The massive global oversupply of solar power panels is as much an object lesson in the irrationality of markets as the U.S. mortgage meltdown that caused this recession.
We’ve heard the pundits tell us that, yes, economic models are based on the many rational decisions of buyers and sellers, but also, yes, irrationality cyclically brings it all to a crashing halt.
Last week, it was reported that Ontario and British Columbia are having themselves a good old fashioned trade war, each trying to outdo the other in attracting investment in green power projects. It all sounded a lot like what municipalities were doing — what was it, two recessions ago? — when they were trying to lure the industrial growth that would save their economies.
Tax holidays, cheap land, everyone seemed bent on giving as much as possible to companies looking for a place to grow. The companies merely had to announce the intention to build a new facility somewhere and the bidding war would begin. What did we get? A shortage of industrial land, unsustainable growth and a ridiculous municipal tax regime based on housing values, rather than economic capacity.
What we learned from that is that you can’t overcome economic cycles with irrational behaviour. Not that such a lesson is likely to stop us anytime in the future, though. We are still, and ever will be, irrational when it comes to money.
Today, the political flavour prefers green power. You’d say that looks like a good thing.
There was actually a shortage of production of solar power panels for a while and rational people decided to build capacity.
So irrational people with access to the public purse decided to make it a race to attract the location of that new capacity — outside of normal economic sense.
The game became further skewed by rational investors all deciding at once that this type of industry would be a good buy — before the industry had enough customers to take up their product.
Provinces may love solar and wind energy projects and the industries that build them, but people (that is, customers) live in cities. They need an economic framework that makes sense to them before they will buy a whole lot of solar panels.
Thus, we have a world building 12 gigawatts worth of new solar panels a year, with only enough customers for 6.2 gigawatts. It looks like some rational investors are in trouble, again.
And this while Ontario and B.C. are falling over each other trying to build more.
Here’s a question from a consumer: how many more solar panels might we see in a place like Red Deer if you didn’t need five lawyers, seven bureaucrats, a royal commission, two MLAs and an MP just to get permission to hook one to the grid, never mind an electrician?
Here’s an observation: There can be no stronger incentive for changing behaviour than putting cash in your pocket. If it were simple, understandable (and legal) to do so, having a few solar panels on your house or garage is the strongest incentive there is to conserve energy. Because you would get paid for whatever power you produced that you didn’t use yourself, over the 40-year life of those solar panels.
That alone would mitigate the crisis-level need for another coal-fired power plant, and a multibillion-dollar transmission line. Add a few thousand kilowatts of solar, reduce a few thousand more through conservation and you’re on your way.
And the investors in solar panel factories could get their money back in Ontario, B.C. or wherever.
Obviously, this is not rational. Or we’d be doing it, right?
Greg Neiman is an Advocate editor.