Touched by sun stroke

Sydney Morning Herald
Saturday 6/6/2009 Page: 6

Taxpayers subsidising household solar power just doesn't add up, argues Mark Davis.

It's the great solar rip-off. Sales of rooftop panels that turn sunlight into electricity are soaring because energy sources that emit no greenhouse gases are seen as a big part of solving climate change.

Pity then that rooftop solar energy is so environmentally tokenistic and economically inefficient. It is one thing spending your money to achieve small amounts of greenhouse gas abatement; quite another demanding subsidies from everyone else because you chose one of the least effective renewable energy technologies. The arithmetic is unassailable.

A typical NSW family spends about $1200 a year buying 8000 kW hours (kWh) of electricity, which results in about 7.5 tonnes of carbon dioxide being emitted into the atmosphere. Installing a 1 kW photovoltaic system costs about $12,000. Over its 20-year working life, the $2000 inverter will need replacement at least once.

The system typically generates 1400 kWh a year, less than a fifth of the household's electricity consumption. This would reduce the well-meaning family's emissions by 1.3 tonnes a year and its annual power bill by $250. Over 20 years, 26 tonnes of greenhouse gas emissions will have been avoided at a net cost of $9000 (upfront cost less power-bill savings). That's about $350 a tonne, far more than the carbon price envisaged under the Federal Government's proposed emissions trading scheme.

But the cost would be a lot more if you factored in the time value of money, which works against solar because of the upfront cost and likely future improvements in the emissions intensity of grid power. In short, there are better ways of tackling climate change. If a household spent the same amount buying wind energy for 20 years, emissions would be cut by 95 tonnes.

The big swing to solar is because taxpayers foot the bill, at least most of it. In 2000 the Howard government wanted to show its refusal to ratify the Kyoto Protocol on climate change did not mean it didn't care about the environment. So it started paying rebates to households installing solar panels and, before the 2007 election, increased rebates to a maximum of $8000. That means a $12,000 solar system costs the family only $4000.

Unsurprisingly, more than 3000 systems are installed a month - six times the rate a year ago - spreading to taxpayers the adverse environmental economics of solar. Now the solar industry wants an extra subsidy. Our typical solar household generates 1400 kWh a year, but during daylight, when many houses use little power. With the solar system connected to the grid, excess electricity can be used elsewhere. Several states have introduced feed-in tariffs worth three to four times the retail price of electricity.

The NSW Government is finalising such a scheme. One contentious design issue is whether it should be a net feed-in tariff (which pays for the solar energy a household feeds into the grid, production minus consumption) or a gross tariff (where the solar household is paid the higher rate for all the electricity generated by its rooftop panels). feed-in tariffs improve pay-back periods for solar panels by giving the household a stream of payments on top of the savings on their power bills.

But advocates rarely mention that these payments are funded by increasing electricity bills for non-solar households. A report to the Victorian Government by the consultants Firecone Ventures concluded that a gross feed-in tariff would be inefficient and divert funding away from more efficient renewable energy technologies such as large-scale solar thermal, large-scale photovoltaic and solar hot water.

Victoria is going ahead with a 60 cents-a-kWh net feed-in tariff conceding that the power bills of non-solar households will rise by 1%, an average of $10 a year, to pay a typical solar household a $237 annual subsidy. Nonetheless, Greens in Victoria's upper house want these cross subsidies made even more generous. Rebates and feed-in tariffs for solar panels are atrocious public policy.

Since early 2000, the Federal Government has spent more than $200 million on rebates for 29,000 household solar panel systems. Over their 20-year lives, these panels will abate just 950,000 tonnes of greenhouse gases, costing taxpayers $210 a tonne. If feed-in tariffs were adopted nationwide, they would add $100 million to the cost of subsidies over 20 years - another $133 from the pockets of non-solar households for every tonne of emissions abated.

By contrast the Government's Green Building Fund has spent $29.5 million on measures that will reduce emissions by 1.3 million tonnes over the next 25 years, at a cost to taxpayers of $18 a tonne. Insulating the ceilings of 120,000 houses will abate 7.9 million tonnes of emissions over 40 years, the Federal Environment Department says.

And the now-closed Greenhouse Gas Abatement Program delivered $77 million in grants for industry projects expected to reduce emissions by 19 million tonnes until 2012, at a taxpayer cost of $4 a tonne. Costs and benefits of government emissions reduction programs should face greater scrutiny now Canberra wants emissions trading to be the main vehicle for inhibiting climate change.

Roger Wilkins, the former head of the NSW Cabinet Office, reported to the Government that all programs should be made to spell out their cost per tonne of abatement. The Wilkins report said solar electricity would probably not be commercially viable until the carbon price was $300 a tonne. It recommended solar subsidies be phased out as the Government's expanded renewable energy target scheme is implemented.

But subsidising photovoltaics is bad for the environment as well as bad economics. Each dollar spent on rooftop solar is a dollar that could be spent more effectively. The industry's boosters justify this with a traditional rent-seeker's rationale: subsidies will help solar achieve technological breakthroughs and economies of scale that will eventually bring costs down.

A California economist, Severin Borenstein, found these arguments wanting. Panel costs have fallen significantly over recent decades as production expanded, Borenstein found, but mostly as a result of crystalline silicon solar technologies achieved by the US space program and semiconductor industry.

Wind, geothermal, biomass and central station solar thermal power generation, Borenstein says, will be commercially viable without improved technology before today's newly installed solar panels turn 20.

Far from driving technological innovation, rooftop solar rebates in Australia are encouraging local suppliers to shave the costs of existing technology. That can mean sourcing the main component - silicon" target="_blank">silicon" target="_blank">polysilicon - from environmentally questionable factories in China. The Washington Post reported one Chinese manufacturer dumping toxic byproducts in fields around its Henan factory.

Hard cell... solar panels can cost your neighbour. Photo: Paul Jones Want to do your bit to save the planet? Sign up to your electricity utility's GreenPower option, which sources renewable energy mainly from wind generation. You will make larger cuts to your greenhouse emissions without ripping off your neighbours.