Generous solar subsidies encouraging shady practices

PUBLISHED : Monday, 20 September, 2010, 12:00am
UPDATED : Monday, 20 September, 2010, 12:00am

There is a story doing the rounds in the solar power industry which although surely apocryphal still makes green energy enthusiasts' hair stand on end with horror.

Earlier this year - so the story goes - an audit by Spain's national electricity grid revealed that some of the country's solar power plants appeared to be supplying electricity to the grid at night.

An investigation discovered that the plants were indeed generating electricity during the hours of darkness. Apparently the subsidies paid to producers of solar power were so generous that it made economic sense for the plants' owners to generate power at night using floodlights - floodlights which themselves were powered by mains electricity.

This story smacks of urban legend. It is true that Spain's feed-in tariffs for solar power - the subsidised rates paid to generators - are generous to a fault. Solar plants can earn as much as Euro440 (HK$4,455) per megawatt hour for the power they supply to the grid, almost four times the rate that domestic users pay for electricity.

But even so it wouldn't make sense to operate at night using flood lights. With the world's most expensive photovoltaic cells only about 17 per cent efficient, the plant's electricity bill would be far bigger than its nighttime earnings even with the subsidy, and the plant's owner would lose money on his arbitrage.

In any case, if you wanted to milk the subsidies and were not shy of committing fraud, it would make far more sense simply to buy a diesel generator and lie, selling the electricity you produce as solar power.

Yet although the Spanish story doesn't quite ring true, it does illustrate some of the problems of attempting to engineer a switch to a greener economy by subsidising otherwise uncompetitive sources of renewable energy.

Nowhere are these problems likely to prove more acute than in China. As the charts below show, China is the world's biggest emitter of greenhouse gases, both in absolute terms and relative to the size of its economy.

Sensitive to being labelled the world's biggest polluter, Beijing is throwing money at the problem. Last year, China invested US$34.6 billion in its clean energy sector, nearly twice as much as the United States. This year China looks set to overtake the US as the planet's renewable energy superpower in terms of its installed capacity.

But the bald numbers mask some severe problems. Take wind energy. Although China has invested massively in building wind farms over the last few years, the development of the country's electricity infrastructure has failed to keep pace. As a result about 30 per cent of China's wind turbines have yet to be connected to the grid. And of those that have been connected, it turns out that in the rush to build many were sited poorly. On average, wind turbines in China turn for the equivalent of just 75 days a year, compared with 110 days for turbines in Britain.

There are problems with China's solar industry too. Generous 50 per cent government subsidies have encouraged heavy investment in solar power generation over the last year. However, like China's new wind farms, few solar plants are yet connected to the grid. Worse, many have been built in the country's west, which although sunny, is also dusty. As a result dust soon builds up on the panels, reducing efficiency and bumping up cleaning costs.

On top of that, there are consistent reports that government subsidies have led to widespread corruption, with operators skimping on construction and using substandard materials in order to pocket the subsidy funds.

At least there have been no reports of Chinese solar plants generating at night. But with feed-in tariffs typically set at four times the cost of coal-fired electricity, it would hardly be surprising if stories of solar plants operating under flood lights do begin to circulate soon.