Energy

Free Market Friday: Enough with the solar subsidies

January 22, 2016

Jonathan Small

Last year, the Oklahoma Legislature agreed – with overwhelming support from both political parties – that one group of electricity customers should not be forced to subsidize another group of customers. Now that principle, not to mention state law, is threatened by special interests bent on protecting their unfair advantage.

The issue is known as “net metering” and is about electricity customers who generate some of their own power. Enforcing the new law is the job of the Oklahoma Corporation Commission.

Rooftop solar panels used to be niche items for living “off the grid.” Because small-scale solar power generation remains relatively inefficient and subject to weather – not to mention sunset – most people want to stay connected to the power grid. In order to expand their market, companies that make and sell rooftop solar panels convinced politicians to do something extraordinary. They convinced politicians to force utilities to buy electricity back from these customers at retail rates.

The trouble for the rest of us is that our retail price for electricity includes all the costs – not just generation, but also installation and maintenance of the whole power grid. When another customer gets to sell power back at full price, he becomes a free rider. Net metering mandates force traditional customers to subsidize those who can afford their own solar panels or wind turbines.
Companies like Elon Musk’s SolarCity are desperate to keep the subsidies. Some even claim this mandate-and-subsidy scheme is about free markets.

Governments regulate electric utilities because they are natural monopolies – they rely on massive, networked infrastructure to operate. It makes sense to establish fair rules for utility customers who also want to generate some of their own power. Utility companies are willing to pay or provide a credit to customers who generate excess electricity. The rate, however, must be fair. Other customers should never be forced to subsidize their neighbors, let alone big out-of-state companies that already enjoy massive subsidies from taxpayers.

The Oklahoma Legislature overwhelmingly adopted exactly that position last year and tasked the Corporation Commission with determining that fair rate. The Corporation Commission is under pressure from solar companies and other interested parties to find a way to keep the subsidies flowing. Their job, however, is to stand up for all Oklahoma electricity customers.

Finally, the truth is shining brightly like the sun on the solar panel subsidy scheme.