Solar Power - How About A Level "Playing Field"?

Submitted by Charles Frost on Thu, 05/31/2007 - 13:21.

It is unimaginable to me that a technologically advanced civilization would readily commit environmental and economic suicide when we have most of the necessary clean tech tools already developed. Not effectively leveling this cost comparison playing field now is one step closer to that potential unimaginable outcome.

Photovoltaic Cost Comparisons - Amtrak and 2-4x MythDave P. Buemi, Prescient Marketing

On board an Amtrak train returning from New York recently, I thought about the state of funding for the rail service and the conundrum Amtrak management finds itself in every budget cycle. During the federal appropriation process there is a cry from many in Congress about not subsidizing a rail service that they say can not make money and is not cost effective. And yet if Amtrak received federal subsidies on par with what air and car travel receives, it would be highly profitable, convenient and utilized by a much greater cross section of the population.

But, you ask, what could Amtrak funding possibly have to do with solar cost comparisons in the energy industry? A lot, as it turns out. At a recent venture capital forum I heard some funding experts go on about how they would not invest in solar technology until photovoltaic (PV) solar products could compete with grid power without having subsidies applied. (Judging by recent investment activity, clearly they are in the minority) Many media outlets report weekly about how PV is too expensive, regurgitate a much-used statistic that PV costs 2-4x more than utility grid power which limits wide scale adoption. The fossil fuel and nuclear industries churn out PR about how renewables, in particular solar, are just not cost effective and only the most green-minded people will pay the premium to feel good about themselves. But as with the Amtrak situation, the solar industry is not playing on a level playing field.

It used to be that the railroads received enormous federal subsidies, but that was before the airlines and the industries associated with car travel put up bigger lobbying efforts and now command significant taxpayer money that prop up their highly subsidized business models. Amtrak is not profitable because it doesn’t receive adequate government support. The railroad operator receives roughly $2B each budget cycle. A mere pittance when you consider that the FAA is essentially one large subsidy for the airlines with a yearly federal budget of $15B+ and embedded federal subsidies for travel by road run about $47B+ annually. Clearly when some of our erudite congress people say things like “Amtrak is a waste of taxpayer money” and “It can never be profitable or compete with other forms of travel” they are blind to the serious subsidy inequities and market skewing that their own legislative chambers have created over the years.

The same subsidy inequities and resulting market skewing exists for renewable energy products that are constantly compared with highly subsidized energy from oil, coal, natural gas and nuclear. In particular, solar PV industry’s raw $/kWh cost (no subsidies at all) is continually compared to the cost of energy from coal fired utilities which have an enormous amount of embedded government subsidies throughout the generation and delivery value chain.

Consider these direct energy market interventions as a result of government policy (federal, state and local) pointed out by the highly esteemed Carol Werner of the Environmental and Energy Study Institute in her report “Subsidies: Historic, Current and the Skewing of Market Signals”:

  1. grant of access to domestic onshore and offshore resources
  2. direct budgetary outlays for R&D and resource assessments
  3. government ownership of energy enterprises or supporting service organizations
  4. import/export restrictions
  5. provision of market-related information
  6. below-market provision of loans or loan guarantees
  7. direct regulation of wholesale or retail energy prices
  8. purchase requirements and regulations that alter rights and responsibilities in energy markets or provide exemptions to certain actors
  9. provision of insurance or indemnification at below-market prices
  10. special tax levies or exemptions for energy-related activities

This unbelievable number of subsidies, incentives and outright giveaways are applied all the way through the energy lifecycle, including the phases of research and development, extraction, transport, production, consumption and decommissioning and are extremely difficult to uncover, define, track and assign a value.

A small number of the less hidden examples are included in the publicly available 2005 Energy Policy Act:

  1. the Department of Energy’s R&D budget for 2005 – 2009 give fossil fuel lobbies $16.1 billion which is 89% of the agency’s total R&D budget
  2. The nuclear industry receives “risk insurance” totaling $2 billion if they have to deal with permitting or regulatory delays in construction of new reactors as well as loan guarantees of $1.25 billion.
  3. The coal industry benefits from loan guarantees and $2.9 billion in tax breaks in this budget.

