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Can the stimulus money really help to drive down the price of solar electricity by half in the next five years? Yes, according to a White House report on Tuesday touting the impact of the American Recovery and Reinvestment Act. But think again.

Can the stimulus money really help drive down the price of solar electricity by half in the next five years? Yes, according to a White House report on Tuesday touting the impact of the American Recovery and Reinvestment Act. The report said federal spending will enable solar electricity to reach grid parity — pricing that’s comparable to power from coal and other fossil fuel sources — in many states by 2015. Solar pricing could fall below the overall retail rates for power by 2030, if certain technology breakthroughs happen.

The government has pumped billions of dollars into solar, including research, manufacturing and project development over the past year and half, and it’s reasonable to expect results from these hefty investments. However, the report raises some questions about what numbers and how those numbers are used to draw conclusions, as well as whether the recovery dollars will lead to big drop in solar electric rates.

The report specifically says that the stimulus could lead to the cost of generating solar power at homes to drop from about 20 cents per kilowatt-hour to 10 cents per kilowatt-hour by 2015. Technology breakthroughs could push the price down to 6 cents per kilowatt-hour by 2030, making it “cheaper than retail electricity from the grid,” the report said. The government’s analysis looks at the impact of the entire stimulus package over time, not just the spending allocated so far, said Jen Stutsman, a spokeswoman for the U.S. Department of Energy. It also doesn’t take into account state and local incentives.

A big issue with a report like this is that it paints an impression that solar electricity will fall by half by 2015 because of the stimulus dollars, and it doesn’t acknowledge the fact that competition and other market forces will play a bigger role in energy pricing. The issue of accuracy and the cause and effects of markets plagues private market research reports as well, where projections beyond a year could turn out to be incredibly inaccurate.

This happened last year, when solar panel makers and their suppliers first weathered demand freeze, layoffs and contract re-negotiations, leading to declines in the price of their goods by as much as 50 percent. Although they experienced an unexpected boom starting in second half of 2009 thanks to a huge demand from Germany (and government incentives), strong competition from low-cost manufacturers in Asia has kept the prices low, if not pushed them lower.

The White House report, of course, is meant to highlight the good work of the stimulus money and not meant to be a comprehensive market analysis. But it’s also targeting the general public, not those who understand the dynamics of the energy market. Tossing out numbers about how much consumers can expect to pay for solar electricity without more caveats and in-depth discussion doesn’t serve the public well.

Let me point to this government report from June 2008, before the government was in the throes of the stimulus package. It said, “Both residential and commercial systems will be less expensive [than] grid electricity by 2010, assuming that the 4.7% annual growth rate continues.”  The 4.7 percent growth referred to inflationary rate. The chart on page 6 showed that the cost of producing solar electricity for homeowners could reach 10 cents per kilowatt-hour (factoring in the federal incentives at that time) by 2015. The same cut in solar pricing as is now being attributed to the stimulus. The report noted that the forecast was conservative, and didn’t take into account any recent changes in supply-and-demand.

It’s not easy to make a strong case that federal spending will play a pivotal role in halving the cost of solar power. Certainly, public money that makes it possible to build large-scale solar power projects and factories should help. But it’s always a good idea to view numbers and forecasts with a critical eye.

The report also failed to address the potentially negative effect of taking away $3.5 billion from the $6 billion renewable energy loan guarantee program that’s supposed to accomplish a great deal for manufacturers and power project developers. Congress first took $2 billion from the $6 billion budget to fund the Cash for Clunkers program last year, and it took $1.5 billion away from the program recently to help stop teachers and other public employees from losing their jobs.

“The raiding of the loan guarantee is definitely a setback for us. One of our priorities is to get that funding back,” said Jared Blanton, a spokesman for the Solar Energy Industries Association.

Granted, the loan guarantee program provides for not only solar, but also other renewable energy projects, as well as companies in electric grid transmission, electric vehicles, energy efficiency and even coal. The program is making it possible for some large-scale projects to line up financing at time when investors aren’t willing to make that kind of big bets. The report highlighted loan guarantees that have made it possible for Solyndra to secure a $535 million loan to build a factory and BrightSource Energy to line up $1.37 billion for a solar energy project in California. Though not mentioned in the report, the DOE also has approved loan guarantees of $1.4 billion for Abengoa Solar’s power plant project in Arizona and $400 million for Abound Solar to expanding manufacturing of cadmium-telluride solar panels.

The report mentioned $2 billion in loan guarantee spending. Would consumers see cheaper solar electricity even sooner if the full $6 billion of allocation is taken into account?

To learn more about clean tech financing deals see GigaOM Pro (subscription required):

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Report: Cleantech Financing Trends: 2010 and Beyond

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  8. [...] the fall of 2008 and before the stimulus package materialized in February 2009. Hmm.  So here is my story discussing the two reports and the funny business of making [...]

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