Who will pay for Renewable Energy?

Gary Stern | Jan 02, 2012

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Federal and state funding for renewable projects slowed down in 2011 due to deficits and backlash against increased governmental spending. Tax credits, however, remained to help offset the cost of new renewable projects.

At the same time, three innovative solar companies, Solyndra, Evergreen Solar and SpectraWatt, filed for bankruptcy, despite the $527 million of federal loans invested in Solyndra. If governmental subsidies are diminishing and some renewable startups are going out of business, who will finance the industry to help it grow in the United States?

Because of these cutbacks, "growth in renewables will slow down," says Dennis McGinn, president of the American Council On Renewable Energy. He prefers the term "incentives" to "subsidies," saying incentives enable an emerging industry to grow more rapidly. For every million dollars invested in renewables and clean energy, 17 jobs are created, outpacing job creation in oil, gas and defense industries.

Private industry is filling in the gaps. For example, over the last five years, GE Energy Financial Services has invested $5 billion in renewable projects, mostly solar, but also wind, hydro and geothermal, says Kevin Walsh, a Stamford, Conn.,-based managing director and leader of power and renewable energy at GE. He describes this financing as "good, solid investments in proven technologies with good economics and strong counter-parties and the vast majority have long-term contracts."

Walsh also noted that the 30 states that have introduced renewable portfolio standards create a climate for investment based on savings from tax credits; he estimates that 75 percent of GE Energy Finance's renewable projects are invested in those states. In the states with renewable standards, it's easier to employ debt financing and tax equity. In the states without standards, "You may have difficulty convincing a utility to buy power that makes sense economically," he says.

Nor is Walsh deterred by the failure of some solar startups. He says First Solar is prospering and there's a natural shakeout in solar as there was in technology. The solar firms that are "scaling up and increasing efficiency" will prevail, he suggests.

The Motley Fool contributor Travis Hoium noted, "Renewable energy bashers like to point to unsustainable subsidies as the major reason energy isn't worth investing in. However, they fail to remember that most coal and natural gas power plants were built decades ago and benefited greatly from government subsidies."

Renewables are making steady progress, said Richard Caperton, a senior energy policy analyst at the Center for American Progress, a progressive think tank. For example, in 2009, 10,000 megawatts of wind power entered the grid, he says.

Why then do renewables supply only 11 percent of American power while coal-fired plants generate 50 percent of the power? "We've built coal power plants for 100 years, and making a percentage difference will take time. Getting to 20 percent renewable will take years. This is a 50-year effort to convert our power to zero-carbon power," Caperton said.

Renewable Portfolios

But solar growth is still modest. According to the Energy Information Administration, there were 18,833 megawatts of new capacity introduced in the United States including coal, gas, wind and solar between January 2010 and January 2011, says Mike Taylor, director of research at the Solar Electric Power Association. But solar accounted for only 4 percent of new generation, so the solar push that many experts expected to see hasn't fully taken off.

Even the energy companies that have been successful in increasing their renewable portfolio need governmental subsidies to defray costs. NextEra Energy Resources, a subsidiary of NextEra Energy, derives 44 percent of its portfolio from wind, 35 percent from natural gas, 13 percent from nuclear, 2 percent from hydro and 1 percent from solar. Spokesperson Steven Stengel attributed the increase in wind generation to "wind turbines being much more efficient and cheaper than they were several years ago. We've been able to build wind farms in locations that many years ago we may not have been able to do."

Stengel noted that the 2.2 cents per kilowatt-hour tax credit for wind projects makes it cost-efficient for its customers. He emphasizes that renewables depend on public policy support to stay price-competitive with other forms of power.

But critics say minimal governmental support is restricting increased use and investment in renewables. Donald Furman, former president of the American Wind Energy Association and currently a senior vice president for Iberdrola Renewables, a wind energy company based in Portland, Ore., puts the blame for only incremental growth squarely on the federal government:

America spearheaded developing renewable energy 20 years ago and "has given it away because we haven't had a coherent national policy supporting renewables," Furman has noted. China has taken the lead because of its massive governmental financial support for renewables. Furman said a strong renewable policy in the United States would create 274,000 jobs by 2025 with every state seeing job growth.

What the United States needs is for policymakers to "get over 2011 and start thinking about 2025," says McGinn from ACORE. What kind of energy power do we want our kids to live with in the future? If a price were placed on the use of carbon, renewable investment would spike. Thomas L. Friedman, author of The World Is Flat, has noted, "The only effective, sustainable way to produce green jobs is with a fixed, long-term price for dirty fuels that thereby creates consumer demand for, and sustained private sector investment in renewables."
 
