Renewable Energy Corporation ASA (REC), one of the world’s largest producers of polysilicon and wafers for solar applications reported second quarter results today and surprised analysts with strong overall market demand. Go to the highlights here: REC Second Quarter 2010 and look at the development the share price here: Renewable Energy Corporation ASA (REC) (The chart below shows the development the last 5 years – not very promising, is it..).
The solar industry is still dependent on subsidies to compete with traditional energy sources. When contemorary state finances are poor you also expect the subsidies to gradually crumble – if you add a boom in low-cost peers in Asia, factory delays and lower oil prices; future prospects do not look bright – therfore the lack of confidence in the stock post 2008.
The subsidy debate reminded me of an article on The Big Picture, an excellent blog by Barry Ritzholt that I read on a regular basis. Fact is that 42 percent of the world’s oil is subsidized and the majority of federal energy subsidies support fossil fuels, not renewable or new alternative technologies – according to the Environmental Law Institute. What is then the point of the Pigouvian tax on gasoline (to internalize the negative externality of the emissions)?
Another study shows that increased production (contradicting the arguments for subsidies) of renewable energy can also cause unintended effects through changes in quota prices. A study of the German electricity market (Bohringer and Rosendahl 2009 “Green Serves the Dirtiest”) found that subsidies to renewable energy is forcing the most efficient coal plants out of the market, while the least efficient coal plants increased their production. The combined effects of subsidies for renewable energy may be different than what emerges from a partial analysis of energy production for given prices. Last: Why sponsor ethanol based on corn? “It has been estimated that using corn for fuel rather than food contributes a third of the rise in prices worldwide” Hurting those who need food the most: people in developing countries. For me it is obvious that you have to equalize the treatment of these energy sources; Cut the subsidies.
BTW: While were on the “subsidies” topic (not on energy though) – I remember this enlightening post on government intervention on the Carpe Diem blog:
“A great example from today’s The Gartman Letter about how government agricultural subsidies generate significant and costly economic distortions and inefficiencies:
“One of the axioms of economics is the simple notion that if you subsidize the production of anything you are going to get more of it… and usually more of it than you need. Our favorite example of that was back in the 1970s and 1980s when the US government subsidized durum wheat production in the Dakotas primarily. We got more durum wheat than we could use, so we had to subsidize the export of that wheat to Italy primarily.
Italian pasta makers gladly took the subsidized overproduction at newly subsidized prices that were below the world price of that wheat, and produced wonderful pastas that they exported to the US. The US pasta producers protested and got the government to put a tariff on the imported pasta! In other words, American tax payers “paid” to have too much wheat grown; “paid” again to have that excess wheat exported and “paid” again to buy the pasta they cherished from the Italian pasta producers… and all along the way there were more and more government employees needed to supervise each level of subsidies and tariffs. It was a wonder to behold! It was a scam for the ages.”
Dennis then uses this example to ask “how anyone could be surprised to find that new home sales have fallen off the edge of a precipice in recent months following the “incentives” for buying new homes put into effect late last year and expiring several months ago this year?”
Update: Wheat farmers continue to receive very generous subsidies, more than $30 billion has been paid out between 1995 and 2009 to more than a million farmers, see data here andhere. More than $2 billion has been paid out in each of the last two years (2008 and 2009)”.
Basic economics illustrated:
Source: The Basics of Subsidies
Further: Breitbart.tv explains what is wrong with the US government and it’s investments :