These market interventions are overwhelming in magnitude, highly complex to parse and attribute, and remarkably, only tell part of the cost comparison inequity problem. Add the external costs of environmental degradation, enormous health related and military costs and you can see that the statement that “PV is 2-4x more expensive” than fossil fuel and nuclear energy is just plain outrageous:

  1. A study by PACE took a stab at quantifying the highly complex external costs to health and environment as a result of power plant sulfur dioxide, nitrous oxide, particulate and CO2 emissions pollution. Alarmingly, in this study a coal burning power plant’s health and environmental cost is 2.8 – 6.8 cents/kWh as a result of emissions (not included on your electric bill, but paid for in high health insurance, and health care costs, increased taxes, habitat loss, food chain damage, as well as lower quality of life and ultimately 300,000+ deaths directly attributable to these emissions).
  2. Without considering the enormous extra cost as a result of wars in Iraq and Afghanistan currently, about $49 billion ($10.75 per barrel or $0.25 per gallon), is spent by the U.S. military, ANNUALLY, to protect our strategic oil supplies in the Middle East. (This money is indirectly protecting terrorist organization’s funding mechanisms that attack the United States and our allies every time we purchase their oil and send wealth back to the Middle East. Non-monetarily, the cost to our military families and the soul of our nation when we have soldiers killed or injured is devastating.)
  3. Climate change as a result of emissions from fossil fuel energy use, it is estimated by major insurance entities, will cost the US $68 billion annually as a result of flooding, droughts, severe weather, heat waves, species loss etc.

A recent study by the German Aerospace Centre (DLR), Institute for Technical Thermodynamics and the Fraunhofer Institute for System and Innovation Research (ISI) concludes that photovoltaics, wind energy, and hydro renewables external costs are significantly below 1 € ct/kWh, while power from coal and natural gas average in 5 – 7 € ct/kWh.

These external costs combined with large government fossil fuel subsidies demonstrate that PV is very likely less expensive than current energy production methods no matter where the studies are done. And while most solar companies have strong roadmaps to future performance and cost enhancements coming in the form of thin-film advancements, nanotechnology adoption, silicon wafer advancements and lower cost manufacturing , make no mistake that PV in its current form is significantly more competitive than fossil fuel and nuclear if we simply level the playing field.

The “PV is 2-4x more expensive” mindset is a troubling bit of lore that pervades not just media outside the industry but also inside the solar industry. A recent article by a senior PV company manager states, “With the PV industry 2-4x more expensive than power generated by coal burning utilities, we have to increase efficiency and decrease cost.” I believe it is time for the solar industry to set a new standard for how to talk about PV costs in relation to the marketplace. The industry needs a consistent set of cost comparisons that clearly states the cost (whether retail, wholesale, or manufactured cost) and includes all subsidies and externalities that are not currently accounted for or highlighted adequately.

Dr. Jon A. Krosnick from Stanford University has been studying US citizens’ thinking on climate change and finds that in the last year the number of Americans who believe global warming is the single biggest environmental problem more than doubled. A Washington Post/ABC/Stanford poll find that 70% of US citizens believe our government should do more than it is currently to reduce the effects of global warming in the future and are especially concerned with health consequences from burning fossil fuels.

Undoubtedly the external costs discussed here do matter hugely to the ultimate end user and it is time we as the PV industry succinctly “market” our cost benefits to include all social, health, environmental, and military costs in a standard, concise and understandable manner. A willing customer is waiting to hear from us.

When I say willing, I meant not only willing to hear about PV as an exceptional energy product but also willing to vote for leaders who support one of the main solutions to the global climate change problem. Clearly the Abramoff lobbying scandal changed nothing inside the D.C. beltway. But our willing customer will be more interested in voting for green candidates and pressuring the national and multinational corporations to step up their green posture and pressure government toward renewables. Let’s make sure we arm them with correct information.

Given the recent news that the Artic ice cap is melting much faster than modeling projections, we can waste no more time by allowing old world industries and their mighty lobbying dollar to continue to skew the comparison facts. It is unimaginable to me that a technologically advanced civilization would readily commit environmental and economic suicide when we have most of the necessary clean tech tools already developed. Not effectively leveling this cost comparison playing field now is one step closer to that potential unimaginable outcome.

Dave P. Buemi is President & CEO of strategic business consulting firm Prescient Marketing which helps renewable energy technology entrepreneurs reach commercialization and assists mature RE manufacturing companies with locating new manufacturing facilities globally.


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