No matter how you feel about solar incentives, it is important to realize that all power production is subsidized. Conventional (coal, oil, natural gas, and nuclear) power production is subsidized in many ways, including direct financial support (grants, low-interest loans, R&D), preferential tax treatment (tax credits, exemptions on royalties, accelerated depreciation), trade restrictions (quotas, trade embargoes), and liability limits (for nuclear energy). According to the World Energy Assessment Overview—2004 Update, annual worldwide subsidies for conventional energy averaged $250 billion, without considering military costs. Subsidies for renewable energy were about 4% of that—about $10 billion combined for the United States and Europe in 2004. It is through these subsidies that conventional power rates are kept artificially low.
Since we did not include any incentive programs in our simple payback scenario, a true economic comparison between renewable and conventional energy could only be established if subsidies for conventional power were also removed. If were we also able to quantify other externalities to conventional power—such as its environmental impact (climate change; water, soil, and air pollution), impacts to public health, and military requirements to protect the fuel supply and nuclear power plants (and waste storage)—and include this in our comparison, we would get much closer to comparing “apples to apples.”
Because it is unlikely that subsidies for conventional power production will be removed or environmental externalities will be incorporated in the dollars per KWH for conventional energy, offering financial incentives (e.g., rebates, tax credits, tax exemptions) and other subsidies—such as government funds for renewable energy R&D—to renewable energy consumers and producers helps level the playing field between conventional and renewable energy (see “Power Politics,” this issue).