Solar Power Leaks Tax Dollars

By Bob Clark

Rooftop solar electric systems are prohibitively costly to manufacture and install with or without government subsidies. As reported in the Oregonian, page E1, August 8, 2008, a 2000 watt solar system costs about $21,000 including installation. Under existing tax credit financing structures, the buyer of these installations pay around $7,500 while taxpayers pay the remaining $13,500. The owner of these installations, for instance homeowners, are said to save $176 per year as a return on their investment. Translation: even after 25 years, the buyer will have lost $3,100, even as taxpayers lose $13,500 per unit installed. These losses do not include the opportunity cost of funds.

Both the Oregonian and the Oregon Department of Energy tout the carbon dioxide emission reductions stemming from the substitution of these solar power systems for existing conventional power systems. This argument is a red herring for several reasons. One, Energy Trust of Oregon documents show conservation is a far richer target for carbon dioxide emission reductions than solar power. The average amortized cost of conservation is in the range of 1 to 2 cents per kilowatt hour (KWH). By comparison, the amortized cost of the rooftop solar power systems highlighted by the Oregonian is in excess of 50 cents per KWH when including tax credits. There is also no consideration for the energy required to produce, deliver, and mount the rooftop solar systems, nor the associated carbon dioxide emissions caused by these activities. Moreover, solar power also needs backup power systems usually requiring fossil fuel combustion for generation. Finally, I hearken back to a quote appearing in the Oregonian, March 16, 2008, from a senior resource analyst at the Northwest Power and Conservation Council who said [solar power], “It’s window dressing.”

This left me wondering how much is the state of Oregon spending on solar power systems like the ones described by the Oregonian. After consulting with the Oregon Department of Energy and reading Energy Trust of Oregon documents, my rough guess is state taxpayers are paying about $10 million per year for these solar power systems. Such an amount doesn’t make me “blow a gasket.” After all, some community novelty-like spending has an entertainment and/or experimentation value. Still, this amount is a caution flag because the Oregon Department of Energy and other authorities are looking to expand spending on photovoltaic power systems beyond the year 2009. This seems like an obvious poor prioritization of government spending. Government should not be subsidizing novelty like items like these solar power systems while government supported treatment centers for the mentally ill, for instance, are shuttered, and other basic services like bridge repair go neglected.

This article was originally published at Oregon Tax News. Used by permission.

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Posted by at 08:58 | Posted in Measure 37 | 32 Comments |Email This Post Email This Post |Print This Post Print This Post
  • David

    Are we not going to mention the $15-35 B/yr federal subsidies that go to the oil industry? That costs Oregonian taxpayers about $300 M/yr, 30 times the subsidy to the solar industry. Are massive oil subsidies acceptable (at a time when oil companies have record profits), but a small solar subsidy is not?

    Let’s not even mention the ~$200 B/yr we’re spending on a war to open up Iraqi oil fields. Or the huge externalized costs caused by the pollution and climate change due to oil.

    $10 M/yr to support a clean, sustainable energy source seems like a bargain.

    • Jay Bozievich

      David,

      I always hear that the federal government subsidizes the “Big Oil”, but exactly what “subsidies” are you talking about that are not avialable to any other industry or business? I can point directly to special tax treatment that applies only to solar power and government grants available only to solar power. Please provide some kind of documentation to your claim that the federal government subsidizes Oil at an amount of $15-35 billion/year and that “subsidy” in not just a tax deduction available to all businesses.

      When government starts trying decide winners in the market place, then we are sure to get inefficient technology. Bob’s point is that. What other technology could that tax money have developed if left in the market place?

      Opportunity costs. I know that is a hard concept, but a very real one. If government takes money out of the economy through taxation and spends it supporting one industry over another, then that amount of money is not spent through the free market directed to the most cost effective technology. Just look at the athletic stadiums, fiber optic networks, and wireless networks that have become complete boondoggles for example, not to mention light rail…

      • David

        These are subsidies specific to the oil industry.

