In Addition to Being Cost-Ineffective, Xcel’s Solar*Rewards Subsidy Is Regressive

March 7, 2011 by williamyeatman
Filed under: Archive, New Energy Economy 

In addition to being cost-effective—even by solar power’s expensive standards—Xcel’s controversial Solar*Rewards subsidy program is also regressive. That is, it’s a subsidy for the rich, borne disproportionately by the poor.

Elsewhere, I discuss how Solar*Rewards program, a far-too-generous subsidy for the installation of solar photovoltaic panels, became a political hot potato in Colorado (for a detailed primer, see here; for more accessible explanations, see here or here). Suffice it to say, Xcel is seeking to curtail solar subsidies, because they cost a lot of money but produce only a little electricity. To wit, Xcel ratepayers are expected to this year pay almost 4 percent of their bills (about $100 million) on the Solar*Rewards program, in order to obtain about half a percent of its electricity. That’s a bad deal.

But it’s actually worse than a bad deal. That’s because solar panels, like electric cars, are almost exclusively the play-things of the well-off. Even after the (roughly) $10,000 ratepayer subsidy, a Solar*Rewards applicant must pony up another $10,000 to pay for the other half of what it costs to install the panels. Only the upper class has this sort of money to put to something as frivolous as solar panels.

Lest you think I’m being harsh when I label solar panels as “frivolous,” consider how little electricity they produce. According to Xcel, the monthly production from solar power systems less than 10 kilowatt capacity (the overwhelming preponderance of Solar*Rewards applications are for systems this size), “can easily result in payments which are less than the cost of issuing and cashing a check” (Xcel, 2009 Renewable Electricity Standard Compliance Plan, Section 5, page 6).” In a different document, the utility concedes that the small solar systems are cost-ineffective, even by solar energy’s expensive standards (Rebuttal Testimony of Robin Kittle, Docket 07A-462A, p 2 line 9 to 19).

But whereas the upper class is the primary beneficiary of the Solar*Rewards program, all ratepayers—rich and poor—fund the program on an equal basis. Of course, this “green energy” tax represents a larger portion of a poor person’s budget than it does a rich person’s budget, because the poor have less income. As such, it’s a classic case of a regressive tax.

William Yeatman is an energy policy analyst at the Competitive Enterprise Institute

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