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.