5 Subsidies: Depletion allowances and accelerated depreciation in the fossil fuel industries and other subsidies result in price advantages to conventional technolcgies.** According to one study, the Federal Government has provided on the order of $200 billion in support of conventional energy over the 1918 - 1977 period. *** While issue may be taken with the exact figure, it is clear that conventional energy sources have been substantially subsidized. . Price regulation, however, provides a much larger price advantage to conventional fuels. Unequal access to capital: Centralized energy systems generally have a financial advantage over decentralized units. Since each state guarantees utilities a local monopoly and reduces their risk, these utilities can generally obtain capital on better terms than can individual consumers. Furthermore, a utility can amortize its initial capital cost and repay borrowed funds over long periods of time while individuals and many businesses often do not have this flexibility. Price controls and other subsidies have provided important benefits to the public in the form of reduced energy prices, and to producers in the form of greater than normai returns. However, they have also led to excessive energy consumption and dependence on foreign fuel supplies. In the future, new oil and gas prices should gradually increase to a level approximating their replacement cost. Nevertheless, solar energy will still be disadvantaged for a number of reasons. Gas prices will still reflect low-cost gas, rolled-in from existing contracts. Unless current utility pricing policies are changed, consumers will continue to pay average prices for electricity, while solar In FY 1978 alone, depletion allowances and allowances for intangible drilling expenses cost the government approximately $2.8 billion. Source: "Special Analysis: Budget of the United States Government, Fiscal Year 1978". Analysis of Federal Incentives Used to Stimulate Energy Production", buclille Pacific Northwest Laboratories (March 1973). 54-948 0 - 80 - 45 6 energy systems will generally be priced at the margin. Because today's marginal costs for electricity exceed average costs, there is a bias against solar systems that compete against electricity.* On-going subsidies to other energy sources will also continue to limit the use of solar energy. Unless these handicaps are removed or compensated for, solar energy will not be fully utilized, even where its real economic costs are less than conventional systems. With a large number of firms, the solar energy industry is quite competitive at the present time. In addition, a number of large firms are entering the solar field, thus providing a more diverse industrial and commercial base. The competition in the solar industry can lead to innovation and cost savings. If, however, concern about the reliability of solar systems and marketing practices should lead to restrictions in the number of firms and competition in the industry, the Nation could face less variety in solar applications and higher prices. Federal agencies such as the Department of Justice and the Federal Trade Commission will be monitoring competition in the solar industry. * This is true unless a utility is making the comparison. Utilities necessarily make their decisions at the margin and many regulatory distortions would not apply to their planning processes for using solar energy. A Federal policy for solar energy must deal with several unique problems. Unlike nuclear power and hydroelectricity, two technologies which the government has developed extensively, solar technologies come in many forms, are varied in scale, and can be applied to a large number of end uses. Federal programs therefore must be designed to support a large and diverse set of new technologies. Moreover, because solar devices will be sold to millions of individuals and small businesses, marketing techniques and delivery systems must be different from those used for conventional technologies that serve only a limited number of utilities and industrial users. Traditional government activities such as financing pilot plants and demonstration projects may have to be supplemented with additional tools, including consumer education programs, product quality standards, and direct financial incentives. Over the past five years, the Federal government has begun to develop an overall policy designed specifically for solar energy. This policy includes research, development and demonstration; financial incentives; government operations; and special programs aimed at reducing institutional barriers to solar use. Total Federal funding for solar energy programs is summarized in Table 2. Although these programs can be improved, they represent an important beginning in creating an overall Federal solar strategy. II. RESEARCH, DEVELOPMENT AND DEMONSTRATION* Federal programs for research, development and demonstration (RD&D), as shown in Table 3, cover nine different solar technologies and seven government agencies. Funding for Federal RD&D, depicted in Table 4, has increased dramatically in recent years from $14.8 million in FY 1974 to over $500 million in FY 1979. *The Federal RD&D program is reviewed in detail in Appendix B. TABLE 2 FEDERAL SOLAR ENERGY EXPENDITURES 1 Sum of expenditures by NSF, AEC, ERDA, DOE, USDA, DOC, EPA, DOI. 2 Total expenditure was $160 million; however, $40 million was funded under the RD&D Program. 3 Excludes some solar expenditures for which information was unavailable to the DPR. 4 Bureau of Reclamation and Corps of Engineers expenditures for multi-purpose facility development, 1977-1978. Total prior (1933-1976) hydro federal incentives estimated at $17.4 billion. |