August 13, 2009 – News flash: incentives work, and solar is not the only industry to take advantage of them. The popular Cash for Clunkers program (redubbed the “Car Allowance Rebate System,” or “CARS,” apparently to avoid the clunker stigma) has been a raging success with potential car buyers, who swamped dealerships to trade older, inefficient vehicles for newer, more efficient ones. The original $1 billion program, which provided a $3500-$4500 subsidy depending on the improvement in mileage, was exhausted in less than a week and had to be rapidly reinstated (and the bucket refilled) by Congress to keep this successful jumpstart of the auto industry going. During the first week of the program dealerships were overrun — very much like the market in Spain was overrun because of its generous feed-in tariff. Not surprisingly, when offered a generous incentive for a durable good, consumers will buy — providing, of course, the good in question is one consumers want.
The photovoltaic industry has gotten a bad rap for years because of its need for incentives to stimulate the market for grid-connected systems. For the potential residential system owner, the up-front cost of a solar system even with incentives can prove prohibitive; without incentives it would be unaffordable for most. The same holds true more or less for the small commercial market. For multi-megawatt fields in Europe, feed-in tariffs turned solar into an often highly profitable investment enterprise. In the US, creating a market for investor-owned multi-megawatt fields and large commercial roofs (≥1-MWp) is a complex endeavor. US investors and system integrators need to juggle tax benefits, rebates, and subsidies together to realize affordability and profitability for these enterprises.
Incentives, as the solar industry well knows, have a murky reputation. Simply, if your product needs incentives to continue stimulating demand over time, then (as some believe) the product is too expensive and the industry may be inefficient. The solar industry has been tagged with these assumptions for years, often counteracting them by waving the flag of grid parity. Someday, when grid parity (a complex subject on its own) is achieved, incentives will be unnecessary. However, by beating the grid-parity drum, the PV industry both claims culpability and rises above it.
There are different types of subsidies: direct, indirect, labor, production, regulation that acts as a subsidy, trade protection, export duties and regulations, procurement and consumption subsidies, to name just a few. A financial rescue of an industry or company is a type of subsidy. Some industries are paid NOT to produce, and some subsidies are for the layperson difficult to recognize. Examples of industries receiving incentives or subsidies include farming, auto (not just CARS), and recently banking.
The value of having more solar in the world is worth the cost of the subsidy, which by the way is far less than the cost of continuing to destroy the environment and deplete fossil fuels. As incentives are, in general, unpopular with politicians, the solar industry does need to continue working towards the day when they are unnecessary. Incentives are also often unpopular with individuals that cannot take advantage of them — something else the solar industry needs to keep in mind, since an angry few can bring unpleasant pressure on those who rely on votes.
So, the solar industry, which needs incentives, must continue working toward the day it does not. In the meantime, let’s give a shout-out to Cash for Clunkers (or its new moniker, CARS) for showing yet again that incentives can stimulate a market successfully and with little pain. Until that $3 billion bill for all of those clunkers comes due, of course.
Paula Mints is principal analyst, PV Services Program, and associate director in the energy practice at Navigant Consulting. E-mail: [email protected].