renewable portfolio standards (RPS) , . . .a top-down incentive, requiring utilities to obtain some fraction of their energy from renewable sources" (Derbyshire). Often used in the U.S. at a state level, RPS programs are attempts "to set target percentages of renewables in their power-generation mix to be deployed by certain dates" (Bradford 182). RPS programs are an example of targets, which mandate certain measures by setting a cap or definite number. Perhaps the most famous targets were set by the Kyoto Treaty to limit carbon emissions.

The goal of all these targets and subsidies is to make solar energy viable to stand on its own. To do so, greater efficiency is needed in converting sunlight into electricity. That day may be arriving; "inexpensive cells with an efficiency of 20 per cent have become a commercial reality, while in the lab efficiencies are leaping forward still further" (Daviss).

The Growth of Solar Energy

The promise of solar power is seductive in being clean, virtually free once the technology is in place, and seemingly limitless. "The initial investment for solar power may be high but after a few years you have virtually recovered the investment and thereafter pay nothing for the resource" said Pradip Jayewardene, founder of the Solar Industries Association. (Samath)

chart showing exponential rise
Photovoltaic Production Soars.

Location and circumstance play a huge role in deciding just how viable this promise is. "Three factors-real unsubsidized PV system cost, insolation, and cost of grid electricity-determine the likelihood of market growth and maturation in different locations in the industrial world," explains Bradford. (144) In theory, one should be able to balance factors to determine just when solar is cost-competitive in a particular area. A dark country with lots of access to cheap fossil fuel, such as Russia, for instance, would seem a poor candidate for solar, while a bright country with few natural resources would be an excellent candidate. As solar technology improves and fossil fuels become scarcer, solar power becomes viable in an increasing range of locations. In practice, the social values of a country also play an enormous role in when and how aggressively it adopts solar.

Of course cost competitiveness is crucial for solar to coninue to grow, and it is improving rapidly. According to Cambridge Energy Research Associates "a kWh [kilowatt hour] of photovoltaic electricity cost 50 cents in 1995. That had fallen to 20 cents in 2005 and is still dropping" (Economist, Another silicon valley).

chart of solar use for different nation
International Photovoltaic Production.

With better competitiveness and increased environmental concern, solar power is spreading, so that "over the past five years, annual global production of PV cells has increased nearly sevenfold" (Sawin). However leadership in the solar energy has been shifting: "In previous years the manufacture of solar cells and modules was concentrated in three key areas - Europe, Japan and the United States." (Greenpeace 18). The U.S., which had pioneered solar energy, fell behind Japan in the 1990s, when that island nation, lacking local energy resources, pushed solar energy hard and became the global leader. This was largely because "the Japanese residential market has some of the highest prices of grid electricity in the world-an average of twenty-one cents per kWh" (Bradford 136). Where other energy is expensive solar energy is competitive. Recently, Europe, also facing high energy prices and greatly concerned about global warming, has become the solar energy leader: "Europe-led by Germany-passed Japan to lead the world in PV manufacture, producing an estimated 1,063 megawatts of solar cells in 2007, up 56 percent over 2006" (Sawin). Meanwhile, U.S. share has lost ground, comparatively speaking; "In the United States, cell production rose 48 percent to 266 megawatts. Although this represents a dramatic increase in production from the once world-leading U.S. solar industry, the nation's shares of global production and installations continued to fall in 2007" (Sawin).

Germany now has the largest amount of solar energy in the world. The country has heavily subsidized solar energy, in the form of a feed-in tariff, so that "the average annual growth rate between 2000 and 2005 was well over 40%" (Greenpeace 38). Indeed, with Gemany's subsidy, "so many firms rushed to install solar panels in such profusion that the world ran short of the type of silicon used to make them. The price of silicon-and thus of solar panels-rose" (Economist, More Light). Ironically, Germany is an often overcast country and does not get as much out of each solar panel as sunnier locations would. Germany's subsidies are therefore an example of the law of unintended consequences, and of the care that should be taken in developing solar energy.

people dwarfed by massive solar array
BUERSTADT, GERMANY: The roof of a warehouse, equipped with solar panels, is seen on May 13, 2005. The 50,000 square meter system with a capacity of 4.5 megawatts per year represents the largest roof based solar system worldwide.

In the U.S., solar activists complain of complacency: "What we have lacked-and it really is unfortunate because these technologies were developed here-is a national energy policy that places a priority on establishing clean, sustainable, renewable energy as a mainstay of our energy portfolio" (Woodside). California, however, remains notable for its emphases on renewable energy: "Solar power generated in the state has grown from about 3 megawatts in 2000 to 177 megawatts this year, a remarkable 5,900% increase" (St. John). Yet continued exponential growth is necessary for solar to become more than a small player. Even with the recent surge, California still has "only enough to meet about one-third of 1% of the state's peak electricity needs" (St. John).

