Feed-in tariffs are divisive

The implementation of feed-in tariffs has helped boost the rapid adoption of solar power for residential users across the developed world. This seems like a good thing doesn’t it – so why then are feed-in tariff programs becoming more divisive. There are a few different ways of looking at the issue.

Achieving economies of scale

Governments recognised that one of the key ways to ensure that prices per installation of solar cells went down was to actually put up some incentives. In other words short term pain for a long term gain.

The idea is that it sponsors the development of a local installation and management industry, plus it gives manufacturers more incentives to increase the size of their factories to bring costs down, and it also boosts innovation as there is a route to commercialisation for innovators.

The target of all this is an industry that is cost competitive with other forms of electricity generation as delivered to a private residence.

Limited bucket of funds

Keeping in mind the idea of boosting economies of scale, regulators and government realise that there can be too much of a good thing.

This is a very high price subsidy – an order of magnitude higher than the carbon tax. Depending on how the feed-in tariff is structured it is either taxpayers or other electricity network users who are paying.

There is a point at which the benefits become too costly. There is a direct cost in higher electricity prices for someone, and also an opportunity cost in that those funds could be used for other measures in the electricity sector that could have as much if not more of an impact on global warming than solar alone.

When the funds dry up and the subsidies are reduced, as has been seen globally, then a lot of the good work that has gone into building the industry evaporates. In other words there are good questions about how sustainable it is.

Intra-generational equity issues

Here in Australia we have a culture and set of values based on the idea of the fair go. That is treating everyone equally. On top of this in the last 30-40 years there has been a creeping movement towards helping those least able to help themselves.

Feed-in tariffs are the antithesis of commonly accepted values in society.

They favour the already well off. Even with the subsidy  to get a decent sized solar installation domestically means quite a few dollars. Subsidies for the rich generally don’t last too long in most countries.

 The poor are paying the subsidy for the rich. It doesn’t matter how you slice it and what sophistry you use, it is the rest of society that pays for the subsidy for the relatively well off.

To put that in political terms, if you are receiving a subsidy you will vote for it, if you are paying for a subsidy you will vote against it.

Wrong time of day

Affordable, easily maintainable batteries or other forms of storage are not yet readily available for domestic solar users.

So the majority of generation occurs at a base load time of day where it is probably not going to make a huge difference. Yes, there are some network benefits, but on the flipside there are issues with fossil fuel based generators operating below maximum efficiency meaning that emissions per unit of electricity are higher than optimal.

And, when it is cloudy we still need just as much electricity, which means that we need fossil fuel based power in reserve. Even if such power sources are held in reserve, we still need to pay for the capacity and availability of it in our power bills.

Sunnier is not always better

For silicon based solar cells higher temperatures are not a friend to electricity generation. The same way that the CPU in your computer needs to be cooled in order to operate effectively, if a solar cell gets too hot it generates less electricity. In other words, building large arrays of solar panels in the desert or up north is not as effective an outcome as people think.

Feed-in tariffs can work for other technologies too

One more recent view is that the network benefits (i.e. increases in efficiency in the distribution network that brings electricity to your home) should be taken into account in valuing the cost of solar.

To a point this is absolutely correct – by increasing distributed generation within the grid it may indeed help the network operate more efficiently with lower losses.

However, too much distributed generation can require network upgrades – a cost, which should also be counted.

And, don’t forget many attempts at distributed generation before solar have faltered at the inability to come to agreement with distribution network operators as to the price of that benefit. Strictly speaking I could whip off down to the local hardware store and buy a small petrol powered generator and put it into the distribution network at peak hours when solar isn’t making a contribution. Shouldn’t I too get a feed-in tariff for this?

From the distribution network company side of the fence actually pricing and measuring network benefits is a major nightmare which would cost a fortune to design, implement and operate.

So, claiming network benefits solely for solar is a bit of an overreach .

The solar cells may not last as long as we think

The aim of government was to bring prices down. Well, that has worked, but are we getting what we paid for?

Good manufacturers try to balance cost, efficiency and the length of service.

However, the average person is just going to look at price and go for the cheapest option.

Therefore, quite a lot of the solar capacity is not going to last as long as people think.  From a purely monetary point of view this is captured by less generation meaning less subsidy. However, it means a decreasing level of effectiveness for this as a climate change solution.

The sun gives us energy for free and we need to be doing what we can to harvest energy as efficiently and cost effectively as we can. However, the feed-in tariff mania is both helping and hindering the cause. We need a sustainable solar industry - not boom and bust.

Note: I work as a project and energy economist with companies and governments on geosequestration,wind, geothermal, hydro, wave, transmission networks, coal seam gas, coal,and more. The views expressed in this blog are solely my own and do not represent the views of any organisation that I do work for.

Should we put warning labels on government policy?

• Smoking is harmful to your health
• Alcohol is harmful to your health
• Every K over is a killer.
• Wear your seatbelt or say goodbye to your loved ones.

Let me start by saying that I do believe there is a role for government in helping people understand the long term consequences of their actions - as long as it doesn't become a nanny state.

I would like to start a counter-revolution by suggesting that we need to put a warning label on government policies and projects. These could be put in bold letters at the top of memos and policy documents.

Graphic pictures could be good too. How about a derelict factory overgrown with weeds for every policy that harms business.

Here are some initial ideas.

1. For every $10,000 in bonds issued all sitting MPs and their unelected advisors should receive a written warning along the lines of, "Excessive debt is harmful to the future economy of the State".
2. For every clean energy scheme we could have, "Diversion of excessive funds into feel-good high-cost schemes may help your popularity polls but is committing the country to years of funding white elephants. Think about your children. Even better, ask your elderly parents if they can afford the increase in electricity price on their pension."
3. For every national park created we could have, "Just because our ancestors thought this land was worthless doesn't mean that it won't have value for the future, please allow a reasonable means for the local community, business or agriculture to claim usage in the future"
4. For every statement about moving to a sustainable basis we could have, "The consequences of sustainability in practice is the death of hope and the throttling back of ambition. Do you want to live in that future?"
5. For every proposed tax increase we could have, "Spending other people's money without asking them first really pisses them off. Think about what you are really trying to do, and think about shrinking the public service a bit first."
6. For every new Act or Regulation we could have, "Ignorance is not a defence under the law. Given that it is not possible for any citizen to read let alone memorize the half a million or more pages of legislation in this country, just what are you trying to achieve by enacting hundreds of more pages of legislation?"

I am one of those evil people who quantifies and models everything I can. However, I find it utterly weird that I am the only one in the room who asks about consequences and indirect financial costs.

For example, high prices for public transport penalises precisely those people who can afford it the least - those who live on the margins of the city but commute to the centre.

Toll roads may be a great way to fund infrastructure, but the whole economy benefits from better infrastructure (within reason) - so why focus on user pays. I have this same thought on a lot of issues which now follow the user pays fad. If it is a public good then it should be publicly funded.

Sure we might want to increase the use of bicycles and public transport by deliberately underfunding roads and the traffic light system, but have you thought about the massive cost to society caused by traffic jams. People are late to work, they get high blood pressure sitting in the traffic, deliveries cost more, pollution is worse, more carbon dioxide is released per person kilometre, more time commuting means less time with your families, etc.  Bring on the highways I say.

To any government readers I would say that it is time we brought back meaningful cost-benefit analysis for government policy in order to determine and rank the level of public good that will come from policies and then communicate that to the public.


Note: I work as a project and energy economist with companies and governments on geosequestration,wind, geothermal, hydro, wave, transmission networks, coal seam gas, coal,and more. The views expressed in this blog are solely my own and do not represent the views of any organisation that I do work for.