Obama and Romney: Electrifying the Energy Debate

Ken Silverstein | Aug 26, 2012

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While the presidential candidates are playing politics, the utility world is demanding certainty. The paradox is that those political positions come in two-to-four increments but power companies are developing 30-year business strategies.

It’s the nature of democracies -- that candidates solicit supporters, who are then positioned to influence ever-changing rules. Implicit in the crafting of the tax code is the favoring of one group over another. The fossil fuels are betting on one horse while the renewable fuels are praying for another. Power companies, however, should be immune from any interest group’s political potency and more attuned to electrifying communities so that they can prosper.

“Let’s talk about what is good for the electric system,” says Hugo van Nispen, chief operating officer for Americas DNV Kema. “It is more responsible for economic growth than oil and gas,” or any other option, for that matter, he adds.

How are those arguments playing out in the 2012 presidential race? Unfortunately, says van Nispen, the candidates have allied themselves with specific interests -- something that serves to trivialize the debate and the true concerns at hand. The fact is that each energy source has its place in the electricity eco-system and that playing them off against each other is not the way forward.

Utility officials must know society’s expectation of them: emission reductions, reliability or costs, followed by 15-20 years of policy certainty and the appropriate flexibility to achieve such aims. Only then can the nation achieve a broader blend of fuel options, or an all-of-the-above energy strategy. The production tax credit given to wind, for example, has become a bargaining chip that results in an unhealthy stop-and-go economic system, says van Nispen. Instead of politicizing it, he says that government should create a path to commercialization that is paved with dedicated tax incentives.

“There has not been a clear start and end to what those credits should be accomplishing,” he says. “It makes sense for us as a nation to pursue clean energy and to incent that with appropriate tax incentives. If utilities and their partners understand the goals and they are highlighted with clarity and time frames, the industry will get there.”

Level Playing Field

President Obama is aligning himself with the green movement, pointing out that wind and solar projects have doubled in size since 2008. He is also emphasizing that his policies have lent way to more oil and gas production, although they have been tempered in the wake of BP’s disaster and now come with stricter drilling regulations. Nevertheless, to help wind and solar reach their potential, the president would pay for their tax breaks by ending some incentives given to oil and gas.

Meanwhile, GOP -hopeful Mitt Romney is trying to endear himself to the fossil fuel industries. Part of his energy plan just released says that the United States can be energy independent by 2020 if oil and gas companies are allowed unfettered drilling access to public lands while limiting the rights of environmental organizations to sue to prevent such development. Romney would not renew the wind tax credit but he would keep those breaks provided to oil and gas.

Fair? Sterling Burnett, senior fellow for the National Center for Policy Analysis, says government incentives skew national energy policy and that they should end for both the renewable sector and oil and gas industries.

If the production tax credit is removed, Burnett says that the wind energy industry is no longer a viable concern. The credit’s purpose is therefore to increase market share while cleaning the environment, he adds. Those objectives may only be possible if energy storage is eventually commercialized, or the ability to bottle and release the wind when it is not blowing. 

As for oil and gas, it too gets some uncommon tax breaks and benefits not given to other industries: Marketing efforts by the Overseas Private Investment Corp. and national insurance that protect against unexpected losses, like revolutions. The White House has listed $4 billion in annual benefits it would like to see removed

“If Romney wants to level the playing field, he should start with ending all subsidies -- anywhere government is literally paying out money for activities that companies should be doing themselves,” says Burnett. “In doing so, we will save the treasury money and we will also be able to say that we are not playing favorites. No question: It will be difficult.”

Actually, it will be nearly impossible to cleanse the entire tax code given the intricacies of policymaking. Therefore, the more practical solution is to measure the assistance and to provide certainty, benchmarking progress along the way. Utilities will then measure up and meet the standards that are required of them.
 

EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been named one of the Top Economics Journalists by Wall Street Economists.

Twitter: @Ken_Silverstein

energybizinsider@energycentral.com

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Comments

Get your facts right

If you're going to criticize Ken, you could at least know the subject. The 1935 Federal Power Act had nothing to do with tax credits. Furthermore, your view of power plant economics is that of a novice. Every analysis known in the power industry shows that wind power even with its subsidy advantage is not as economical as a number of other sources. And, the wind advocates never want to admit that you need other generation to firm up wind and solar power because it's not dependable capacity, but the wind advocates don't want to pay a dime for the firming capacity.

Ken here: the story

Ken here: the story references three positions: Those who think wind cannot make on its own, and that it needs backup power or energy storage; those who think the fossil fuels get tax breaks over and above what other businesses get and, those who think we ought to stop vilifying the competition for selfish reasons such as attracting campaign contributions or competition over limited federal funds to build their businesses -- businesses that they invariably think are superior to that of the competition's enterprises. This story simply concludes that all of the resources have their place and it advocates for more certainty so that utilities do what is asked of them.

I realize that people see the same set of words -- or events, issues, etc.. -- and they react differently. I'm not emotionally attached and am writing from 30,000 feet. The fact that both sides of this argument are equally critical is some indication that the column is balanced, although it does draw a conclusion.

Energy and Politics....

The electric generation industry was doomed to political interference starting in 1935 when FDR passed the Federal Power Act.