        Preferential tax codes specifically for the oil industry, lower sales taxes, Iraq War, environmental externalities of $50-250+ B/yr,

        http://www.ucsusa.org/clean_vehicles/fuel_economy/subsidizing-big-oil.html

        The Cato Institute says the subsidies specific to the oil industry are $80-160 B/yr.

        http://www.huffingtonpost.com/2008/07/03/price-of-oil-hidden-oil-s_n_110606.html

        It’s especially worrisome when the exact subsidies can’t even be determined to within a factor of 2-3.

        • eagle eye

          Iraq War? Cato Institute? Very suspect source on anything having to do with foreign policy. Iraq War has nothing to do with oil prices.

          I can very well take the cost per barrel of oil, divide by the number of gallons of gas, add the cost of refining, gas taxes, oil company profits. I see that the subsidy is essentially nonexistent.

          there is little mystery to this. Department of Energy figures confirm this. In contrast, subsidies for “renewables” are monstrous.

          • David

            > Iraq War has nothing to do with oil prices.

            You are a very naive man.

  • Anonymous

    David,
    The solar subsidies prop up an entirely elective and optional energy industry.
    The oil subsidies go towards our most vital energy source that affects a broad spectrum of industries, products, jobs, manufacturing , transportation and more.

    For someone who lectures on the externalized costs caused by the imaginary global warming you sure have no awareness of the externalized reach of oil.

    • David

      Oil can do some things solar can’t. Solar can do things oil some can’t, esp in the realm of producing clean, carbon-free energy. Either can produce “vital” energy — the question is, at what cost?

  • dean

    Out of an over $20 billion annual state budget we are supposed to get upset over $10 million per year tax credit for solar energy? Please, spare us the angst. Most of the dams that supply the majority of our electricity were built entirely with federal tax money by the way. The free market would never have been able to do those projects. Was that a mistake? Should we have sat around and cursed the darkness?

    The reason for the tax credits is to cut back on pollution AND help build a solar industry. Its not about entertainment. The cost of solar energy has declined from $27 a watt peak in 1982 to about $4 today. In other words, federal and state tax credits are working by helping to create a market that private investors and innovators are responding to. Solar is getting cheaper by the day. Same has happened with wind. Meanwhile the price of oil and natural gas has gone up and up over the same period, and will likely continue to do so as the finite supplies continue to be tapped out, despite massive tax subsidies for those industries.

    You would rather we sit on our duffs and wait for a miracle? $10 million a year is too little. We ought to double that.

    • Anonymous

      More lies from Dean.

      The price of solar has only gone down because of massive subsidies to solar manufacturers and consumers over the past thirty years. The cost has remained relatively flat.

      The price and cost of oil has gone up because of massive restrictions on exploration, drilling, refining and distribution.

    • Anonymous

      Hey Dean, do the gradce school arthimetic: 35B/300M = $117 per person.

      Peanuts compared to the $13,500 per household for solar.

  • Rupert in Springfield

    Solar right now is at a bare minimum 4 times the cost of current electricity. This is already with artificially high oil, natural gas, coal and nuclear prices due to ever increasing regulation from our environmentalist friends.

    It is time for those who think solar is so great to invest in it, and spare us all the folly of their speculation. If they are right, that solar is indeed the future, then they will all be rich beyond their wildest dreams. If they are wrong then no one is harmed but the speculators. It is absurd to think that solar has some unique aspect to it that renders it unsuitable for development through private investment and government must step in.

    $10 million is criminal to waste on this. If the average Oregonian makes $25k then that adds up to the entire state tax revenue from over 4 thousand individuals. Think about it, 4 thousand people just had their entire years worth of taxes frittered away because those who believe in this stuff don’t have the courage of their convictions to invest their own money.

    Yet again another crystalline example of the left insisting they have a great idea that will really work, but asking everyone else to pay for it.

  • David

    Rupert, you have not explained why it’s OK to give tens of billions of dollars in subsidies to the oil industry and not a mere ten million to the solar industry.

    Nor have you explained why *your* (or any) industry should get the tax benefits it does, such as tax breaks on health insurance, deducting business expenses, and on and on and on.