California is doing better than most places, where solar remains a puny part of the total energy picture. Even though, "solar energy today is recognized as clean and viable . . . it represents just 0.1 percent of the total electricity market" (Wolgemuth). Yet solar is worth following closely for its trend of exponential growth, which is likely to continue or increase. Solar advocates foresee a surge in solar power similar to, but larger than, that currently happening with wind power. Bradford argues that, "the transition to solar energy and electricity will happen much faster than most people imagine, faster even than most experts commonly predict" (14). Given the current energy picture, and renewed calls for green energy, jobs, and infrastructure, this may very well prove true. Yet the exact mix of technical, economic, and political factors needed to spur this kind of growth remains uncertain. We will have to wait to see if solar remains an exotic sideshow in the energy portfolio or heralds a bright new future for the planet.

© 2008, ProQuest LLC. All rights reserved.

List of Visuals

References

  1. Al Bawaba. 2008. Here Comes the Sun: Harnessing Solar Power as a Major Energy Source. Al Bawaba Reporters, January 16

  2. Aldous, Scott. How Solar Cells Work. How Stuff Works. http://science.howstuffworks.com/solar-cell.htm

  3. Bradford, Travis. 2006. Solar Revolution: The Economic Transformation of the Global Energy Industry. Cambridge: MIT

  4. Canberra Times. 2007. More to do to help people go solar. Nov 16, p. 1

  5. City of Columbia, Missouri. Solar Water Heating. http://www.gocolumbiamo.com/WaterandLight/Conservation/SolarWaterHeaters.php

  6. Derbyshire, Katherine. 2008. Public policy for engineers: solar industry depends on policymakers' goodwill. Solid State Technology 51:8 (August), p.24

  7. Daviss, Bennett. 2007. Solar Power: The Future's Bright. Rachel's Democracy and Health News. December 13

  8. The Economist. 2008. Another silicon valley. June 21

  9. The Economist. 2007. Bright Prospects. March 3

  10. The Economist. 2008. Freezing the sun: A double blow for solar energy. June 28

  11. The Economist. 2008. More light than heat: Bureaucratic meddling has harmed solar power. April 7.

  12. Energy Information Administration and Department of Energy. 2006. Solar Thermal and Photovoltaic Collector Manufacturing Activities 2006. http://www.eia.doe.gov/fuelrenewable.html

  13. Flavin, Christopher. 1995. Harnessing the Sun and Wind. USA Today Magazine, November 1

  14. Greenpeace. 2006. Solar Generation: Solar energy for over one billion people and two million jobs by 2020.

  15. Hiserodt, Ed. Solar Power: Not the Brightest Idea. 2007. The New American, September 17

  16. Lund, H. , R. Nilsen, O. Salomatova, D. Skåre, E. Riisem. 2008. The History Highlight of Solar Sells [sic] (Photovoltaic Cells). Norwegian University of Science and Technology. http://org.ntnu.no/solarcells/pages/history.php

  17. National Renewable Energy Laboratory. Parabolic Trough Thermal Energy Storage Technology. http://www.nrel.gov/csp/troughnet/thermal_energy_storage.html

  18. National Renewable Energy Laboratory. 2008. Record Makes Thin-Film Solar Cell Competitive with Silicon Efficiency. http://www.nrel.gov/news/press/2008/574.html

  19. Power Engineering International. 2008. Concentrating solar power starts to shine 16:6 (Jul/Aug) p. 25-27

  20. Takahashi, Dean. 2008. Technology Review 111: 5 (Oct) p. 30

  21. St. John, Jeff. 2006. Let the sun shine on. Solar power booms in California, and more Central Valley customers are hopping aboard. The Fresno Bee, Jul 3, p. F1

  22. Samath, Feizal. 2007. Solar power is the fastest growing energy resource in the world. NoticiasFinancieras. Jun 28, pg. 1

  23. Sawin, Janet. 2008. Another Sunny Year for Solar Power. Worldwatch Institute.

  24. Solid State Technology. 2008. PV and IC industries converge. August 51:8, p. 12

  25. Walsh, Bryan. 2008. Solar Power Hits Home. Time 172:7 (Aug 18), p. 52

  26. Wolgemuth, Liz. 2008. Turning Sunshine Into Dollars; SunPower's efficient cells keep its solar prospects bright. U.S. News & World Report, Jul 21

  27. Woodside, Christine. 2007. Big is Beautiful. E: The Environmental Magazine. May 1.

  28. Youngester.com. 2008. Future of Solar Cells. http://technicalstudies.youngester.com/2008/06/future-of-solar-cells.html

  29. Yung, Katherine. 2008. DTE to invest billions in alternative energy: Utility boosts job-creating industry in state. McClatchy - Tribune Business News, July 13

  30. Zavis, Alexandra. 2008. Power-starved Iraq goes solar; At least for street lamps in Baghdad. Los Angeles Times, Jul 14, p. A.4

  31. Zweibel, Ken; Mason, James; Fthenakis, Vasilis. 2007. A Solar Grand Plan. Rachel's Democracy and Health News, December 20