Overpaying for green power: Americans adopt personal subsidies just as Europeans are abandoning them.

AuthorBailey, Ronald
PositionColumn

"HOW CAN California encourage investors to generate renewable electricity?" asks Ray Pingle of the Sierra Club. "How about a guarantee that if they generate the power, they'll be paid at a good price?"

Fair enough. But the price proposed by the Sierra Club and its allies in government is three to five times the current average price of electricity.

Green power advocates in the United States have started pushing for a subsidy scheme in which homeowners or businesses that install solar panels or windmills can sell their excess power back to the grid at inflated prices. The government would require utilities to pay high above-market rates for the power.

These "feed-in tariffs" were first devised in Germany in the early 1990s, and they have been adopted by nearly 20 other countries since then.

If encouraging the installation of renewable energy capacity is the chief goal, feed-in tariffs do work. As a result of its program, Germany has the world's second largest installed wind capacity (behind the United States) and the world's largest installed solar photovoltaic capacity.

If you consider other goals, however, the idea has drawbacks. A recent report by RWI, an independent German economics think tank, noted that the solar electricity feed-in tariff--59 cents per kilowatt-hour in 2009--is more than eight times higher than the wholesale electricity price and more than four times the feed-in tariff paid for electricity produced by on-shore wind turbines. But even with that dramatic subsidy, solar panels provide very little of Germany's power.

As the report notes, "Installed capacity is not the same as production or contribution." In 2008, 6.3 percent of Germany's electricity production was from wind, followed by 3.6 percent from biomass and 3.1 percent from hydropower. Meanwhile, "The amount of electricity produced through solar photovoltaics was a negligible 0.6 percent despite being the most subsidized renewable energy, with a net cost of about 8.4 billion [euro] (US $12.4 billion) for 2008."

Consumers foot the bill. In 2008, green energy subsidies accounted for about 7.5 percent of average household electricity costs. Keep in mind that German residential electricity prices are already high, at about 30 cents per kilowatt-hour. The average American pays about 12 cents per kilowatt-hour.

Last year Vermont adopted a feed-in tariff scheme, guaranteeing solar power 30 cents per kilowatt-hour for 20 years.The average price of electricity for...

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