Posted by: bmeverett | November 14, 2011

The Sunny Myths of the New York Times

The New York Times ran two interesting pieces this past week on solar energy. The first was a nonsensical November 6 screed by Nobel-Laureate Paul Krugman entitled “Here Comes the Sun.” The second was a more thoughtful piece in the November 12 edition “A Gold Rush of Subsidies in the Search for Clean Energy”. Both articles unfortunately offer tired myths about renewable energy. Let’s review one more time.

Prof. Krugman’s piece is helpful to the public debate on soar energy, since it makes explicit a fallacy that has been implicit. Everyone remotely connected to the modern world has been astonished at the rapid improvement in computer technology and the accompanying decline in price. This cost curve was articulated by Gordon Moore, the founder of Intel, in what is now known as Moore’s Law: the number of transistors on a computer chip will double every two years. Moore’s law has proven remarkably accurate and accounts for the inexpensive, high-performance computers, laptops and cellphones we have today. Prof. Krugman announces triumphantly that we may be on the verge of a Moore’s Law for solar energy – a time when prices will drop so fast that solar will begin to displace other forms of energy on a large scale. You should really do your homework, Professor.

Solar energy has obvious appeal, since the energy is out there for the taking. Capturing that “free” energy, however, particularly through solar photovoltaics, faces some serious limits in physics. Solar radiation at the top of the atmosphere is roughly 1,366 Watts per square meter (W/m2). By the time that energy reaches the Earth’s surface, however, it’s been attenuated by air, clouds, rain and pollution. We’re generally left with 200-250 W/m2, depending on where you happen to live. Current solar technologies allow us to capture no more than 15-20% of that energy. In other words, we’re actually converting 2-4% of the incoming sunlight into electricity.

Furthermore, although the sunlight is free, the solar panels that convert the sunlight into electricity are not. According to Solarbuzz, a website generally favorable to solar energy, the cost of retail solar systems in the US declined gradually from about $5.50 per peak Watt in 2002 to about $4.50 in 2004. Between 2004 and 2008, the cost actually increased and leveled off at about $4.75 through 2008. The prices since that time has plummeted to its current level of about $2.50 per W.

Very impressive, but here’s where Prof. Krugman has been fooled. He has concluded that the drop in price is a result of technological progress likely to continue into the future. In fact, two developments combined to drop the price – neither one technological and neither likely to persist.

The first was the entry of China into the solar market. Climatistas and renewable advocates see China’s actions as validation of the future of solar energy. In fact, the Chinese don’t want solar energy for themselves. It’s way too expensive and cannot compete with the massive amounts of cheap coal they are burning. The Chinese simply saw a business opportunity in the US and Europe, where governments have created markets for a non-commercial technology. Since the primary cost of solar energy is the manufacturing cost of the solar panels, the Chinese quickly recognized that they can undersell western companies on solar panels, just as they do on clothing and toys. American politicians assumed, quite wrongly, that the artificial markets for solar panels would be supplied by US companies, thereby creating both jobs and lots of campaign contributions. If the US government mandated that every American wear a pink shirt on Thursdays, Chinese, rather than American companies, would probably end up making the shirts. The cost reduction attributable to lower Chinese manufacturing costs is significant, but probably a one-off change. The Chinese are not making any more technological progress in this area than we are.

The other effect is simply the recession. Given the flat levels of economic activity in the US, demand for solar panels has dropped. US solar panel manufacturers, seeking to take advantage of the heavy US subsidies, mandates and other market distorting mechanisms, built lots of solar panel manufacturing facilities, with Washington assuring profitability. The drop in demand plus the unexpected assault on the market by the Chinese have created a large glut of solar panels on the market. When that happens, manufacturers will drop the price to move their inventories and keep their factories operating. As long as the price of solar panels remains above cash operating costs, this discounting will continue.

Too many people have come to believe that all new technologies follow Moore’s Law, but the essence of this phenomenon is miniaturization. The smaller computer chips get, the better. The only real drawback is the need to keep the chips cool. Other things, like refrigerators, helicopters, bookcases and solar panels, cannot be miniaturized without losing their functionality. Sorry, Prof. Krugman, we’re seeing an oversupplied market, not a set of technological breakthroughs.

The other Times article asks some legitimate questions about the huge subsidies offered to solar power installations in the US. According to the article, federal and state governments have put in place arrangements for solar power companies that virtually guarantee profitability regardless of cost or efficiency. These arrangements include direct tax breaks, low-cost government financing, requirements for utilities to buy solar power (and pass the cost on to consumers), property taxes holidays and other goodies. According to the article, federal subsidies for solar energy in 2010 were $14.7 billion, up from $5.1 billion in 2007. What do we get for these subsidies? Supposedly, clean, domestically produced energy and green jobs. Is that what we are really getting? Let’s have a look.

Solar energy competes with other forms of electric power generation. In 1978, the US generated about 17% of our electricity using oil. Advocates for renewable energy could therefore legitimately argue that these new technologies could replace imported oil. Today, oil accounts for less than 1% of our power generation, and most of that is either special diesel turbines for peak power use or remote diesel generators. Our electricity today comes almost entirely from coal, nuclear, natural gas and hydro – all domestic sources.

Furthermore, on the margin, most of the growth in power generation is coming from natural gas – a very clean fuel. Because of the rapid growth of shale gas, the price of US natural gas sold to electric power plants has fallen in half in the last several years. This price decline, along with highly efficient combined cycle technology, makes natural gas the fuel of choice for new power plants. Burning natural gas emits almost no sulfur or soot and very little of other types of pollution.

As for “green jobs”, see my April 16, 2009 post “Green jobs or con jobs?”. Manufacturing solar panels does of course create jobs, many of them in China, but it also destroys jobs. Raising the price of electricity to accommodate expensive solar energy takes from consumers money they would have spent on other things. Government subsidies divert capital from more productive uses.

The Times article also offers, without any comment, the worst argument offered by the proponents of renewable power: oil companies get subsidies too! According to the article, oil and gas producers received $2.7 billion in subsidies in 2010. If you read the study that produced these numbers, you’ll see that many of these subsidies are merely Congressionally mandated accounting conventions, many of which are available only to small oil companies. Even if the number is correct, however, it’s meaningless for two reasons.

First, the subsidy is spread over a lot more energy. In 2010, the US consumed roughly 275 billion gallons of oil. Natural gas consumption was equivalent to another 190 billion gallons. The oil and gas subsidy of $2.7 billion was thus equivalent to about half a cent per gallon (2.7 divided by 465). The US consumed solar energy equivalent to less than 1 billion gallons of oil, so the $14.7 billion solar subsidy is equivalent to $14.70 per gallon.

Second, solar energy incurs virtually no taxes at any stage of production. Excise taxes on oil-based fuels (mainly gasoline and diesel) totaled about $72 billion per year, equivalent to about $0.26 for every gallon of oil we consume. In addition, oil companies, distributors and retailers pay property taxes and income taxes. On balance, oil is a heavily taxed commodity. Proponents of renewable energy should really stop using this argument.

For decades now, solar energy has been the domain of wishful thinking. Even with heavy subsidies, it’s nowhere near economic viability. The technology may someday become cheap enough to use, but, until that day comes, let’s stop pretending.


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