After budget-stricken Spain eliminated subsidies for new renewable energy this year, Germany is now following the example by making significant cuts to its solar subsidy program.
Incentives for solar units pushed capacity past government targets, prompting Merkel to cut subsidies even as she seeks to wean Germany off nuclear power and expand alternative-energy sources for Europe’s largest economy. The government argues that subsidies have driven up electricity prices for German consumers while propping up solar-panel prices for domestic manufacturers.
Germany is, by far, not the ideal place for a costly solar energy experiment. The country is well known for its gloomy skies. This past August, I found myself vacationing in my home country under grey and overcast conditions, driving past endless acres of ground-mounted solar panels and thousands of solar-covered roofs that were waiting for a dose of sunshine to create energy. The irony couldn’t be greater that the world’s largest solar power station is in Bavaria, Germany. After all, even the anthem of Germany’s Free State of Bavaria acknowledges that its skies are covered in clouds, “[the] sky, white and blue!”
But none of that deterred the German government from burdening electricity ratepayers with expensive subsidies to pursue the dream of solar energy. According to Bjørn Lomborg:
Using the government’s generous subsidies, Germans installed 7.5 gigawatts of photovoltaic capacity last year, more than double what the government had deemed “acceptable.” It is estimated that this increase alone will lead to a $260 hike in the average consumer’s annual power bill.
Beyond that government-created waste, Germany is experiencing its Solyndra moment. Even prior to the announcement that subsidies would be cut sharply, Germany’s solar industry was already struggling. Following its three competitors—Solarhybrid, Solar Millennium, and Solon—who declared bankruptcy in past months, Q-Cells, once the world’s biggest solar cell manufacturer, filed for insolvency today. More bankruptcies are on the horizon, according to a Citigroup analyst.
Lavish government subsidies in China, the U.S., and Europe have swamped markets with solar panels, resulting in overcapacity and many solar manufacturers going out of business. This goes to show that government interference in markets results in waste and unintended negative consequences.
The U.S. is having its fair share of solar bankruptcies continue, demonstrating once again the government’s poor track record in picking market winners and losers. The latest U.S. bankruptcy was filed by Solar Trust of America on Monday. The Oakland-based company was planning to build the world’s largest solar station, the Blythe Solar Power Project, in the Mojave Desert. Even with California’s aggressive renewable portfolio standard, mandating that 33 percent of electricity come from renewable energy sources such as solar by 2020, the company couldn’t get off the ground.
Subsidies and mandates also encourage crony capitalism, as companies lobby lawmakers for favors and handouts. In the end, taxpayers and electricity ratepayers are on the hook to pay for the government’s meddling in energy markets—through increased taxes today or in the future, and through higher energy costs.
As Winston Churchill famously said, “All men make mistakes, but only wise men learn from their mistakes.” The U.S. should learn from its subsidy mistakes and end all energy subsidies. The best way for the government to promote energy exploration is to open access to locked-up resources and reduce onerous regulations. Only then will energy sources compete on their own merits, unleashed from government restraint and freed from government intervention.
Romina Boccia is Research Coordinator at Heritage’s Roe Institute for Economic Policy Studies and is a native of Germany.