A funny thing is happening to President Bush on his way to confronting the country's addiction to oil: He's being one-upped by Republican governors promoting solar power. In his State of the Union address, Bush said he would increase the federal government's research budget for solar power to $150 million, but the money will come out of other renewable-energy projects. Meanwhile, Gov. Arnold Schwarzenegger has pledged a million solar rooftops in California by 2017, and in January a $2.8 billion rate hike for utilities was approved to pay for it. In New York, Republican Gov. George Pataki signed a bill last year offering up to $5,000 in tax credits to homeowners who install solar power equipment on their roofs.
Conservative politicians vying to embrace renewable energy may sound like an environmentalist's dream world, but there's a catch. The government money beckons at the worst time in the solar industry's economic cycle. In the last two years, the price of polysilicon, the basic material for most panels that turn photons from the sun into electricity, has more than tripled because of voracious overseas demand. Polysilicon is made from silica, a mineral that's cheap but that must be refined and processed. If the new subsidies were delayed by a couple of years, there would be time for new polysilicon factories to come online, and the government and solar-eager homeowners would save a big chunk of money.
The rush on polysilicon is primarily due to a 2004 German law that promised to buy electricity from any German citizen willing to throw some solar cells on his or her roof. The German super subsidy pays at rates that are more than double the cost of installing solar equipment and more than four times the cost of electricity generated by fossil fuels. Thousands of German homeowners and businesses flocked to take advantage of it, and in two years Germany went from a minor supplier of solar energy to the world's largest, inflating the price of polysilicon in the process.
America's solar industry also helps account for the price hike. U.S. solar energy starts from a small base, accounting for one-tenth of 1 percent of overall energy consumed domestically. But it has been growing at a rate of almost 40 percent a year for the last three years. The boom is big enough that the solar industry will soon eclipse computer companies as the primary buyer of polysilicon, both in the United States and globally.
The world supply of polysilicon will almost double when the new factories that manufacturers have started building are ready. And then, following the law of supply and demand, the price of the material should fall. Solar panels will probably be at least 20 percent cheaper in two years, according to Scott Sklar, president of the Stella Group, a solar consulting firm. Yet California's $2.8 billion subsidy will be paid out to homeowners and businesses starting this year. Homeowners will get back close to half the cost of a rooftop solar-panel system that costs about $25,000 and supplies about half the electricity needs of an average home.
Another reason to wait out the polysilicon price bubble is that the high prices are doing wonders for alternative solar-power technologies that use less polysilicon—or none at all. Several recent scientific advances have brought other materials to the efficiency levels of polysilicon. The competitor that's closest to market—some production has already started—is the thin-film photovoltaic cell. It uses an alloy of copper, indium, gallium, and diselenide instead of polysilicon, and it can be made on flexible rolls, which means that it's cheaper to produce than a polysilicon cell. Shell Solar, one of the biggest producers of photovoltaic cells, recently sold its polysilicon-cell business and bet its entire future on this new technology. Further down the road are quantum dots, holographic tuning, and organic photovoltaics. If these technologies fulfill their laboratory promise, they'll offer higher efficiency for less money.
It's too bad that the timing of California's program is off, because in other ways it's cleverly structured. By extending over 10 years and gradually reducing subsidies as more solar panels are installed throughout the state, the program is designed make the solar industry more predictable and stable, so companies can safely expand. As the industry takes advantage of economies of scale and passes savings along to consumers, the technology should become more cost-competitive with fossil fuels. It may sound far-off to imagine solar power costing about the same as electricity or gas, but it's a hope that President Bush has said he shares.
In the meantime, if politicians want to spend wisely to promote solar power, they can invest in "big solar"—solar power plants that would cover hundreds of square miles of desert, producing energy on a massive scale with mirrors that concentrate the heat of the sunlight to produce electricity. * This technology has recently been able to produce electricity at a cost that's almost with the same as fossil fuels (about 6 cents per kilowatt hour). The only raw materials needed for big-solar plants are steel and aluminum, neither of which is priced high at the moment. Several southwestern utilities are already building such plants. The utilities would add more if state governments were to help fund them.
So what do you do if you're a sunny-state homeowner with an urge to go solar and you're being offered an intoxicating subsidy? In the short-term, the most cost-effective choice is probably a solar water heater. Though decidedly low-tech, these systems are eligible for most state subsidy programs and promise to immediately shave 15 percent off most homeowners' energy bills. In a couple of years, when the price of polysilicon comes down and alternative technologies come to market, you can spring for a set of solar panels for your roof. In this case, the worm will go to the bird that waits.
Correction, Feb. 24, 2006: The original sentence incorrectly stated that "big solar" power plants use steam to generate electricity. The plants generate the electricity directly from the heat of sunlight using closed-loop Stirling engine generators. Return to the corrected sentence.