Solar Doesn’t Need Additional Subsidies

July 16, 2012

By Tuan Pham and Chris Stanton

In the 10 months since the implosion of Solyndra, solar energy has become a hapless political
flashpoint, mocked by Republicans and defended by Democrats who proffer exaggerated claims of
green economic growth and technological revolution.

The tragedy of this misguided political attention is that it further entrenches the mistaken notion that
solar, as it exists today with federal tax credits, cannot compete with other methods of energy
generation without handouts or costly special programs.

The reality is that, in areas of the country such as Texas where sunlight is abundant, the solar industry
does not need additional subsidies. Instead, the industry needs to set realistic expectations and
educate the public and politicians about the tangible benefits of solar power. There are many. Instead
of costly incentives that obscure the price of electricity, local utilities and co-ops should base their
decision to pursue solar energy solely on the goal of stabilizing electricity costs and protecting
consumers against volatile commodity prices, especially during summer afternoons, when
consumption and prices are highest and the risk of blackouts is greatest.

In places such as Garland, Austin and right here in Dallas, a field of solar panels covering a few dozen
acres already could generate electricity at a fixed, 20-year cost that is lower than the retail power price
paid by most local consumers. Solar’s competitiveness comes as a result of a 75 percent reduction in
the cost of silicon panels over the last three years. That reduction is due almost entirely to an
oversupply in the market, not technological breakthroughs or market manipulation.

Each summer in Texas, despite today’s rock-bottom natural gas prices, wholesale power prices creep
upward, and the ERCOT grid struggles to accommodate rapidly increasing demand. The prospect of
another sweltering summer of skyrocketing demand for electricity prompted the Public Utilities
Commission to raise the cap on wholesale power prices last month by 50 percent, to $4,500 a
megawatt-hour, a move that is sure to drive electric bills even higher.

Moreover, few experts believe that the oversupply of natural gas that pulled power prices down in the
first place will last more than a few more years. Gas producers are ratcheting back their drilling
programs, planned huge new industrial plants will soak up some of the glut, and international oil
companies are building multibillion-dollar terminals to export much of our surplus to Asia, leaving
Texans vulnerable to continuing price spikes and blackouts.

A large solar plant, by contrast, can generate electricity for less than $100 per megawatt-hour for
more than 25 years and provide protection against those very same $4,500 peak-demand spikes that
the PUC initially hoped to avoid.

Consumers will be unable to enjoy the benefits of solar energy without the help of Texas lawmakers —
not help in the form of handouts or special treatment, but by creating a level playing field for all energy
producers.

Our hope is that when legislators meet next spring, they will take practical steps that will help to create
a fair, competitive market that allows solar to take its natural course in our sunny state.

For example, legislators could clarify the right of any generator — solar or not — to tap transmission
lines at reasonable costs across the state. They could modernize regulations written to support an
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energy production and distribution model that is outdated and insufficient for Texas’ rapidly increasing
demand. And they should consider establishing uniform property tax rules for large solar generating
plants.

Ultimately, solar energy should be neither a crusade nor a scapegoat; rather, it is one more tool to
meet the needs of Texans. A solar panel is a sheet of glass and metal that generates a predictable
amount of electricity every day for 20 years. What could be less controversial than that?

Tuan Pham is the president of PowerFin Partners, an Austin-based asset management firm that
invests in solar power plants. Chris Stanton is an associate at PowerFin. They can be reached at
tpham@powerfinpartners.com and cstanton@powerfinpartners.com.

www.powerfinpartners.com

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