Study: Despite Subsidies, Solar Power More Expensive

Barbara Hollingsworth | October 19, 2016 | 10:40am EDT
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Workers installing solar panels. (AP photo)

( –  Sunlight is free, but harnessing solar power to make electricity “remains considerably more expensive when compared to conventional electricity sources such as coal, natural gas, or nuclear,” according to a new study commissioned by the Institute for Energy Research (IER).

“While utility-scale solar has proven more efficient than residential solar installations, both continue to lag behind traditional electricity generation methods that are able to generate greater output per dollar,” according to the study, entitled The High Cost of Rooftop Solar Subsidies.

Solar power remains more expensive than electricity generated from conventional sources despite generous government subsidies estimated at more than $39 billion annually.

The subsidies include a 30 percent federal Solar Investment Tax Credit which was initially set to expire at the end of this year, but was extended to 2019 by Congress in exchange for lifting a 40-year ban on the exportation of crude oil.

In addition, state-level subsidies and Renewables Portfolio Standards, which require utilities to purchase an increasing quantity of energy from renewable sources, provide added incentives to switch to solar power.

But despite the billions of dollars spent on solar subsidies, “solar energy technology continues to remain a high-cost energy option – making up just 1% of U.S. and global electricity generation,” the report concluded, with residential rooftop solar panels being the “least efficient method” to harness solar energy.

 “The federal Solar Investment Tax Credit, state renewable energy certificates, and net metering programs lower the cost to rooftop solar users, but shift those costs to taxpayers and ratepayers,” IER communications director Chris Warren told “In many states the subsidies surpass the cost of the project.”

The government incentives also force non-solar utility customers to “cross-subsidize” those who can afford the high cost of installing solar panels (which can range up to $25,000 -$35,000 for an average home) because solar users still need to be on the grid for back-up power when the sun doesn’t shine, the report pointed out.

Utilities that use “net metering” – in which customer-generated solar power is sold back to utilities at retail prices – “face unsustainable increases in cost” by “allowing solar customers to bypass grid maintenance costs, as well as by imposing additional operating stresses given that grids must transition from one-way power flow, from centralized generators to users, to a decentralized, two-way power flow…[that they] are not built to handle given the current infrastructure,” the IER report continued.

“Adding insult to injury, net metering structures then subsidize this inefficient and cumbersome form of solar energy production, with the retail rate paid by utilities to residential renewable energy producers…. estimated to be anywhere between two and six times the market price for energy.”

The end result is “doubly regressive – non-solar customers, who are primarily less affluent, are forced to not only subsidize costs created by solar customers, who are primarily more affluent, but they must also pay higher prices to help make up for the utilities’ loss of revenue,” the report stated.

That has led a number of states to limit solar subsidies, reduce the retail rate utilities pay rooftop solar customers for their excess power, and allow them to add a surcharge to cover solar customers’ share of the costs of operating the electric grid.

For example, Louisiana state officials found that the “net metering structure resulted in an $89 million negative net benefits to electricity rate payers, meaning the net metering program costs are greater than program benefits, and that over $2 million of utility costs per year were being subsidized by non-solar consumers,” the IER report pointed out

Although solar power is not economically competitive even with government subsidies, under President Obama’s proposed Clean Power Plan, now under appeal, the U.S. would substitute “increased electricity generation from new zero-emitting renewable energy sources (like wind and solar) for reduced generation from existing coal-fired power plants” to reach the president’s goal of a 32 percent reduction in greenhouse gas emissions by 2030.

According to the Energy Information Agency (EIA), the levelized cost – defined as “the per-killowatthour cost (in real dollars) of building and operating a generating plant over an assumed financial life and duty cycle” – of electricity from a new solar photo-voltaic (SPV) plant in 2020 will be $74.20 per MWh, compared to $56.40 per MWh for power from a natural gas plant.

The increased cost of solar power would then be passed on to consumers in the form of higher electricity bills.

And Hillary Clinton’s plan to install 500 million solar panels nationwide during her first term would cost taxpayers more than $200 billion beyond current projections, according to a recent analysis by IER.

"While Secretary Clinton has painted a rosy picture of her plan, this new report shows that with the current federal, state, and local solar subsidies in place, Secretary Clinton’s solar plan will hurt the economy and make energy more expensive for American families—especially the poor and those on fixed incomes," said IER president Thomas Pyle.

In contrast, Donald Trump says he wants to “unleash America’s $50 trillion in untapped shale, oil, and natural gas reserves, plus hundreds of years in clean coal reserves,” telling reporters in May that “the problem with solar is it’s very expensive.”

The IER study pointed out that Germany has more solar capacity than the U.S. “despite the fact that its available sunlight is less than that of any U.S. state barring Alaska.”

But despite Germany’s huge investment in solar power, it “has not produced several of the benefits consistently associated with subsidizing solar energy technology, such as energy security, employment, and positive environmental impact,” the report noted.

“Rather, environmental impacts have been minimal and net employment is likely to be in the negative due to high opportunity costs associated with the incentivizing of solar energy production.”

“In Spain, where a similar renewable energy structure has been implemented, it is estimated that ‘each green job created led to the loss of two jobs in the rest of the Spanish economy’,” the report stated.

In the U.K., an estimated 18,000 solar jobs were lost when the British government cut solar subsidies.

Related: Solar Generated Less Than 1% of US Electricity in First Half of 2016

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