Sniping at Solar Costs, Ignoring General Electricity Cost Increases

Implications: Feed in tariffs, a way to provide measured funding for photovoltaic and other renewable energy systems, has been successful in bringing these technologies to market.  Paying only for performance, requiring outside financing, steadily reduced rates and caps on rate impacts have enabled solar and wind power to ascend.  Execution of tariffs often lead to political controversy as this Spanish article describes.

Analysis: The change over from producing electricity on a large, centralized scale from seemingly endless piles of ores in the ground to small, distributed systems that harvest energy on an instantaneous basis is tough for economies and societies to swallow.  The transition is costly and tangible benefits are not realized for a long time.  Those benefits have to be articulated by a political leadership that can sell it to a receptive public and not cut and run when things get tough.

Thus was the photovoltaic market created in Germany.  A rare opportunity to combine economic development, environmental improvement and energy security was beginning to be realized at the end of the first decade of the 21st century after over 10 years of reasonably consistent policy and support.  Germany is the first country to generate over 1% of its electricity from photovoltaic power and has the largest workforce in the world in manufacturing and installing solar power.

The Feed In Tariff rate instituted by Germany in the late 1990's set a premium rate that would be paid for photovoltaic (as well as other forms of renewable) electricity over a period of twenty years.   This allowed two controls - first, it recognized that instituting a new technology was costlier than centralized, polluting power plants, but would only pay for what was produced, not provide a grant or rebate for an installation that may not work well or at all.  Secondly, it encouraged financing of the system and mitigated the upfront cost that grants would cause to foster a large market. 

In addition, a cap on the cost that the tariffs was placed to minimize impact on German ratepayers, and the tariff for new systems was lowered each year by, initially 5%, then 8-9%, to encourage more cost effective technologies and installations.  This enabled Germany to be a world leader in PV, in spite of ideological sniping about the German PV industry being subsidized by as much as 60 million euros per year, while conveniently ignoring far larger handouts to the coal and nuclear industries.

The feed in tariff has been replicated in Europe and elsewhere in the world, with Spain having the among the highest feed in rate as well as largest market size.  this has enabled Spain to rocket up to third place in the PV market, nipping at Japan's heels and bypassing the inconsistent US.  The rates and market size were so high, that much of the more expensive German product that couldn't compete domestically against lower cost products like First Solar (FSLR) have gravitated to Spain, taking advantage of up to twice as much sunlight as well as higher rates.

This has caused considerable controversy in Spain over what level to set the tariff and what would be the limit on how much would be installed at that rate.  The rates are likely to be decreased in the next Royal Decree due out in mid-September, but a more important question is how much product will be supported over how long a period of time.  That is what will sustain market development.

A side question in this debate is the accusation that feed in tariff rate is responsible for much of the increase in the cost of electricity in Spain, something not borne out by the facts reported in the article.  Estimates are that the feed in tariff adds 150 to 300 million Euros since institution in 2003-4 to the cost of electricity in Spain, but overall cost increases of electricity in that same time period are on the order of 14,500 million euros.  This has been a common theme criticizing solar and other renewables, where fast buck artists in the "free market" criticize smaller-scale and higher priced renewables, while ignoring the fundamental and accelerating costs of incumbent electricity generation.