A Guest Post by Greg Nemet, University of Wisconsin.

The Economist has an article this week with the title “bureaucratic meddling has harmed solar power.”

The article points out correctly that the cost of solar power has stopped falling in the past couple of years as a result of scarcity of purified silicon, the main material used to make solar panels. It’s an informative article…as long as you ignore the headline and the conclusion that governments should not interfere with the development of new technologies.

Any subsidy program will put upward pressure on prices in the near term, as people are generally willing to pay more for something when someone else pays part of the cost. The important question is what happens in the longer term. And despite the recent rise in prices, the subsidy program in Germany and the market for solar it has created over the past eight years, have set in motion promising trends: new purified silicon plants are coming on line that will make the input material for solar panels much cheaper, the rise in silicon cost has led to rapid reductions in the amount of material used, and the scale of demand has made it worthwhile for German machine tool companies to develop PV-specific manufacturing machinery that they now export to low-cost PV factories in China. These developments are highly promising for cheaper PV; and they are very closely tied to important policy innovations, also known as “bureaucratic meddling.”

The bigger problem, that the article misses, is that the solar technology being used today is unlikely ever to get cheap enough for truly massive deployment, even if the factors above engender substantial cost reductions in the next several years. In a recent study (PDF), we compared the effects of subsidies and R&D on the cost of solar power and found that you can’t get to really cheap solar with subsidies alone. Subsidies can help enable economies of scale and learning-by-doing, but they are not enough. Technology breakthroughs are also needed if PV is going to get cheap enough to compete with coal or gas or, eventually, nuclear power—even with high carbon prices. Some of the technical improvements that will enable commercialization of cheap PV are certainly best left to the private sector. But the history of technology policy suggests that the fundamental breakthroughs required will need to come from more bureaucratic meddling in the form of publicly sponsored R&D funding.