Gary Stern. This story first appeared in EnergyBiz Magazine and can be found here: http://www.energybiz.com/magazine/article/243439/financing-renewables-going-forward

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Comments

Renewable power capacity is not renewable energy capability

The title of this comment states the issue in a nutshell.  While there may be 10,000MW nameplate of wind generation or solar generation attached to the grid, it does not mean there are 87,600,000MWh of electrical energy capability available--all you will get is about 27,375,000MWh or less if one considers that the 10,000MW of wind in Texas has a record output of only 7,355MW.  And, wind typically has been most available in the late night to predawn or barely post-dawn hours--not exactly a time when power is most needed.  Now solar does tend to be available at a more reasonable time but is already fading while the peak demand is still going up.  Even if one put in 10,000MW of wind and 10,000MW of solar, the energy supplied to the grid would be about only 45,552,000MWh per year.  However, if one were to build 11,000MW of coal-fired power plants or gas turbine combined cycle power plants or nuclear power plants or a combination of the three, one could conceivably put 87,600,000MWh/year on the grid if the demand were there.  The limitation of capacity factor on the three "dirty" alternatives is maintenance needs while the limitation of capacity factor on wind and solar are weather cycles and the sun cycle.

It is also ironic how renewables supporters tend to call oil and gas industry tax deductions "subsidies" while calling PTCs and cash grants "incentives".

So, who is going to pay for renewables?  The American taxpayer/ratepayer.  Meanwhile the fatcats developing the renewables projects and selling the equipment for renewable generation will be putting in their pockets the money of everyday, hardworking taxpayers and small businessmen while avoiding paying taxes themselves.  The green agenda will destroy our economy and the jobs of the hardworking taxpayers while rewarding the wealthy developers and "green" generator manufacturers and the do-nothings on welfare who could not be bothered to finish their free public education so they could get a job.

Carbon Tax

The previous commenter has a good point about making intermittent renewables or firmed renewables competitive. The way I see it, we should be ok with making intermittent renewables competitive for now, because we have such a small ratio of intermittent renewables on the system today. Areas where there might be over-integration of intermittent renewables already (Iowa maybe?) are places where the intermittent sources are already competitive. The extra incentive will likely allow development of storage to firm them.

The key in this whole thing is keeping the government from spending money or picking winners. That's why a tax is the best approach; it incentivizes industry to act to avoid paying the tax, creating opportunities for business (jobs). The tax itself relieves income tax or other governmental revenue means. Government spending remains unrelated (and of course another issue).

"...a fixed, long-term price for dirty fuels..."

 "If a price were placed on the use of carbon, renewable investment would spike. Thomas L. Friedman, author of The World Is Flat, has noted, "The only effective, sustainable way to produce green jobs is with a fixed, long-term price for dirty fuels that thereby creates consumer demand for, and sustained private sector investment in renewables.""

The trick would be determining the magnitude of the "fixed, long-term price". If that price were too high, it would stall any economic recovery and, perhaps, trigger a "double-dip" recession. If that price were too low, it would not necessarily achieve the desired / required incentive for renewable investment.

Setting the price would also require a judgement call regarding whether the carbon price should be set to make intermittent renewables competitive with reliable fossil generation; or, whether the price should be set to make firmed renewables competitive with reliable fossil generation.

There is also the issue of the potential impact of the carbon price on the competitiveness of US manufactured goods in the US and world markets, since increased energy costs would increase the cost of US manufactured goods.

Presumably, the price would have to be set high enough to encourage the replacement of the "dirtiest" fossil fuel, which is also generally the lowest cost generation fuel.

Finally, the "carbon price" is essentially a tax, begging the question of how the proceeds would be used by the fe(de)ral government. (Based on the provisions in the Waxman-Markey bill in the US House, it would largely be devoted to income redistribution and "picking winners", such as Solyndra. 

Renewable energy costs more in a free market system

It does not matter which way one flips the issue.  Renewable portfolio standards mean that electrical energy incorporating them will cost more.  It does not matter whether the extra costs are paid for by PTCs paid for by taxpayers, cash grants paid for by taxpayers, or a carbon tax paid for by all through increased electricity bills.

If the feds give PTCs, then the big corporations investing in the projects pay less income tax (or none at all in some cases) so who the heck ends up footing the bills for all the other federal programs--residential, commercial, and industrial users of electricity who aren't in the green energy field maybe?  What then is the impact on the economy?

RPSs, RESs, CESs--what ever one chooses to call them--are an attempt to increase demand for renewables artificially thereby forcefully extracting extra money from other consumers.  The price of energy and necessary goods increases and consumers have less to spend on things they want.  A subsistence economy is not robust.  Consumers buying things they want is what creates a robust economy--people willing to pay more for something than it costs to make.  Right now the green energy industry is in effect a reverse Robin Hood exercise--taking money from financially struggling citizens, small businesses, and low margin industries to pay rich corporations (or the Chinese) for wind turbines and solar panels on which them make a profit while simultaneously allowing them to participate in renewables development so they can get PTCs to avoid paying taxes.