2012 In A Nutshell: The Solar Glut
Too many solar panels? | Photo: Abi Skipp/Flickr/Creative Commons License
When it came to renewable energy, 2012 had plenty of what the screenwriters would call "through-stories"; pieces of news that kept building and repeating as the year progressed. There was the Wind Production Tax Credit, which expires today. There was the election-year drumbeat of criticism of the Obama administration's energy policies, centering around the failed company Solyndra. But when it came to actual impact on people's daily lives, one story truly encapsulated almost everything that 2012 meant for renewables: the Solar Glut. And no other story points out so well how we're getting things backwards.
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The elevator version: due to massive subsidies -- mostly but not exclusively the result of government policy in China -- production of photovoltaic panels has massively outstripped demand for those panels. As GigaOm's Rani Molla pointed out earlier this month, the Solar Energy Industries Association estimates global demand for solar panels at 30 gigawatts, and global production capacity for those same panels as 70 gigawatts -- more than twice demand.As any first-year economics student will tell you, when supply outstrips demand prices will drop. And in that inexorable law lies the reason for the failure, and near-failure, of a number of solar manufacturing firms over the last 12 months. When retail prices drop, so do your profits. Unless you can control costs effectively, you lose. And so solar companies are closing down factories, laying people off, and snapping up smaller companies that are treading water. It's the law of the business jungle, red in tooth and ink.
But look at it from a perspective outside the world of business as usual. Look at it from, say, the perspective of someone who understands that the world faces an unprecedented threat from our continued use of fossil fuels.
From that perspective, the story of the Solar Glut runs like this: We absolutely must increase our production of solar electricity as soon as possible, but we can't because we have too many solar panels and they're too inexpensive.
In other words, outside of the context of the economic system in which we happen to be enmired, the Solar Glut as crisis makes no sense whatsoever.
There are plenty of similar recent examples of ways in which the interests of the Market don't always coincide with the Greater Good, as anyone struggling to pay an underwater mortgage will tell you.
But in the case of the Solar Glut, the Market itself offers a way out. If supply has outstripped demand, you don't have to just let that supply dwindle through negligient inattention, letting firms close down factories and selling surplus panels on eBay. You can also increase demand.
Demand for solar panels is lower than it could be for a whole lot of reasons, which vary with the part of the globe you're talking about. In California, which has the infrastructure and labor force to support a whole lot more solar installations than we're currently building, much of what's depressing demand is artificial. Utilities are dragging their feet on basic, sensible, proven incentives such as feed-in tariffs, reluctant to prepare for the inevitable energy landscape of the next 50 years. Permitting costs and procedures are a conflicting morass depending on which side of the county you live in. Homeowners associations are allowed to obstruct installations based on not much more than whim. People without sunny rooftops aren't able to buy into community solar projects. Federal mortgage underwriters continue to oppose PACE loans.
But many of those those obstacles could be overcome if people had more disposable income to spend on solar panels.
There are quite a few incentives for the public to go solar. (Here's a recent list of those available to Californians.) But they're scattershot, often inaccessible, and don't go nearly far enough to make it easy for regular Californians to install solar capacity. And California is well-advanced compared to many other states.
From 2009 through 2012, according to the Congressional Budget Office, the U.S. Department of Energy backed about $25 billion in loans to renewable energy development firms. Given the size of the Federal budget, it's a tiny sum. But it also works out to about $225 per U.S. household. That would be enough, at late-2012 prices and given the power of buying in bulk, to cover the panel costs for about 250 watts of PV per household. That's not a huge amount for a single rooftop, but it'd eat up almost half of the world's PV production capacity, stabilizing prices and helping domestic manufacturers stay in business. People who installed those solar panels would have lower utility bills, meaning more disposable income, meaning a better quality of life and increasingly robust local economies.
In other words, we could see the end of the Solar Glut in 2013 if we started thinking sensibly about the problem. Which is, after all, not the biggest problem we happen to be facing at the moment. Here's to a New Year with more sensible priorities!
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