Budget Deficits and Alternative Energy

Today, I stopped by the blog of my all-time favorite financial guru, Jim Jubak (thanks, Dad!) and found this post.

Just what solar energy companies don’t need—what could be an emerging risk that the existing national electricity grid isn’t up to the task of getting solar-generated electricity to consumers.

First Solar’s (FSLR) December 22 cancellation of plans to build a 150-megawatt solar power plant in the high desert of Colorado points in that direction. In the company’s explanation for withdrawing its application to build the plant the company noted that it is reviewing all of its projects with an eye to factors like transmission capacity.

Could tranmission capacity–or the lack thereof–be emerging as the next bitg problem facing solar energy companies?

This comes as no surprise to anyone familiar with Steven den Beste's posts on the topic of alternative energy sources. Here's a good summary of his thoughts.

In order for "alternate energy" to become feasible, it has to satisfy all of the following criteria:

1. It has to be huge (in terms of both energy and power)
2. It has to be reliable (not intermittent or unschedulable)
3. It has to be concentrated (not diffuse)
4. It has to be possible to utilize it efficiently
5. The capital investment and operating cost to utilize it has to be comparable to existing energy sources (per gigawatt, and per terajoule).

If it fails to satisfy any of those, then it can't scale enough to make any difference. Solar power fails #3, and currently it also fails #5.

The issue with concentration is the one mentioned by Jim Jubak. In order to make use of solar power, you need to build a massive web of transmission lines across a huge amount of land since the power generation is so diffuse. That'a a cost that would have to be paid by the government or imposed by the government on the utilities by law.

On top of that cost, solar power is heavily subsidized by the government. I was building a house about 7 years back and a salesman was trying to get me to buy solar power panels for the roof. The tax breaks and incentives were staggering. If I remember correctly, it was about half the cost of installation. That didn't include all the government subsidies for development and construction of the products. That was invisible to the consumer.

The size of the subsidies is substantial. Dig this bit from the LA Times.

The state's $3.3-billion solar subsidy program has become so popular that the state utilities are approaching the legal limit for how much power they can buy from customers.

$3.3B is a lot of money for a state drowning in debt and that's just one subsidy at the state level. The Federal government has gobs more.

So what's going to happen now that the budget deficits are starting to really bite? California is another $20B+ in the hole this year. Arizona has a similarly huge budget problem. I would think that in the absence of these subsidies, alternative energy is not going to be financially attractive at all.

Invest now, our future is bright!