    > This is already with artificially high oil, natural gas, coal
    > and nuclear prices due to ever increasing regulation from
    > our environmentalist friends.

    You mean the regulations that have brought the US significantly cleaner air and water over the last 30 years? Perhaps you would rather live in smoggy Beijing?

    • dean

      Rupert…you passed over the point about how the cost of solar has declined significantly while the cost of conventional fuels is relentlessly rising. Maybe it is 4 times to cost of conventional sources today. In a few years it might only be twice the cost. And in 10 years or less it very well might be cheaper. Its not that government MUST step in. We could sit back and wait for conventional fuels to get so high that alternatives, even at their present high cost will eventually be competitive. Or we can help nudge things along with what is a pretty paltry sum, thus being in better shape in the future. Nothing wrong with forward thinking.

      Plus….the dams were for the most part built by government. The entire nuclear electric industry is based on technology developed by the government. So what on earth is wrong with government investment, through tax credits, on promising new energy sources?

      We agree on one thing. The left has the better ideas. The war your right foisted on us is also being paid for by “everyone else” and has not left us much in return on investment. At least we are getting some clean energy from solar, even if it is still expensive energy.

      • Anonymous

        Dean –

        In spite of what you lefties beleive, repeating a lie again and again does not make it true.

        Photovoltaic solar power is not any less expensive or more efficient now than thirty years ago and you are not, nor were you ever, a professor or anything – nor were you the lead editor of the sole book published under your name, but entirely composed of the works of others.

        The reason consumers pay less for photovoltaic solar panels now than thirty years ago is because of huge subsidies (that would be direct cash payments from government, not tax deductions) from government to the German solar industry (about 3/4 the cost of doing business) and to consumers here in the U.S. (25 – to 100%, depending on which state you live in).

        If the petrolium industry were subsidized at the level of the solar industry we’d be paying between $0.00 and $0.75 per gallon of gas, depending on which state we lived in.

        Now, call me a coward.

        So predictable.

        • dean

          No need to call you anything. You know exactly what you are.

    • Anonymous

      “tax breaks on health insurance, deducting business expenses, and on and on and on”

      Time for you to refill your meds David.

      These tax are deductions all businesses get to take. A subsidy is when the government hands you cash. Government taking less of your money through taxes is not a subsidy.

      • David

        > These tax are deductions all businesses get to take.

        Hardly. They’re available only to businesses that can afford health insurance. For those that cannot, their taxes go to subsidizing the others. Hardly fair at all.

  • Alan

    Solar power is advancing in performance as time goes on. It is a worthy investment. The sun, you gotta love it!

    • eagle eye

      If it’s so great, it will do just fine without the massive subsidies.

      • David

        > If it’s so great, it will do just fine without the massive subsidies.

        So, then, could the oil industry.

        No one here has yet explained why $50B/yr subsidies are OK for the oil industry but $10M/yr subsidies for the solar industry are not.

    • Ted Kennedy’s Liver

      Wrong.
      Wrong.
      Right.

      • dean

        The cost of generating a unit of electricity from solar power should not be confused with the tax credits. Those are to the purchasers of the systems, not to the manufacturers. The actual price of producing electricity has dropped from $20 a watt in 1980 to less than $5 a watt today. Emanual Sachs of MIT says that since solar cells are basically silicon, and act like semi-conductors, that “Moore’s Law” is applicable, meaning that as manufacturing and R&D ramp up costs are going to continue to come down, as will prices. He predicts that the capital costs of solar cells will soon be at $2 a watt, which will make it competitive with coal for generating electricity.

        Solar energy is WAY more efficient and inexpensive today than it was 30 years ago. It is so BECAUSE tax subsidies to consumers have generated increased demand which has generated R&D and allowed large scale manufacturing to develop. These are facts, not beliefs.

        • eagle eye

          People have been making exaggerated claims about solar power for decades. If it is so great, it will do just fine in the market without the subsidies. I hope they’re right, as long as they don’t plan to spoil the whole desert with glass.

