Commentary

Reason.org
February 13, 2006

California Solar Initiative Is $3 Billion Waste
Subsidies won't improve effectiveness of solar energy
By Adam Summers

The California Public Utilities Commission recently voted to approve a 10-year, $3 billion subsidy program for individuals and businesses that install solar panels on their roofs. The money will come from—guess who?—you. There will be a surcharge on consumers' gas and electricity bills that is expected to cost a typical family about $13 a year.

The program is similar to the "Million Solar Roofs" initiative previously advanced by Gov. Arnold Schwarzenegger and is supposed to stimulate the solar energy industry. In reality, it is an unnecessary taxpayer subsidy to an industry that even environmentalists claim is already growing strongly.

Last year, the Million Solar Roofs bill died in the Legislature when union-favored amendments were inserted that would have required solar panels to be installed by C-10 licensed contractors—those most likely to be unionized—and that installers be paid an above-market "prevailing" union pay scale. These costs would've defeated the bill's purpose, cheaper solar energy, causing Republicans to withdraw their support and eliciting a veto threat from Schwarzenegger.

Well-intentioned as the Million Solar Roofs legislation may have been, the union handouts were hardly its only problem. Even more troubling is the notion that politicians and unelected PUC bureaucrats can force their personal beliefs and ideology upon taxpayers.

In a free market, solar energy companies are free to offer solar panels, solar water heating, and numerous other renewable energy products to consumers. If there is sufficient demand for the products, they will thrive. If not, entrepreneurs will invest in more efficient, more suitable alternatives. In the free market, the laws of supply and demand serve to weed out the products and services that don't work well or that people don't want; in a government-controlled economy, politicians and bureaucrats pick a winner that everyone must deal with, to the detriment of customers and competitors alike.

The result is more pigs at the public trough and more hands in the taxpayer's pocket.

The "sun tax" imposed by the PUC smacks of unfairness, as gas and electricity customers across the state will be paying charges to benefit a small group of people. To add to the inequity, since the PUC does not have jurisdiction over municipal utilities, municipal customers will not have to pay the surcharge, but will still be able to take advantage of the subsidies. PUC Commissioner Geoffrey Brown, the lone dissenter on the vote, said, "That strikes me as bad policy, and potentially unlawful. A SMUD [Sacramento Municipal Utility District] electricity customer who takes gas from PG&E will be permitted to obtain the subsidy for solar panels that will be paid for by PG&E electricity customers."

Even worse, supporters of the sun tax essentially concede that the subsidies are not necessary because the solar energy industry is expected to soon be able to compete in the market without subsidies. Because the cost of solar energy is expected to fall over time, the subsidies are structured so they decrease an average of roughly 10 percent a year, from $2.80 per watt of capacity in 2006 to 25 cents per watt in 2016.

If solar technology is expected to be efficient and affordable in 10 years, why are gas and electricity customers getting soaked to the tune of $3 billion in the meantime?

Right now, there is a reason people do not use solar panels in larger numbers. The cost is prohibitively high—solar energy is the most expensive form of renewable energy—and simply not worth it. This may change in time as solar and other renewable technologies improve. When it becomes economical and prudent for people to switch to renewable energy, they will.

It is not the proper function of government to "encourage" inefficient or unsupported technologies or products (or efficient ones, for that matter). The sun tax amounts to little more than a wasteful and unnecessary giveaway to a politically-favored industry—at the expense of gas and electricity customers across the state.

Californians already pay some of the highest utility rates in the country and can add $13 per year to those bills now. PUC Commissioner Brown asked, "At what point are our rates too high to add a multi-billion [dollar] subsidy program?"

Good question.

Adam B. Summers is a policy analyst at the Reason Foundation.