Opinion: Daily Journal

Good or Bad, Third-Party Sales Are Not ‘Free-Market’

RALEIGH — If an industry can provide its product only by using the government to force others to deal with it, then it is not an industry that can be functional in a truly free market. This is the case for the solar power industry, including what are called third-party sales of solar-generated electricity.

In a recent Charlotte Observer article, Rep. John Szoka, R-Cumberland, plugged his so-called “energy freedom” legislation allowing off-the-electric-grid third-party sales from solar farms directly to consumers, which is prohibited in North Carolina, by saying, “I believe in free markets, and I believe in property rights. This allows property owners to use their property as they see fit.” The Observer added its voice to this claim, stating that:

The Energy Freedom Act would inject a free-market alternative into the state’s strictly regulated utility market by letting independents compete for customers against utility monopolies such as Duke Energy Carolinas and Duke Energy Progress.

As an aside, it should be noted that this is not only or even primarily about single-family homes with panels on their roofs but, as the Observer points out, big consumers of electricity like Walmart, Lowe’s, Target, and Macy’s, who have expressed interest in purchasing electricity from third-party solar providers.

In light of claims by Szoka and the Observer, the question arises as to whether these third-party sales arrangements are actually examples of free markets and open competition or a creature of government control, regulations, and subsidies. Users and producers of solar power benefit from a huge number of government-granted privileges, all of which are necessary in making electricity from solar power a viable option for consumers.

There are state and federal incentives, in the form of tax credits to solar companies and their customers, and mandates on utility companies forcing them, and by implication electricity customers, to buy excess power generated by private solar producers at retail prices. This is called “net metering.”

But what might be the biggest subsidy stems from the fact that, because they are public utilities, electric companies are forced to hook up and sell electricity to everyone, even if they are buying electricity from third-party providers. Solar panels can supply electricity only when the sun is shining. Solar power requires backup electricity generation from regular power plants in order to have any chance in the market at all.

The next time someone says that solar is a reliable form of energy ask them if, using only the panels, you will be able to light your house at night (other than with a kerosene lamp), heat your house during a blizzard, or cook dinner after 7 in the evening. This is where the forced subsidy comes in.

As noted, if you are a user of third-party solar power, the electric company is required by law to connect you to the grid and has to provide you with power during what amounts to more than half of any given day. This on-again, off-again use of the utility company’s services imposes costs on those companies, which will end up as rate hikes for utility customers generally. Combined with net metering, this forces everyone who pays an electric bill to subsidize beneficiaries of third-party sales.

Whether third-party sales arrangements are good or bad should be debated on their own merits, carefully looking at who benefits and who loses. But the fact is, these arrangements are not even a distant cousin to what would be a free market in energy.

In fact, third-party sales of solar power can be sustained only in a market dominated as it is by utility regulations and government subsidies. The solar power industry as we know it is a creature of government, and allowing third-party sales will not change that.

Dr. Roy Cordato (@RoyCordato) is Vice President for Research and Resident Scholar at the John Locke Foundation.