Solar electricity subsidies will pay off in the long run

International climate change negotiations came and went at Cancun in Mexico in November 2010, but with ongoing opposition at that level and to a Federal carbon price or tax, unexpectedly large numbers of concerned Australian families have decided on direct action, such as taking advantage of federal and state grants and feed-in-tariffs (FIT) to install solar electricity units.

Yet, the popular Federal Government Photovoltaic Rebate Program (PVRP) and Solar Homes and Communities Program (SHCP), the now reduced NSW Solar Bonus Scheme and the ACT government’s solar feed-in program have recently been criticised as forms of class-warfare that do little to either assist electricity supply, greenhouse gas abatement, or the creation of a photovoltaic (PV) industry in Australia.

Calls have even been made to discontinue such PV schemes as the major cause of rising electricity prices

A recent paper by MacIntosh and Wilkinson published by the Australia Institute claimed that that 66% of successful federal PV grant applicants were from medium-high socioeconomic status (SEC) postal code areas on ABS statistics, creating an "equity problem". Yet, this program in its later years was means-tested to families with a combined income under $100,000. Further, postcodes can only give a very imprecise estimate of extremes of social status and do not take into account the actual income of the applicants.

In addition, under the NSW solar FIT scheme the highest rate of installations were in the lower SEC western suburbs of Sydney and the highest numbers per locality were recorded in country areas (ordering systems of an average size of 2.8kW, compared to 1.9kW in the city).

Such subsidy schemes were and are open to community organizations as well as small and medium businesses, not just households. Renters can participate in community owned solar parks and windfarms (as occurs under solar FITs in Spain, Germany and Denmark).

Finally, the inequity argument fails to take into account the comparatively massive amount of direct and indirect assistance taxpayers have provided for decades to the fossil fuelled electricity and transport industries.

Criticism that PV contributes little to total electricity or greenhouse gas abatement, could have been predicted at the inception of each scheme (given the miniscule support for the sector at that time) and do not estimate the outcome should significant percentages of the total population begin to use PV.

In 2010 the annual growth in the solar PV sector in 2010 was between 115% and 141%, led by residential solar, with between 170 and 190 MW of capacity added.

The International Energy Agency’s predicts solar PV will provide 5% of global electricity by 2030, rising to 11% in 2050.

Criticism under this head also fails to take into account, as ACT environment Minister Corbell pointed out, rapid advances in PV efficiency and new technologies. These will soon include nanotechnology domestic solar into ethanol fuel innovations. The criticism additionally utilises flawed analysis of future PV and electricity costs.

The cost of solar panels is rapidly decreasing due to R&D investments and high industry competition in a $60 billion global PV industry growing at 40%pa for over a decade- down from $12,600 per kilowatt in 2009 to $6,000/kW in 2010 ($17,000/kW in 2001).

Professor Eicke Weber, director of the Fraunhofer Institute, Germany's premier solar research institute states that with each doubling of the globally installed PV volume, the price comes down by about 20%. Dr Rob Gross, a director of the UK Energy Research Centre has likewise claimed that PV is one of the most promising technologies in terms of long run energy cost reductions.

Additional benefits of PV include avoided transmission losses, distributed generation, driving solar market growth, lower wholesale power prices due to the merit order effect, as well as avoiding other environmental damage from coal fired generation such as mercury pollution and toxic waste ash disposal problems.

PV does not just provide greenhouse gas abatement. It also provides particularly clean electricity, produced in peak at the daytime peak time of use, particularly in summer when air conditioners are in use.

Corporate interests in NSW seeking to insulate their profits against the possibility of a carbon price and the costs of updating and improving the electricity network have started a scare campaign about rising electricity prices supposedly being due to solar power.

However, the FIT in NSW is not responsible for anything other than a tiny proportion of electricity price rises. There is simply not enough solar PV installed yet to make any significant change to the total electricity price. The impact of feed-in tariffs on consumers will be very small (in NSW $7 per year, in Germany, 3E per month) compared to the cost of big investments in carbon capture and storage, nuclear power.

Other forms of energy market support will add billions per year to taxpayers bills, with little or no chance of being rendered cost-neutral. Nuclear waste alone would add more than $5 billion a year to its cost in Australia.

Certainly, after two years of dramatic falls in the price of solar panels, the NSW feed-in payment required some adjustment. However, instead of tweaking the feed-in tariff, the NSW government slashed it from 60c/KWh to 20c/KWh. This drastic application of the handbrake has led to layoffs and cancelled orders.

If Australia is to learn about feed-in tariffs it needs to review the German model, not using hard caps on installed capacity or slashing the rate of payments, but with a system of flexible, gradual and advertised degression of rates over time.

Microgeneration of electricity by cutting across the control that large corporates have over important areas of social policy will be an important step towards more community-oriented and more rational (less profit-focused) social and environmental policy.

Solar PV support circulates money in local communities, enhances public engagement (including greater energy awareness potentially leading to demand reduction), diversifies the energy mix, reduces dependence on (imported) fossil fuels; leads to greater energy security at the small scale, enhances business and employment opportunities in developing and deploying renewable energy technologies and avoids or reduces losses through transmission/distribution networks.

Over time in Australia, we will find that tax revenues from a growing solar energy industry will become higher than support payments to solar electricity generators. This point had already been reached in Germany by 2008. At that point direct and indirect tax revenues from the solar industry and their employees amounted to three billion euros, whilst payments to solar generators under the feed-in law (EEG) amounted to two billion euros.