          I fail to see the analogy with Moore’s law, however. Etching silicon chips with smaller and smaller circuits is completely different from making silicon into electric cells. But maybe the guy from MIT knows something, maybe not. At least he’s a mechanical engineer.

  • Rupert in Springfield

    >Rupert, you have not explained why it’s OK to give tens of billions of dollars in subsidies to the oil industry and not a mere ten million to the solar industry.

    I see no reason to explain it, since I don’t accept the figure. Lists of web links do not a cite make. No one would accept that in a book report, I don’t accept it in a debate.

    >Nor have you explained why your (or any) industry should get the tax benefits it does, such as tax breaks on health insurance, deducting business expenses, and on and on and on.

    I am not here to explain the capitalist system to you. If you don’t understand the tax code your issue is with the IRS, not me. The point is nonsensical anyway, since I would imagine solar cell companies get these same tax regulations as any other company. So what is your point? You don’t like capitalism? You don’t like the tax code?

    >You mean the regulations that have brought the US significantly cleaner air and water over the last 30 years? Perhaps you would rather live in smoggy Beijing?

    No, I mean the regulations that have forced scarcity. Limiting drilling, making it almost impossible to build a nuclear plant or oil refinery would be examples of things that boost the cost of solar’s competition.

    And no I would prefer not to live in smoggy Beijing, that is why I constantly argue against leftist economics have resulted in the incredible environmental devastation we see in communist countries. Sorry to point that one out, but you bringing up Beijing kind of tee’d it up so nicely.

    >Rupert…you passed over the point about how the cost of solar has declined significantly while the cost of conventional fuels is relentlessly rising.

    Well, first of all the cost of conventional fuel is not relentlessly rising. I don’t know where you get this from as any analysis of fuel prices, in constant dollars would rapidly show this to be untrue.

    That aside solar is still an incredibly expensive form of energy. I simply said if you think it is such a great thing, please invest your money, not mine.

    >Maybe it is 4 times to cost of conventional sources today. In a few years it might only be twice the cost. And in 10 years or less it very well might be cheaper.

    Great, you seem quite sure, I am not. Please invest your money, not everyone else’s.

    >Or we can help nudge things along with what is a pretty paltry sum, thus being in better shape in the future. Nothing wrong with forward thinking.

    Of course not. That is why I would encourage forward thinking. Your thinking, that government should be involved in something that is manifestly a private industry concern is quite backward thinking. I would put it circa 1917.

    Also, if it is such a paltry sum, please, use your own money, don’t expect everyone to pay for your desire to have a corporate/government collective.

    >Plus….the dams were for the most part built by government.

    So what? Down the road from me the government built an armory. Should I be waiting for them to come by and build me an addition? How the hell does government building a dam and selling the power mean that it should also invest in private industry where there is clearly no need?

    >The entire nuclear electric industry is based on technology developed by the government.

    The internet is based upon technology descended from government, does that mean if I want to start an online porn business the government should subsidize me?

    >The war your right foisted on us is also being paid for by “everyone else” and has not left us much in return on investment.

    Ahhh, when all else fails bring up Iraq. It really must kill you that it looks like there is the possibility we might establish a democratic government there. Does it ever get depressing being so invested in defeat? I know you guys long for the days of Saddam and his terrorist friends. Frankly these days your refrain is beginning to sound quite like desperation considering the topic was solar cells. Lets face it, with Barrack and McCain virtually tied in the polls, the entire country is beginning to see investment in defeat isnt really such a good idea. I guess you are the last to catch on.

    In the end, the funniest thing about the left’s argument is they constantly whine and moan about government giving huge subsidies to this or that corporation. “Oh that Bush, he is just in it for the corporations, evil greedy corporations, Wal Mart” and yet what is the first thing they want to do? Have government get in bed with corporations.

    I shouldn’t be surprised. The left loves government in bed with corporations, it extends the power of government and power is what the left craves above all else. The only fly in the ointment is when the left doesn’t feel they hold the reigns of that power. The corporatism is bad.

