Wednesday, July 30, 2008


solar energy and tax incentives

As a libertarian I oppose subsidies, tax incentives and economic protectionism in general.

I also live in a reality with oil and coal subsidies, massive credit bailouts, trillion-dollar wars and mathematically disinclined policy-makers in generally. I recognize the fundamental difficulty in achieving returns to scale in a market dominated by monopolized energy providers and I understand the risk model associated with solar investments.

So when the senate votes against extending tax incentives for solar and wind power investments a little piece of me has a moral conflict. I think local policy decisions born from city and state governments will be more effective at spawning a market for solar installations, but the federal government has demonstrated a decided lack of leadership in sane energy policy. I cringe as I hear the call for more drilling. I guess to a screwdriver everything looks like a screw, only it's all of us who are getting screwed. Continuing at a 30% CAGR, solar panel production will generate around $150B between now and 2012. Unless the Senate wants this production capacity to be developed in China, they aught to reconsider the tax incentives on capital investment.

I've done a ton of data analysis on solar output, panel production and energy price data provided by DOE and NREL. I know that solar panels need to have a 1.5x-4x multiplier to make it an attractive investment as a 12 year bond (depending on where you live).

What produces this multiplier? Tax incentives for putting your roof to solar power and for the bank for giving you a mortgage on the panel. Panel production at lower price. Panels with greater efficiency. Grid energy costs rising. The combination of these factors will produce the perfect storm for solar technology. The great thing is that all of these things are happening. It is possible to achieve this multiplier in the short run with policy incentives and in the long run when returns to scale reach the most efficient thin-film technologies.

Lower cost panel production is the big one. This is where returns to scale matter. Nanosolar is investing in prodution plants to produce 1 Giga-watts of panel capacity per year. They recently closed $75M in funding matched by $25M in government incentives. They haven't reported the conversion efficiency and cost per watt at their claimed production capacity, but the ink-jet deposition methods they are promoting will be a major factor behind the solar boom.

According to the DOE. the US consumed 3.3 Terawatt-years last year so it will take 3300 years at 1 GW of panels per year production rate to get to where we need to be. Luckily, low cost solar power is going to be massively profitable, so we should be able to replicate 1 GW production capacity 256 times over in 8 years if we double it every year. It should be possible to achieve a majority solar infrastructure by 2020 if we start going balls out now.

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