Sometimes there’s much more behind a solar panel than you would expect.
Solar energy was in the news because the U.S. Congress, hoping to support U.S. production, has prohibited the Department of Defense from buying Chinese made solar technology. And yet, Chinese made solar equipment is 20% cheaper than U.S. made solar equipment. Choosing between deficit concerns and “Buy American,” you can see the answer.
Like China, Germany is a major producer of solar panel equipment while the U.S. is not. And, like the U.S., Germany subsidizes solar panel purchases. One problem, though, is that Germany is not quite the right place for the panels. As one researcher said, “The lasting legacy is a massive bill, and lots of inefficient solar technology sitting on rooftops throughout a fairly cloudy country.”
The Economic Lesson
Incentives seem to be everywhere when looking at solar power. U.S. consumers buy more because the U.S. government gives them money for buying solar technology. Meanwhile, the Chinese government makes the panels cheaper by subsidizing their manufacture.
A demand/supply graph perfectly illustrates the results. With price the y-axis and quantity the x-axis, supply shifts to the right as subsidies lower cost and encourage producers to make more. Meanwhile, demand shifts to right because buyers also receive subsidies. The result? For Chinese made solar panels, price is lower.
