Harder to hand out subsidies than you think

Michael Giberson

It is harder to hand out subsidies than you think, or at least hard to do it well.

The Arizona Republic explains some of the difficulties utilities in the state are having with their renewable energy subsidy programs.  For example, when Salt River Project announced it was going to cut it’s subsidy for home residential solar installations, a rush of last-minute applications for the higher subsidy rate cost the utility millions.

When Arizona Public Service saw its subsidy budget running out, it too dropped its subsidy rate, but to avoid a last minute rush like SRP, Arizona Public Service cut it’s rebate without advance notice. The sudden change surprised contractors and consumers who had consummated deals without knowing that the rebate had changed, and many of the consumers then wanted out of the deals.

One of the problems highlighted in the article comes from a whipsaw effect on contractors who see booms and busts in installation businesses when subsidy rates jump around. Of course these difficulties don’t have anything to do with renewable power per se, just with the general difficulty of program design and implementation. So don’t go thinking, “Aha, I knew renewable power was bad all along.”

(However, if you come away from the story thinking, “Aha, I knew electric utilities were not very sophisticated in understanding consumer behavior beyond what shows up in a load profile ….”)


2 thoughts on “Harder to hand out subsidies than you think

  1. First, the obvious: subsidies are stupid, and often harmful
    Second, your point: they can be made even more harmful
    Third, an alternative: the utilities should auction subsidy rights (subject to the current verification process) and use proceeds to extend their budget 🙂

  2. “Aha, I knew renewable power was bad all along.”

    I don’t know in general whether a particular solar installation makes sense, but the presence of a subsidy tells me that it was bad all along. A subsidy forces other people to pay for part of that installation. Why is that a good idea?

    A bankrobber’s family benefits from his theft. I still don’t support bankrobbery.

    “The sudden change surprised contractors and consumers who had consummated deals without knowing that the rebate had changed, and many of the consumers then wanted out of the deals.”

    So, many of the people buying solar installations decided it was a mistake without the subsidy. I certainly don’t think that these projects are good when even the buyer’s don’t think so.

    Put simply, the neighbors should not be forced to pay for one family’s solar installation.

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