Can you start by answering the question everyone wants to know the answer to, especially given recent events in Japan: Is solar power a viable alternative to coal?

Yes, solar power is viable. It works very well. You put a solar panel out in the sun and it will last for at least 20 years. There are only two issues with solar power – one of which will go away, the other of which is intrinsic. The only reason that we don’t have far more solar power than we do at the moment is that it’s been very expensive – this is the issue that will go away. Thanks to our Chinese friends investing very large amounts of money in very big factories, the cost of solar is coming down very rapidly. The net result is that it’s becoming economic to install it in a lot of applications where just a couple of years ago it would not have been.

The obvious problem with solar is, what happens when the sun goes down? There really isn’t an answer to that yet. Solar is not going to be the whole answer to our problems, until such time as, perhaps, we have better batteries. If you have good batteries then you can charge them up during the day and use them at night. That’s also coming along at quite a rapid rate, with the application of large amounts of money.

There’s already been a surge in solar energy use, hasn’t there?

Solar energy has grown 60%-plus, year-on-year, over the past decade, and it’s continuing to grow by leaps and bounds. When I noticed the up-tick, my initial assumption was that there had been a breakthrough in the technology. But it turned out it wasn’t that at all. It was to do with policy – in particular, a policy innovation developed in Germany that really kicked off the huge growth in solar energy. So I got really interested in this question of, ‘What makes technological change happen?’ And it’s not just the technology – it’s also the policy mechanisms that support the introduction of new technology.

So is solar energy very heavily dependent on subsidies? What was the policy innovation in Germany?

The Germans changed the nature of the game by saying, ‘We want solar, and we’re prepared to pay for it.’ They came up with an innovative way of paying for it, which they call the ‘feed-in tariff’. What it means is, if you put solar on your roof, and you feed your electricity into the grid, we’ll take all of it and pay you a premium for it. But that premium will come down year by year, as more and more solar power is implemented, and the price of systems comes down. The idea is that people who install solar panels and solar systems will be able to recoup their entire investment and make an appropriate profit, and that they will be treated exactly as if they were electricity companies/utilities. This was a radical notion back in 2000, when it was first enacted by the Bundestag. It takes away the uncertainty of investing. If you know you’re going to get your money back, why wouldn’t you do it?

Then it becomes a matter of how a country pays for it. The Germans came up with the idea of making it the electricity companies’ responsibility, not the government’s. Every time you have direct subsidies from government, it’s always a mess. ‘We’ve run out of money, we can’t do this anymore,’ etc. Or a new government comes in and cancels the program. That happens again and again here in Australia. But the German system just rolls on, because it doesn’t have anything to do with the government, other than setting, each year, the rate by which tariffs are reduced. This has been going down and down and down and down. And you’ll hear different answers, but some people say that as early as 2015 the price of electricity produced in Germany by solar systems will be equivalent to that produced by coal or nuclear electric stations.

That’s extraordinary. But what about in the U.S., where I live? Am I going to get any benefit if, wanting to be environmentally friendly, I decide to put a solar panel on my roof?

It varies from state to state. They’ve tried different ways of achieving the same goal. In a few places, one place in Florida, and one place in Canada – Ontario – they’ve even adopted the German system. But mostly, in America, what they do is use a system called ‘net metering’. Instead of feeding all the electricity that you generate into the grid, you use the electricity for your own uses, and then, if there’s anything left over, you can feed that into the grid. It’ll run the meter backwards, so that ideally you end up not paying anything to the electricity company. This isn’t enough of an incentive to make people really enthusiastic about doing it.

Another problem in the U.S. is that the utilities don’t like it. They don’t want to lose market share to individual producers of solar electricity. So they are making it as difficult as they possibly can. In particular, the way they do that is through grotesque bureaucracy. In California, if you want to produce solar energy, you have to fill in a 140-page form. The big solar installers have people whose entire job is to fill in these forms. In fact, some companies have more form-fillers than they have guys in the van who go out and install the solar.

And on the positive side?

What’s happening that’s really interesting in the U.S. is financial innovation. One of the most exciting areas for this is solar leasing. There’s a company called SolarCity which is expanding like gangbusters out of California. (Most of these companies started in California, because that’s where people are most enthusiastic about solar, and Arnold Schwarzenegger did a wonderful job of promoting it.) So these days you can lease a solar system from a company and put it on your roof, and they will guarantee you will get back more in money for the electricity you produce than you pay to them for the lease.