    • dean

      It would do little good to invest my own money if there were no market. There is a market in large part due to the consumer, not producer tax credits. The costs are coming down because the market is being built. You keep dancing around that point.

      The oil companies, in addition to their depletion allowance, were given a cut in their tax rate from 35 to 32% in 2004 by the Republican congress. The Democrats voted to repeal that tax break, and if I recall coreectly Bush vetoed this repeal. The Dems have also been trying to cut back on tax breaks for overseas operations.

      Gasoline prices, in case you had not noticed, were $1.25 a gallon when Clinton left office for regular. They rose to about $4.50 a gallon this summer, and have dropped back to about $3.80.

      Natural gas was about $2 a cubic foot in 2000. It is now up around 8 or 10 dollars a foot. You seem to have missed that one as well. What sort of home heating do you have there in Springfield?

      The “so what” is that the government has been involved in energy development for a long time, and has a track record of success. So providing tax credits in order to help nudge the solar (and wind) markets is not some sort of weird Marxist anomoly. It may turn out to be good, forward thinking policy. It may not. We don’t know yet. In my opinion it is worth a try, and at $10 million a year is quite affordable.

      I brought up Iraq only to counter your point below:

      ” Yet again another crystalline example *of the left* insisting they have a great idea that will really work, but asking everyone else to pay for it.”

      Both sides appear to have ideas for how to spend taxpayer money. And both sides charge ahead with those projects. Its not peculiar to “the left.”

      As for the outcome of the war….General Petraeus said the other day in a Newsweek interview that it is too soon to declare victory. And I would add that we are not bringing democracy to the Iraqis, and have no ability to do so. Since the definition of democracy is self government, they themselves are the only ones that can do that, because we can’t self govern them, or force them to self govern themselves. We could remove Saddam, and we could establish some order to give them a chance. That’s about it unles we want to wipe their noses & change diapers for the next few decades.

      No…it most definitely does not “kill me” or get depressing that there is at least a possibility that a democratic government, or at least a stable government with relative peace, appears to be finally forming in Iraq. I’m thrilled about it and hopeful that things may yet work out, even if that government ends up more friendly with Iran than us, which is likely. If Iraqis acheive peace, and send us packing, and McCain ends up getting elected…I can live with that combination.

      Last point. You also seem to have missed China’s transition from a communist to a capitalist system. Its been in all the papers, what with the Olympics and all.

    • David

      >> Rupert, you have not explained why it’s OK to give tens of
      >> billions of dollars in subsidies to the oil industry and not a mere >> ten million to the solar industry.

      > I see no reason to explain it, since I don’t accept the figure. Lists > of web links do not a cite make. No one would accept that in a
      > book report, I don’t accept it in a debate.

      Quite a disappointing answer. You are welcome to conduct your own research and determine your own figure for oil industry subsidies per year. I’m pretty sure it will be 10-100 B$/yr. Please provide the number your *do* trust after all your analysis, instead of putting your fingers in your ears and jumping up and down saying “No, no, no.”

  • Bob Clark

    Oil subsidies: If you take a look at financial statements routinely filed with the Securities and Exchange Commission, you’ll find oil companies typically pay a third of all their profits in income tax (billions). The subsidies the populists like to tout are a break on royalties to produce oil from federally owned lands. But the oil companies even on this score, still pay royalty taxes to the federal government albeit at reduced levels. Better some federal income than none, or a loss as in solar.

    Moore’s law: Scientists at the University of California energy institute have written folks are too premature on the economics of solar photovoltaics. Then too, drilling technology is making sharp advances as well allowing previously untapped resources like oil and natural gas trapped in shale rock to be economically accessed, and also to reach several deposits from one well decreasing oil and nat. gas’ foot print. Domestic natural gas production has been surging this year by most industry reports, running laps around any blip in heavily subsidized solar power energy. I think solar power could become another bust sort of like Portland’s hoped for but busted biotechnology industry plans for South Water front. There’s also the corn based ethanol flop.

    But like I said before $10 million or so is probably cheap advertising for the state, state politicians, and their hood winked constituency.

