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)

An advantage of government intervention in the energy market would be that the long term savings would be extremely significant.  The case study argues that should the government continue to support the current subsidy for the solar panel market, prices arguably could soon plummet to roughly the same as prices for fossil fuel generated energy such as natural gas. This would in turn allow the country to improve its sustainability in terms of the environment; solar panels would not pollute the environment as well as being a long term sustainable source of energy as solar power is renewable. 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.

The flipside to this argument is that subsidising an emerging technology could prove to be a waste of money. The case study also acknowledges that should the government intervene in this case, it may create the drag effect of forced continued intervention; the case study references that ‘large solar farms will need subsidies until 2025-2028’, creating an opportunity cost for governments as monetary funds must be spent on this subsidy rather than potentially being spent on other key infrastructures. Allowing free market forces to operate would therefore place the responsibility of energy choices in the consumers’ hands, and if solar panels do prove to be popular it can be argued that consumers would theoretically see the price benefits of this and choose to switch to it themselves.

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.