Wind and Solar energy suffered from low demand for a long time. This is because wind and solar power was available at a much higher price than electricity produced from coal and natural gas. In addition to that, wind and solar power cannot provide continuous supply of electricity. Though these sources of energy are more environment-friendly, they saw limited use in power production due to the two drawbacks. But the government subsidies to these sectors have helped these sectors to lower the prices of these energy sources. With a subsidy existing for a long time, the wind and solar energy producing units have been able to expand their size. This has reduced the cost of production. So wind and solar energy producers are at an advantageous position right now.
The article highlights the effect of subsidy on the production of solar and wind power. The cost of production has been reduced due to economies of scale. The article also discusses another economic concept. The issue whether solar and wind energy are good substitutes of conventional energy produced from coal and natural gas. The article also discusses the how competitive energy market is.
The government’s decision to provide subsidy to the wind and solar power sector was a right one. This step by the government has reduced the price of wind and solar power. The usage of wind and solar power has increased because of this fall in price. This will lead to an improvement in the environment and wind as solar power do not emit harmful gases. But the government has taken short-term subsidy schemes. But these sectors require long-term subsidy schemes so that they remain competitive in the market.
WSJ, Solar and Wind Energy Start to Win on Price vs. Conventional Fuels, Diane Cardwell, Nov 23, 2014
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