    • dean

      Sach’s innovations so far include a “string ribbon” technique that halved the amount of silicon needed to make a solar cell. He has started a firm called 1366 Technologies (1366 is the number of watts of solar energy that hit an average square meter of the earth’s surface). They are working on 3 new things that aim to improve solar efficiency by nearly 1/3. His theory is to go for incremental improvments rather than hope for a big breakthrough.

      But in addition other researchers are working on thin film photovoltaics (First Solar), which are improving by the day and could displace conventional ones. So far these are way cheaper but less efficient, though improvements are happening daily. Around the bend are steel roof panels with the solar cells embedded, so one can get one’s roof and solar electricity in a single application.

      And yes Eagle…large scale solar arays in the desert are already under development. Sorry about that, but think of it this way. If we shut down coal plants you will be able to see the view again.

      I read about the UC critique. They may be right. But with $4 gas and a carbon cap coming after next January, energy economics are shifting very quickly. Waiting around also has its costs.

      I have read about the new gas drilling techniques. They sound very promising. But gas is still a finite resource that generates CO2, while solar is infinite and 100% clean once it is manufactured and installed. Yes…solar could flame out. But its not likely.

      Ethanol may be a flop. But biofuels as a whole are developing very quickly. Algae diesel could breakthrough at any moment. In a way it is a race between biofuels and electric car technology. Whichever wins will determine the future of transportation.

      • eagle eye

        If we had replaced the coal plants with nuclear plants over the past 30 years, we would not have lost the view, and we wouldn’t need to fill the desert with thousands of square miles of glass.

        • dean

          True on both counts. But 3 Mile Island and Chernobyl interrupted that trend. And we have yet to figure out where to put the waste.

          South Africa is at work on a new generation of pebble bed nuclear reactors that are supposedly idiot (Homer Simpson) proof. And there are several more traditional projects in the planning stages. If a price is put on carbon emissions, then nukes would be cost competitive with coal. Maybe they are poised for a renewal. Maybe not.

          On the desert…the thing is that it is quite big. We won’t need to “fill it” with solar arrays. We only need to use a small part of it.

          By the way…an article in the business section of the NY Times indicates that unless we get serious about upgrading the elctric grid, wind energy is going to have problems. I expect that the next administration, either McCain or Obama, is going to make a grid update very high on the to do list.

  • John in Oregon

    David, Et Al

    Shall we take a look at this claim of big OIL “subsidies” with real numbers?

    Exxon most recent quarter according to CNN.
    Record quarterly earned income of $11.68 Billion
    Record quarterly Tax payment, all taxes less pump sales tax $32.36 Billion

    By my calculation that works out to a tax of 73.5 percent of a pre tax earned income of $44.04 billion. The idea that the US oil industry is subsidized is, well, its just laughable.

    > *The Cato Institute says the subsidies specific to the oil industry are $80-160 B/yr.*

    I don’t doubt the numbers presented by the Cato Institute. I do contest the term subsidy as used here. The focus of the Cato Institute is the use of tax policy to manipulate or coerce a free market to actions desired by government.

    Subsidy isnt the only term involved in this practice.

    The City of Portland wishes to force high density housing. High density is not profitable and banks wont finance these projects. As an “incentive” the city offers Tax increment financing.

    Subsidy or incentive, these two terms are essentially interchangeable depending upon the writers goal to Demonize or Sanctify.

    In less nuanced language we used to have a simple term for these kinds of financial manipulations. We used to call it a bribe.

  • Benefits Of Solar Power

    That is what I’m also thinking of. Using the Alternative energy is very sufficient thing to do. Even though that it cost expensive but the longer term of benefits is more profitable than its cost. That is why I’m not afraid of using it.
    Benefits Of Solar Power

  • Benefits Of Solar Power

    That is what I’m also thinking of. Using the Alternative energy is very sufficient thing to do. Even though that it cost expensive but the longer term of benefits is more profitable than its cost. That is why I’m not afraid of using it.
    Benefits Of Solar Power

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