THE UNSEEN COSTS OF SOLAR-GENERATED ELECTRICITY
This research explores both explicit and implicit factors that influence the cost of producing electricity from different sources. The explicit, or seen, costs of electricity include the costs of power plant development and construction, operation & maintenance, and transmission infrastructure. Often overlooked, however, are the implicit, or unseen, costs of electricity caused by government subsidies, mandates, and regulations that distort the electricity market. These unseen costs have real impacts on American consumers and taxpayers.
In recent years, US solar power capacity has grown rapidly. Government subsidies and mandates, not market forces, are encouraging the development of solar power. Policymakers at both the federal and state level have enacted incentives for solar power to address constituents’ desire to transition away from fossil fuels. Unfortunately, solar energy is expensive and inefficient. Government policies that mask the high cost of solar power encourage investments in solar power that misallocate resources and increase the burden on taxpayers.
Retail electricity rates do not communicate the full cost of producing electricity from solar energy. Government subsidies, for example, do not actually reduce the cost of solar; they simply transfer part of that cost onto US taxpayers. The actual cost of solar power is much higher than most people think because it includes the cost of government policies, along with other unseen costs like infrastructure issues and environmental impacts. These costs are explored in a recent report by the Institute for Political Economy at Utah State University.
THE UNSEEN COSTS OF FEDERAL SOLAR POLICIES
Federal subsidies increase the unseen costs of solar energy by distorting the energy market and transferring the high cost of solar to taxpayers and electricity consumers. The three most important federal solar power subsidies are the Investment Tax Credit (ITC), Modified Accelerated Cost Recovery System (MACRS), and the American Recovery and Reinvestment Act of 2009. Between 2000 and 2013, the ITC resulted in over $4 billion in revenue losses. About $1.7 billion in tax revenue was lost due to the MACRS program.
In 2013, solar power received 27 percent of federal energy subsidies, but produced only 0.4 percent of total US electricity. Solar power would not be economically feasible without federal subsidies. According to the GW Solar Institute, repealing current tax benefits and the ITC would raise the price of a standard 20-MW solar photovoltaic plant by an estimated 58 percent.
THE UNSEEN COSTS OF STATE SOLAR POLICIES
State policies such as mandates, tax incentives, feed-in tari s, and net metering further increase the unseen costs of generating electricity from solar power. By enacting these policies, state policymakers are picking winners and losers, reducing the reliability of the grid, and increasing the tax burden for state taxpayers.
Twenty-nine states have enacted Renewable Portfolio Standards (RPS), which mandate that a specific percentage of a state’s electricity come from renewable sources by a given date. The negative economic impacts of RPS include lost jobs and increased energy prices. According to a study by the Institute for Political Economy, in 2014 North Carolina had an estimated 23,769 fewer jobs than it would have if it had not enacted an RPS.
These state mandates also raise electricity prices. Renewables are more expensive than conventional sources of energy, so when RPS require more energy come from renewables, energy prices go up. In 2010, states with RPS had electricity prices that were an estimated 38 percent higher than states without.
INFRASTRUCTURE ISSUES & ENVIRONMENTAL IMPACTS
The cost of solar power is higher than most people assume because solar is unreliable and has fewer environmental benefits than expected. Solar panels only generate electricity when the sun is shining, so conventional power plants must be kept on backup to meet demand when electricity generated from solar is insufficient to meet demand. These conventional generators repeatedly increase and decrease electricity production in a process known as baseload cycling. Baseload cycling increases operations and maintenance costs for conventional plants, which drives up the cost of electricity for consumers. It also o sets the carbon reduction benefits of wind power by 20 percent, on average.
Despite attempts to kickstart solar energy through federal and state policies, solar power is the most expensive form of producing electricity today. An accurate estimate of the actual cost of producing electricity from solar power must take into account the cost of both federal subsidies and state mandates. These hidden costs add up, making solar power a bad investment for US taxpayers.