How to Make the Sun Shine on Solar Energy

Recent news from the solar industry includes headlines about Germany cutting solar subsidies and Arizona-based First Solar laying off 30 percent of its employees.

First Solar’s move comes despite years of subsidies from the federal government and state governments across the nation to both that company and many others as well as the consumers of their products. The subsidies were meant to bolster a market for solar panels. Yet, even with those heavy subsidies, the prospects for First Solar and the solar industry generally are still dimming.

Like the U.S., Germany has offered generous solar subsidies in the past. But now with substantial solar-energy capacity – perhaps too much to persist without subsidies – and serious economic trouble, Germany is cutting its solar subsidy programs.

Solar companies and governments seem to be learning a basic economic lesson. Duke economist Michael Munger explains, “if an activity is profitable, it produces more in value than it uses up in costs. If an activity is not profitable, it uses up more in resources than it produces in value.” If subsidies bolster a company’s bottom line, then the market signal of a company’s profitability is “fake, and the activity still uses up more resources than it produces in value.”

In the end, doing away with subsidies may lead to a brighter future for solar energy. Subsidies have shielded solar companies from competition and sometimes protected flawed business models. It’s too soon to tell whether the solar industry can be a viable long-term energy producer in a cost-effective and economically efficient way. But we may never know if we continue to protect it – and other energy sources – from competition.

Learn more:

Washington Examiner: Firm sells solar panels – to itself, taxpayers pay

Washington Post: Solar industry faces subsidy cuts in Europe

Prof. Michael Munger: Truly massive solar fail

Goldwater Institute: Government subsidized energy is just the same old song

Note: The second paragraph has been amended to reflect changes made to the Washington Examiner source article.