Donald Trump’s meeting recently with Silicon Valley’s tech royalty should give investors an idea about which sectors of the economy will be receiving some love from America’s Reality Star in Chief. Mr. Trump declared to the tech CEOs in attendance that he was their “ally,” probably in an attempt to clear bad feelings that arose during his brutal presidential campaign bid against Hillary Clinton. The tech world almost unanimously threw its support behind Mrs. Clinton, but Mr. Trump appears ready, at least rhetorically, to throw his support behind Silicon Valley.
Nothing against the Silicon Valley posse, but the beautiful, glitzy gadgets and services produced by Elon Musk’s SolarCity and Tim Cook’s Apple are targeted to America’s more affluent consumers. Dropping $300 to $800 on a time piece accessorized with apps I’ll never use is a bit much. And while the libertarian in me likes the idea of generating my own electricity with the use of solar panels, it’s hard for me to buy into an argument that says it’s cool for Elon Musk to collect an estimated $4.9 billion in government subsidies when the majority of taxpayers funding those subsidies can’t plunk down the tens of thousands of dollars in upfront costs for solar panels, storage batteries, cables and gear.
Over four decades of federal and state government policy promoting the use of solar, wind, and other alternative fuels for electricity production has given firms like SolarCity an opening and an incentive to invest in the production and sale of rooftop solar. These incentives have included billions in subsidies. As policy, this $4.9 billion transfer of wealth from taxpayer to solar panel providers fails for two reasons.
First, a $4.9 billion wealth transfer turns low-income consumers into an energy welfare safety net for the rich. Low-income Americans cannot afford to shell out the tens of thousands of dollars needed to install solar panels and purchase the storage batteries to back them up. Further, where solar panel owners are compensated for selling excess electricity to utilities, but the utilities do not recover fixed costs for the grid from these customer-generators, low-income consumers bear the burden of unrecovered costs via higher prices.
Second, federal and state subsidies distort the true price and value of solar by setting an artificial price floor. Instead of consumers absorbing the full costs of solar panels, taxpayers end up taking on some of the cost burden via the subsidies. If the true cost of solar provided by firms like SolarCity were borne by their customers, they would seek out other alternatives for solar-generated electricity. Investor-owned utilities, observing real, market-based demand for solar, would have an incentive to incorporate additional solar into their portfolios.
Policymakers could address both of these problems by first removing subsidies that prop up the “Musk Plan” for solar. Affluent customers, who more than likely could afford the full cost of solar panel purchase and installation, should not benefit from a low-income consumer financed discount on access to the Sun.
Policymakers should also draw from the approach of another billionaire, Warren Buffett. Mr. Buffett’s firm, Berkshire Hathaway, owns a number of utilities that pursue a centralized utility approach to solar. A centralized utility model sees a utility purchasing electricity from a utility scale solar provider, similar to purchasing electricity from a provider that uses natural gas or coal. Rather than limiting the benefits of solar to a small group of affluent consumers, the benefits of clean energy could be spread to low-income consumers as well.
Federal and state policy makers should not have to abandon rooftop solar as a component of their clean energy social policies. They should spread the benefits of clean energy to lower income citizens by creating incentives to deliver solar-generated electricity via a centralized utility model.