Unintended consequences of subsidies

From EcoGeek:

At the beginning of 2008, the government of Spain (a very sunny country) created a year-long law that required power utilities to buy solar power at premium rates. This made solar power competitive with all other sorts of power...but only for one year.

The result was an enormous explosion in installed solar capacity, over 3 gigawatts in one year, enough to displace up to five coal-fired power plants. This number was far higher than analysts had predicted, but it comes at a significant cost, and not just to people's electricity bills.

Now that the subsidy is being rolled-back, the artificially inflated solar market in Spain is reeling. Oversupplies of panels are driving prices unprofitably low and installers are scrambling for work. Worse, many installations are lying about whether they were finished by the subsidy's deadline, effectively attempting to defraud the government.

The subsidy will only apply to 500 MW of solar this year, and the premium utilities are required to pay has been lowered. It will be interesting to see if the market is able to cope with this kind of crazy tampering. And while the over-supply of panels remains, no one is expecting the solar market to grow as quickly as it did last year.

But let this be a lesson to Obama, if he wants to really stimulate the solar market in the U.S.. Just keep an eye out for some unintended consequences.

Via GreenTechMedia

Hat tip: EEZ Rider.