Solar Subsidies Force Governments to Make Decisions

Rebates and loan programs offer different benefits.
by | June 27, 2012

California Gov. Jerry Brown made headlines last year by expanding his state's "Million Roofs Initiative," calling for 12 gigawatts (GW) of solar power by 2020. That amount of power is roughly equivalent to the output of 12 nuclear power plants, enough to power 3 million homes.

Brown has yet to outline any specific policy methods for how California will meet the new goal, but Environment California, the environmental group responsible for crafting the original Million Roofs Initiative policy, is currently outlining possible methods. The initiative originally had been put forth by Brown's predecessor, Gov. Arnold Schwarzenegger, with a goal of 3 GWs of solar power by 2016 and created rebates for individuals who chose to purchase solar panels for their home. Environment California has said it plans to meet that 2016 goal.

The goal boosting solar energy development has historically been slowed by the extreme upfront costs of installing solar panels. For cities, investing in solar costs many times more than conventional energy sources. For individuals, installing a home solar panel means a major down payment that won't result in savings for 10 to 15 years.

Rebates -- like the ones in the Million Roofs Initiative -- seek to offset those upfront costs using government funds. This has not been a cheap approach, however. One analysis of the initiative, by Dennis Silverman, a professor emeritus at the University of California in Irvine, found that the money California spent creating 3 GWs of solar power could have been used to create 10 to 11 GW of nuclear energy. In his analysis, Silverman said the money spent on solar panel rebates -- which amounts to $3.3 billion over the past 10 years -- had been "flagrantly wasted."

Solar advocates counter that it's unfair to compare solar power to nuclear power, with the inherent costs and dangers of handling and disposing radioactive waste. "In terms of how we see the two choices of power, solar power is a far, far better choice," says Michelle Kinman, a "clean energy advocate" at Environment California.

In fact, the Million Roofs program no longer even provides much of a rebate to individual buyers anymore. "As the [solar] industry matured, the rebate level declined," says Ed Murray, a board member of the Solar Energy Industries Association, a trade group.

Not all cost-defraying initiatives rely on upfront rebates. Honolulu's Solar Roofs Initiative, for example, uses low- or no-interest loans from the city. Under the program, which started in 2003, Honolulu residents can apply for loans -- with a 0 to 2 percent interest rate, depending on income -- to purchase solar water heaters for residential properties. The loan amount covers the entire cost of installing the water heaters. The resident must pay the loan back over seven or 15 years, using her energy savings each month to do so.

Like California's initiative, the Honolulu program lets individuals avoid large down payments. Unlike the Golden State's approach, however, Honolulu's initiative hasn't come with a high price tag: Because the loans are eventually repayed, the city isn't ultimatley responsible for much of the overall investment. In fact, higher interest rates on families with greater incomes help defray the city's investment even further. Environment California says it has considered a loan repayment model, but ultimately the group determined that the rebate option would do more to stimulate utilization of solar power.

By providing residents with funds to buy solar panels from private companies, both the California and Honolulu programs help support the green energy industry. That flow of revenue helps create green jobs, supporters say, and it helps drive down the overall cost of solar panels. Since California's Million Roofs Initiative started, the cost of residential systems have come down by 25 percent, and commercial prices have fallen by 40 percent, according to Kinman. At the same time, the size of the solar panel industry in the state has doubled. "There's a direct correlation of this program and the jobs that have been created," Kinman says.


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