Australia cuts solar subsidies, and not before time

Is the market close to sustainability?

Ignoring ideology, the pragmatic question is whether or not the subsidies have created a market that can survive without them. I can’t say “yes” for certain, but the market looks more sustainable than it did five years ago.

Some industries – in Australia, childcare is a notorious example – use subsidies to lift their prices. Since the government’s going to pay half the fee, the market can slap on a premium, and the end user still gets to book a small saving.

The price falls in the solar industry in Australia, I argue, indicate that the market is sufficiently competitive to respond to changes in its circumstances, and might no longer need a direct installation subsidy.

To return a lower-subsidy industry to where it was in 2008, solar power needs to trim its installed prices by around 20 percent. In three years, it’s achieved double that – 40 percent, more or less.

Setting aside labour costs, the rising Australian dollar alone could do the trick, since there appears to be enough competition (and desperation) to stop the market simply gouging the consumers.

For some reason – perhaps it’s the level at which you can expect payoff while you’re still alive – A$6,000 seems to be a psychological price point for entry-level solar panel installations. Even with the reduced subsidy, the industry isn’t that far off the mark, and could well reach it by market dynamics alone.

The outcome would be a country in which solar setups become worthwhile in their own right, without all the downsides of the government subsidy. Is that a bad thing? ®