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Solar Policy

When will solar be able to compete without “subsidies”?

We hear this question all the time, from our clients and potential clients, from our solar industry partners, even from our friends and family. And with the upcoming 2017 stepdown in the 30% Investment Tax Credit for solar projects – the primary federal incentive for solar – the question of solar’s need for continued subsidies is front and center.

As advocates of free markets (and free trade), we tend to have a visceral aversion to “subsidies” of all kinds. However, this question of when solar subsidies should be eliminated in the U.S. is often predicated on a fundamental – and false – premise, namely that that the retail cost of electricity reflects a pure and appropriate market-driven price.

The fact is, the “market” cost of a delivered kWh of electricity derived from fossil fuels is highly subsidized (and has been for decades) – both in terms of direct subsidies (i.e. advantageous tax treatments for the coal, oil & gas industries that are permanently embedded in the U.S. Tax Code) as well as “externalities” (fossil fuel costs that are not reflected in the purchase price of electricity, such as pollution and adverse public health impacts).

According to a 2013 study published by researchers at the EPA, properly accounting for just the health impact alone of fossil fuel-derived electricity would add an average of $0.14 to $0.35 per kilowatt-hour to the average U.S. retail cost of electricity. Note that this estimate reflects only the cost of health impacts, and excludes all other externalities such as climate change.

We agree completely with the sentiment stated in the Economist’s December 2014 Technology Quarterly that “the world would no doubt be a better place if the externalities imposed by fossil fuels were properly accounted for in the price of electricity”. We welcome the concept of a “level playing field” – one in which all relevant costs are properly accounted for – and the value of clean, quiet, sun-powered renewable electricity can be accurately measured and compared with its brown power competition. But until that day comes, we will argue aggressively for appropriate and prudent solar incentives that help re-balance the uneven playing field.

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