Can Solar Survive Without Government Subsidies?

20170913_113856“The solar industry is subsidized and can’t stand on it ‘s own and I just don’t believe in industries that can’t support themselves.” This is what I was told by a foundation repair guy doing an inspection of my home. Let me start by saying this employee and the company he works for are awesome, I was very impressed with this individual’s work.  His comment, however, was quite concerning to me. I responded, “Well you understand that the entire energy industry is subsidized right?”. He shrugged his shoulders as if he had no idea what I was talking about then continued to say he just does not believe in solar. For this individual’s sake and the sake of all those out there who may not fully understand, I would like to dispel any rumors out there, stick to the facts, educate people on the history of this subject, and let them make their own educated decisions.

An energy subsidy from the government is not meant to be a crutch, but a catalyst to promote new, efficient, and clean technologies in the energy sector. In the 1700’s when the coal industry was a “start-up industry” they were granted a tax-free status from the government, given incentives for smelting, and protected from outside competition by tariff’s. The coal industry, to this day, receives roughly 5 billion dollars in incentives each year.  These subsidies are not unique to the coal industry; it was estimated that in 2015 global fossil fuel subsidies reached a staggering $5.3 trillion dollars! Therefore, according to my foundation repair guy, the energy industry as a whole is unsustainable and he should not believe in anything that uses electricity!

Now that we have a little backstory to give us clarity, lets move on to the theory that the solar industry is “supported” by these subsidizes and, by my foundation repair guy’s estimate, will fail with out them. Let’s do some quick math to figure out if solar still makes sense for a homeowner if these subsidies were to go away today. The average payback period for solar, let’s say on the high end, is 9-years (some are more, some less). If we then take away the 30% federal tax benefit, in theory, it would increase the price by 30% and therefore the payback by 30%. This puts our payback at 11.7-years. This means that, considering a 25-year system, a homeowner will break even and then be saving money for over half the life (13.3 Years) of the system, or $18,620 of savings! These are better than payback periods for systems with the tax credit just a few years ago and the solar industry was doing fine.

The reality is that we live in a free market and when these subsidies go away and solar becomes 30% more expensive for the homeowner the price of the systems will not remain were they are at. The market, as it does with every other consumer product, will decide the price they are willing to buy solar at and most companies will adjust their pricing accordingly while a few others may fail. This will drop the payback period of 11.7 even lower and closer to where it currently is. As technologies continue to advance the payback for solar will eventual be less than our current payback periods (with the subsidies) which are already very attractive to homeowners and sustains the industry.

I do not want to prove such an awesome guy wrong, but do I think that the solar industry will fail without government subsidies? I guess I do if the entire energy sector, the medical industry, the transportation industry, Google, Microsoft, Apple, Amazon, Nike, and Tesla all fail as well because they have received subsidies from the government. If government subsidies are a precursor to a failing industry then nearly every major company and industry in the United States is unable to stand on its own and will fail. Do you think this is the case? Will the solar industry and every other industry in the United States fail soon?
References

Coady, D., Parry, I., Sears, L., & Shang, B. (2016, November 17). How Large Are Global Fossil Fuel Subsidies? Retrieved December 21, 2017, from https://www.sciencedirect.com/science/article/pii/S0305750X16304867

Energy, S. (Ed.). (n.d.). How much will a solar electric system for my home cost? Retrieved December 21, 2017, from https://www.wholesalesolar.com/solar-information/solar-cost

Kraemer, S. (2015, June 10). A Closer Look at Fossil and Renewable Energy Subsidies. Retrieved December 21, 2017, from https://michelekearneynuclearwire.blogspot.com/2015/06/a-closer-look-at-fossil-and-renewable.html

Richardson, L. (2017, September 20). How Much Do Solar Panels Save You in 2017? | EnergySage. Retrieved December 21, 2017, from https://news.energysage.com/much-solar-panels-save/

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