Posts Tagged ‘counter-productive subsidies’

Even subsidies fail to stimulate electric vehicle sales in Europe

September 30, 2011

The fundamental problem with using subsidies for political purposes is that something that is fundamentally unsound and not viable is supported by tax-payer money in the hope that it will become viable. I take it for granted however that subsidies are nearly always misplaced, subject to and induce gross misuse and are generally counter-productive for the political objectives they have. In my experience subsidies tend to hinder rather than help the development of new technologies. They particularly reduce the pressure on the developers to reduce costs for new technologies and are too easily misused. The emphasis always becomes the maximisation of the subsidies that can be extorted rather than the proper commercialisation and deployment of the new technology.

Subsidies for electric vehicles are equally misplaced and sales in Europe demonstrate that these incentives are particularly ineffective.  It is probably time to dismantle all such subsidies which only distort the market and to let the development and commercialisation of electric vehicles follow a more healthy course.

Incentives fail to stimulate European electric vehicle sales

New research from JATO Dynamics finds that despite a variety of subsidy programs, electric vehicle (EV) sales in Europe remain stubbornly unresponsive to financialincentives during the first six months of 2011.

Europe has a wide range of incentives in place, but they do not appear to correlate closely with sales of electric vehicles.  For example, Spain (€6,500) and Great Britain (€6,400) have almost identical subsidies, but Great Britain registered almost five times the volume of EVs (599 versus 122) during the first half of 2011. Sweden registers an almost identical volume as Spain (111) but subsidizes each vehicle by only €470.

Denmark offers tax breaks that can potentially amount to €20,588 per vehicle, but there were only 283 registrations in the first half of 2011.

“The discrepancies highlight the apparent low influence of price on purchase decisions across the region,” says Gareth Hession, vice-president for Research at JATO. “It’s reasonable to conclude that sales are more affected by other factors such as the degree of urban geography, market maturity and charging infrastructure than was previously thought.”

Total registrations were only 5,222 in the first half of 2011.

Renewable Energy follies: Subsidies discourage maintenance

July 6, 2011

A key problem with subsidising “renewable energy” is that the economics become so distorted that developers/owners focus first on maximising the extraction of subsidies and not on the long-term operation of the plant or the production of power. As soon as payback is achieved the focus is on generating revenues while minimising  expenditure on operation and maintenance (O & M). Inevitably such plants are abandoned as soon as the O & M costs approach the level of revenues. Whereas conventional power plants (coal, gas, hydro and nuclear) have a design life of 30 – 40 years and often carry out maintenance to extend this lifetime, subsidised “renewable energy” plants have a lifetime of less than 10 years and often even less.

For example grants for construction and high tariffs were used for many years to encourage sugar producers in India and Brazil and other countries to build power plants burning bagasse (the waste matter left after crushing sugar-cane to extract juice). But the consequence was that sugar producers could generate more revenue by producing power rather than sugar – especially when the sugar price was low. Sugar producers built power plants which were larger than they needed themselves and based solely on the level of grant that could be extracted. Access to the grid was guaranteed. But again many of these plants were abandoned as soon as the O & M costs became too onerous. Effectively the developers had recovered all the investment (which was mainly grant money anyway) and more from the allowed 16 – 20% rate of return (which in practice was more like about 30-50% ) of the supposed investment. As plants were “cashed out” and abandoned, the grid just had to absorb the disturbances – which were not negligible.

The subsidies in Europe for wind and solar power are encouraging the same behaviour. In Germany the almost profligate subsidy regime has encouraged the implementation of less than serious power projects by less than serious developers. The game has been the extraction of subsidies not of generating power. In Germany wind turbine and photo-voltaic solar cell plants popped up everywhere. Farmers and shop-keepers and schools all have became power generators. Grid stability has been weakened to cope with the plethora of small plants cutting in and out of the grid. The obscenely high feed-in tariffs in Spain have encouraged solar plants to burn more gas than permitted and pass off the power generated as being “renewable power” at the high tariff. But as the subsidy regime weakens and tariffs reduce and grants are scaled down, the likelihood of these plants being abandoned is increasing. Certainly there is no incentive to spend any money on maintenance.

P. Gosselin at NoTricksZone has this about a pv solar plant (2.7 MW) after less than 2 years:

Weed-Covered, Neglected Solar Park: 20 Acres, $11 Million, Only One And Half Years Old! 

solar plant weeds

Over the next few years we shall see many more solar and wind power plants in Europe where money will not be spent on maintenance unless it is absolutely necessary for the generation of short-term (subsidised and inflated) revenues. Long-term maintenance will just not happen. And when the O & M costs become too onerous the plants will simply be abandoned. No doubt bankruptcies will be arranged when the plants are cashed-out such that there is no recourse to the developers/owners for any remaining liabilities.

Subsidies just don’t work for their intended purpose in power generation – but they are short-term gold mines for some developers.

Misguided solar subsidies favoured the wealthy

November 11, 2010

Further confirmation that subsidies in general are counter productive and in the case of solar panels in Australia were misguided:

From ABC News:

A new report has found the Federal Government’s billion-dollar subsidies for solar energy favoured the wealthy and barely reduced Australia’s greenhouse gas emissions. Over the past decade, successive federal governments have provided generous subsidies to households installing solar roof-top panels.

But the cost effectiveness and fairness of the solar voltaic rebate program is being questioned. Andrew Macintosh, the associate director of the Australian National University’s Centre for Climate Law and Policy, has reviewed the program. He says it has barely reduced Australia’s greenhouse gas emissions, and it has favoured the rich. “What we found was that the cost of the program was very high,” he said. “It cost the government about $1.1 billion. For that we got about a six-fold increase in solar generation, but still solar constituted only 0.1 per cent of total generation, so a relatively small technology in the overall grid,” he said.

“We’ve been handing out a lot of subsidies for solar systems, but the most people who pick up these subsidies tend to be from wealthier households … and as a result we’re basically providing middle and upper class welfare.”

In June last year the Federal Government cancelled the program at short notice.


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