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Evaluate the argument for government intervention in the market for solar panels to encourage the growth of renewable energy rather than allowing free market forces to operate. (10)

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Introduction

´╗┐Evaluate the argument for government intervention in the market for solar panels to encourage the growth of renewable energy rather than allowing free market forces to operate. (10) The energy market is one that is usually regarded as relatively inelastic; for a developed country it is largely assumed that every household in the country will consume some form of energy. A free market economy would allow private firms to operate as they wish without government intervention, and as these firms usually operate through the use of standard fossil fuels rather than the newer more sustainable energy sources. Government intervention would therefore ensure that these firms will ?play ball?, or forced to comply with regulation laws. ...read more.

Middle

The subsidy would therefore provide an incentive for households to switch as government intervention creates a downward pressure on prices, which are still the main deciding factor for households deciding which energy firm to use. Another positive effect of government intervention in this sector is the economic side benefits it would bring; the case study argues that by subsidising the solar market the UK would likely be able to supply ?15% of UK electricity demand?, and by doing so at the same time ?supporting almost 50,000 jobs?. Clearly there is also some economic incentive for the government to continue subsidising the solar panel market; it creates a benefit for households as well as the economy as a whole. ...read more.

Conclusion

An evaluative point that can be made on this case is the extent of popularity the solar panel market will be met with. To switch to a more renewable energy source, consumers must face the costs of switching and shopping around, and therefore may have little incentive to switch from existing sources which already work perfectly fine. Therefore the incentive for switching will fall to the extent of the subsidy governments are willing to invest into the market. If the government does intervene but does not provide enough monetary support, it is unlikely to have any effect on the market at all as it would still be too costly to provide an incentive to switch; at the same time there would also be a huge opportunity cost as the government places money into the market with little effect ? funds that could be better spent elsewhere. ...read more.

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