Subsidy Farming

This is the kind of thing that happens when governments distort market incentives.

The above-market prices, called feed-in tariffs because panel owners feed power into the grid at premium prices guaranteed for decades, are high enough in Italy to generate average revenue of 35 euros ($48) a day for a 100-square-meter (1,076-square-foot) roof, according to Bloomberg calculations.
“The feed-in tariff drives our business plan and profitability,” said de Vergnies, whose plans include two photovoltaic plants in southern Italy that will generate enough electricity for 25,000 homes.

The gist:

The solar industry is “built on subsidies,” said James Britland, an alternative energy analyst at Allianz RCM in London. “This is a non-competitive industry that has to be subsidized.”

The investment capital that’s diverted by taxes into subsidies for politically-correct tech fads, and by investors themselves in response to the distorted incentives created by such subsidies, is capital that doesn’t get invested in productive ventures in biotech, medical devices, etc., etc. Keep this fact in mind the next time you or someone you know needs advanced medical treatment. Those chemotherapy agents and other wonder drugs don’t invent themselves. Fewer of them get invented to the extent we allow our reckless political class to divert precious capital to unproductive solar-energy schemes and other financial sinkholes.

8 thoughts on “Subsidy Farming”

  1. > other financial sinkholes

    Good grief, you don’t think medical research is a corrupt financial sinkhole?

  2. It’s possible to make money on medical research without relying on subsidies. This is where most of today’s high-value drugs come from. This is not currently possible for solar electrical generation (and if it becomes possible subsidies won’t be necessary).

    Or if medical research isn’t pure enough for you, substitute some other type of investment that is. The point is that subsidizing solar power generation diverts scarce capital from better uses.

  3. I wish I could remember the paper or article that I read – can’t remember where? – that discussed the tendency for “group-think” in academia to distort and divert federal medical dollars into research areas that might not be as fruitful as claimed by the academics. Basically, a kind of, “well, how can you know if the NIH is allocating research dollars in the best possible way?” lament. Best of course is subjective, and that is the problem with talking science when, really, you are talking societal values.

    Does anyone know the article? Instapundit linked it some months ago….

    – Madhu

  4. I think everyone here agrees that subsidies are generally harmful, but we should at least acknowledge the pretense for this particular market distortion — that fossil fuel plants produce a negative externality in the form of pollution. A more straightforward, but less politically palatable, approach would be a Pigovian tax on fossil fuel generation — but that opens up multiple other cans of worms.

    Also, I wouldn’t point to any one other valuable industry as suffering from this subsidy, aside from the obvious substitutes for subsidized solar power, like coal and nuclear. The opportunity cost is very real, but very diffuse. What is seen is the extra solar panels; what is unseen is, well, unseen.

  5. Side note about the situation in Spain, mentioned as an example of country where the subsidy boom already passed: see this article.
    Как гуляли-веселились, подсчитали – прослезились.

  6. Your thesis is my basic problem with the “All of the Above” energy policy even sharp pols like Sarah Palin endorse. In a world of unlimited demand, in NO CASE can we have “all of the above.” We have to ration our capital and human energies into the investments with the best returns.

    Here in the heart of Silicon Valley it is truly disheartening to see big shiny solar panels on the roofs of the McMansions knowing that those status symbols are being paid for by the lowly grunts in the apartments and in the Central Valley through taxes and electric rates.

  7. Again,
    If you can’t compete on the open market, hire some muscle to do it for you (subsidies). Until Solar becomes competitive with other power sources for normal use you must either give solar money or penalize more efficient producers. This is the explanation of what some governments do regarding energy.

    They forget that energy makes their life possible.

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