## Thursday, September 09, 2010

### Will a new real estate tax save us from solar insanity?

The subsidized photovoltaic industry has exploded in the mostly cloudy Czech Republic. Within a year, the amount of electricity produced by solar panels has increased by a whole order of magnitude. As a result, the leading power utility, ČEZ, estimates that it may have to raise the price of electricity by a whopping 20 or 30 percent starting from January 2011.

Today, everybody in the Czech politics realizes that the subsidized "renewable" energy was a huge mistake and a looming tumor inside the economy that has to liquidated as soon as possible; otherwise we are going to pay dearly. Be sure that almost no Czech citizen is eager to pay an extra 20-30% for the electricity and politicians are well aware of this sentiment.

However, it hasn't always been the case. Just one or two years ago, pretty much every Parliamentary party in Czechia - with the proud exception of ODS, the Civic Democratic Party (the main current right-wing coalition party founded by President Klaus) - was endorsing the growth of the "new industry". Even though ODS was recently split in its relationship to Klaus, the whole club actually managed to support Klaus' opinions about the "renewable sources of energy" in all critical moments.

By the way, while Czechia is thinking about the ways to save its economy from the promised green subsidies, Science Magazine wonders how flying saucers may save the Earth from global warming. ;-)

But ODS was beaten, the bills passed, and the contracts have already been signed and the green would-be entrepreneurs have already been guaranteed a huge and easy profit from trying to bring us to some real trouble. Or have they? Mr Pavel Bárta has written an interesting article at virtually.cz and I translate his text in its entirety.

A new tax to beat the green thieves
By Pavel Bárta

The support for the renewable sources is a robbery. It's the same kind of robbery as the purchase of overpriced swirling water baths for the military. The electricity provided by these sources may be produced elsewhere and in a cheaper way. When we include the consumed raw materials, energy, the expenses to liquidate the facilities, the secondary investments, and the operating costs that are needed to stabilize the power grid, only green ignorants or creative Greek administrators could be talking about environmental benefits of such an investment.

In the recent years, this robbery took place to such an extent that its impact on the target donkey, who is no one else than the energy consumer, was not too visible. Mass production of the "pinwheels" could only be stopped because of the cursed slogan, NIMBY (Not In My Back Yard)! However, as some progress occurred in the development of the solar panels, photovoltaic cells have broken into our back yards. First, they differ from the "pinwheels" because they don't overhang the landscape so flagrantly; second, their support is set to completely nonsensical values.

Because this robbery is legal and its disgraceful profitability is guaranteed by one of the green religious bills, it is very difficult to take the loot away from the solar hustlers. The government, which - as it is usual - has only realized the problem when it was pretty late, began to search for various possibilities - especially those based on the tax system - how the solar insanity may be stopped. Politicians are speaking about a special, solar, higher rate for the income tax. However, the photovoltaic hustlers have legally guaranteed tax breaks. Others are speaking about a state intervention into the electricity prices via a subsidy - which only means that the solar priests will be paid from the same pockets but by a different method.

If we want to find a genuine way how to terminate the sunstroke, we may use another kind of tax - a real estate tax that will be imposed on every owner of the (temporary) structure or building dedicated to the production of the solar energy via photovoltaic cells. From a budgetary viewpoint, this tax would be an income of the government and it will be used to pay for the difference between the prices of non-solar "power" electricity and the government-guaranteed price for the photovoltaic energy. The tax should be at least large enough to make the whole operation budget-neutral. There is a danger that once the solar wizards go bankrupt, the fields will have to be cleaned by the State Environmental Fund. But the price will still be very low for the big blunder that this business has been.

1. Maybe you can elaborate on what's the problem with photovoltaics? Is it that the overall process (from manufacturing to recycling) is so expensive? Or is it about indirect environmental impacts?

Surely, manufacturing and recycling are pricey and impact the environment - but as far as I can see, there's a trend that manufacturing becomes cheaper and easier over time (not sure about recycling). Also, operating costs of PV are extremely low compared to existing power technologies, and working PV is not polluting the atmosphere.

--Andrew

2. Dear Andrew,

as far as I see, there's no law of physics that would make solar energy "forever unprofitable". And indeed, I am claiming nothing of the sort.

It is completely conceivable that in 5 or 10 years, solar panels will be genuinely cheaper than energy from coal-burning plants.

We're not there yet. What I am criticizing here are the subsidies, i.e. attempts to promote solar energy when it is not economically feasiable yet. When you simply count the expenses etc., it is 3 times more expensive than the competitors.

There's no calculation of this ratio "from the first principle". It's a complex calculation that depends on many things in the real world, and many of the difficult things are enumerated in the article.

But imagine that you're so competitive that you may produce a coffee machine, C, but for the price that is 3 times higher than the price of your competitors. Would you sell it? It would be insane. For competitors, a few percent in price difference usually matters - 300% is just an insane difference.

Nevertheless, for quasi-religious reasons, it doesn't matter to many people.

The subsidies - promised prices to buy energy from the producers for 15 years - are effectively helping solar energy *not* to become economically feasible for the 15 extra years because the engineers in the solar industry may assume that the current efficiency is OK to achieve profit.

In effect, the subsidies *hurt* the technological progress. It's complete nonsense that by distorting the market and the prices, one helps the technological progress. Such a "help" is very analogous to the "help" to the computer technologies done by communism. In the late 1980s, socialist countries were lagging by 10-15 years behind the West.

The problems - that are not being solved because they're hidden behind the subsidies - include a low average insolation at the points where the cells are being built; expensive procedures of production, involving cleaning and dangerous chemicals; need for recycling; need for a "classical" backup sources of energy that cover the non-uniform production by wind turbines and/or solar cells.

These are not infinite insurmountable problems but they're still real and I think that if someone doesn't care that these problems lead to a *tripling* of the energy price, it's because he or she has never earned his money by a real work but was relying on the money from other people who can give him as much as he asks.

These things do matter in the economy and must matter, and once they don't matter, the economy automatically becomes inefficient and wasteful.

Cheers
LM

3. Hi Lubos,

That makes sense, thanks for a quick response.

--Andrew