Last year during the SB3 negotiations, the “stakeholder” group decided to include a specific carve-out for solar energy. To this end, the North Carolina Utilities Commission requested its consultant to model the projected costs of a renewable portfolio standard that included a solar component.
The model they developed included scenarios in which the price of solar power (the most expensive form of electricity production) declined by 25, 50, and 75 percent by year 2021.
These projections likely made the solar set-aside more palatable to consumer groups. However, they have little basis in reality. The primary chemical input into production of solar panels is polysilicon – the same chemical that is used to manufacture microprocessors.
Limited supplies of this chemical are resulting in a global shortage as more of the chemical is demanded for solar panel production. As a result, the price has increased from $20 per kilogram to $300 per kilogram over the past five years and continues to rise. The solar panel industry has grown into a major competitor with microprocessor manufacturers for this resource and is starting to bid polysilicon away from microprocessor manufacturers. Government mandates for solar power will undoubtedly cause this trend to accelerate.
The scarcity of polysilicon – an economic reality – has two major implications. The first is that government mandates will force an ever-increasing trade-off between solar panels and microprocessors. To assume that humanity will benefit more from solar panels than from microprocessors is very presumptuous to say the least. In fact, the market demonstrates that, absent government mandates, people have a much higher relative demand for microprocessors – indicating that people derive much more utility from this use of polysilicon. Indeed, if this were not the case, there would be no need for government mandates to allocate the use of polysilicon to solar panel production.
A second major implication of polysilicon scarcity is that regardless of technology advances in the solar industry, the cost for solar power could remain elevated well above the cost of power generated through other resources. That would really blow out all of the assumptions about price declines in the solar industry that policymakers have made.
The principle of scarcity underlies the entire study of economics. Yet, it apparently eludes many government-funded “economic impact” studies. I guess they have different textbooks.
Cross-posted at www.environmentnc.com.