Ken, what slays me is when you find people to like Sterling Burnett to make quotes like this:  "If the production tax credit is removed, Burnett says that the wind energy industry is no longer a viable concern." Makes a great politcal soundbite, but is meaningless. Power plants are built with 20-40 year lives. A 20 year natural gas contract today can be had for $7.00/MCF (with solvency risk unclear), which results in a higher cost of power than wind.

Coal plants take 7 years to build, so you would need a 27-year fixed price coal contract to compare it to wind. Nuclear plants take anywhere from 15 to infinity years to build, so that one is a crap-shoot as to COE.

Comparing new wind plants to 40-year-old depreciated, no pollution abatement coal plants is like comparing a new car to the fabled Havana 1950's Chevy taxi cab...and they are even upgrading them for some odd reason.

Ken, if you quote someone regarding COE, please get at least some rudimentary assumptions used  so you are not just repeating sloganeering.

The Tax Credit debacle and myth

The problem with the tax credit issue is that the whole truth is never stated. The facts are clear. other tha refined coal, there are no tax credits that even begin to compare to that of wind and solar. They have an unfair advantage. Otherwise, none of it is economical and it certainly is not dependable energy like most of the other sources. Here's the facts from DOE: Table ES5. Subsidies and Support to Electricity Production: Alternative Measures Alternative Measures of Subsidy and Support Subsidy and Support per Unit of Production (dollars/megawatthour) Coal 0.44 Refined Coal 29.81 Natural Gas and Petroleum Liquids 0.25 Nuclear 1.59 Biomass (and biofuels) 0.89 Geothermal 0.92 Hydroelectric 0.67 Solar 24.34 Wind 23.37 Landfill Gas 1.37 Municipal Solid Waste 0.13 Unallocated Renewables NM Renewables (subtotal) 2.8 Transmission and Distribution NM Total 1.65

Energy is a common subject for all.

It is simply a nonsense to continue fighting on these issues, in favour of one or the other (fossil energy against renewable), because the latter could only live if the former is guaranteeing the base energy required by our modern life.

It would therefore be much better if the two candidates, or at least one of them, clarify to the public that fighting against one or the other is simply a nonsense and while fossils are without a serious alternative for at least the next few decades until 2040-50, renewable are the possible alternative in the long run, provided technology evolve and resolve the actual serious problems related to the actual wind and solar marginal production limits.

This is something that Obama has clearly experienced during his mandate and he should be the first to recognize that the forcing made 4 years ago on the green deal was a simple speculation, while Romney should not run the risk to appears a conservative just because too many people have been illuded about the green dream (and illusion).

The more renewable are introduced into the system, the more the conventional fossil and nuclear energy is mandatory, if the system need to work and guaranty the energy when and where necessary for all uses.  

Subsidies in and of themselves aren't necessarily evil!

While I agree with the article's premise that efforts should be made to provide a long term plan designed to solve our energy problems, I disagree with the concept that subsidies are a bad thing!

The facts of the matter are that burning fossil fuels causes some serious environmental problems.  According the National Academy of Sciences, burning fossil fuels cause approximately 120 BILLION a year in increased health costs, premature death and other environmental effects.

The other problem with fossil fuels is that we running out of them!  Maybe not in the next 20 years or even 100 years, but the fact is that we ARE GOING TO RUN OUT of economically recoverable fossil fuel resources.  Poking more holes in the ground may alleviate the issue in the short run, but does nothing to change the fact that fossil fuels are finite and will run out some day.  Personally, I think that us moving on to "enhanced recovery methods" such as fracking and the harvesting of tar sands is indicative of this fact; if we still had abundant supplies of conventional, easy to get at, fossil fuels we wouldn't need to utilize these dangerous and marginal at best technologies.

So, subsidies can be a very useful tool in encouraging the switch to renewable energy that doesn't have these environmental and health problems (at least not nearly on the same scale).  We do have to be careful that they don't simply become "welfare for the rich" as they have in the fossil fuel industry that still receives subsidies despite the fact that they are a mature and very profitable industry!

 

Bob "The Clean Energy Guy" Mitchell

Wind generation competes against other generators

What keeps getting lost in this discussion is that wind generators compete against other generators, not against oil and gas companies.  I know there are those who argue that the other generators benefit from the expense deductions allowed to oil and gas but when it comes to trying to forecast a model to plan investments, the tax credits given to wind have resulted in a proliferation of unpredictable generation that has totally screwed up electricity markets.  ERCOT is feeling this impact big time. 

Renewable generation not only gets a lot of the tax breaks given to oil & gas, it also gets PTCs.  In many cases, the PTC for wind exceeds the wholesale price for electricity during the night and early morning in ERCOT.  The ERCOT market is strictly merchant except for a few municipal utilities.  There isn't any appeal to the PUC for increased rates to cover costs.  The result of the PTC for wind in the ERCOT market has been to discourage construction of new generation from fossil and nuclear with the consequences of ERCOT coming up short on margin and generators demothballing older, less efficient and less emission mitigated power plants.

How's that environmental cleanup working for you?

Wind energy, in its present status of development is not economical and not environmentally responsible.

Lastly, THERE IS A HUGE DIFFERENCE BETWEEN A TAX DEDUCTION (which wind gets just like oil and gas) AND A PRODUCTION TAX CREDIT (which no other generators get nor does oil and gas).