Published On: Sat, Aug 11th, 2012

Renewable energy: victim of subsidy discrimination?

Why does renewable energy get criticised for receiving subsidies that are far smaller than subsidies and expenditure on other sectors of the economy?  History, Future. Now. examines why this bias exists from a historical perspective and concludes that there are six main reasons.  First, we look at what other parts of the economy get subsidised.

An extreme libertarian would suggest that all government expenditure is unnecessary and distorts the market.  If there is a requirement, the private sector should provide it.  That view is not widespread, but from a historical perspective governments have restricted their activities to three core areas: defence of a country’s borders, maintenance of peace at home and provision of a reasonably fair judicial system.  Even 150 years ago the US federal budget prior to the Civil War was incredibly small, with only 16,000 personnel in the military and a fleet of antiquated naval vessels.  Prior to the First and Second  World Wars the US military had been similarly curtailed.  Historically, in the event of war it was assumed that militias would be assembled for national defence (and thus one of the mainstay arguments for the NRA’s defence of the right to bear arms).

If we look at the UK Government’s £683 billion 2012-2013 budget, however, it becomes clear that defence at £39bn and public order and safety at £32bn only represent about a tenth of government spending.  From a historical perspective, all of the other expenditure is unprecedented and provides services that were never offered by the government historically, or may never have been provided by the private sector either.  All government expenditure is effectively a subsidy on that activity.

What are these expenditures, exactly?  The UK government budget for 2012-2013 has provided a convenient chart, below:

 

The biggest expenditure, a whopping 30% of the budget at £207bn, is social protection.  Since the Budget does not provide an easy breakdown or explanation as to what “social protection” is, and an electronic search of the entire document only results in one hit – the table above,  we have to make some assumptions as to what this, and other terms, mean.  Our best guess is that this is unemployment insurance and benefits.  As we have established, none of those benefits existed historically, but it is likely that they have been around since the end of the Second World War.

Next up is the £130bn spent on health care.  History, Future. Now. is a firm advocate of government funded health care where citizens are covered for their health needs.  The actual services can be privately supplied, based on lowest cost bids, with quality thresholds, by the private sector.  Japan has an excellent model which follows this system.  The UK’s National Health Service came into being at the end of the Second World War and despite its occasional criticism is generally highly regarded in the UK.

Education takes up £91bn of the budget.  An educated population is in the long term interest of a country and is an investment in the earning potential of future tax payers.  Unlike most other expenditures, which are for maintaining the quality of life of this year’s taxpayer, education is arguably a capital expenditure as the benefits (except for paying for someone else to look after your children all day) will be realised decades in the future.

Payment of interest on government debt is next up, at £46bn.  This is clearly one to watch.  As we borrow more the interest will go up and we still need to repay the capital.

Other, whatever that is, follows at £43bn.  Then come the two historic government expenditures:  Defence at £39bn and Public order and safety at £32bn.  Transport is £22bn, Housing and the environment is £21bn, and Industry, agriculture and employment at £19bn.  That is it.  Note that government income from public sector receipts is expected to be £592bn, meaning that there will be a borrowing requirement of at least £91bn.

Also note that this budget does not include “non revenues”  such as tax credits and allowances which reduce the Government’s income. If the government does not receive £5bn in due to tax allowances it is effectively the same thing as paying out £5bn.

Once upon a time, all of these expenditures would have been new, with the exception of the defence of a country’s borders, maintenance of peace at home and a provision of a reasonably fair judicial system.  Even the cost of defence is probably significantly higher that the peacetime average over the past 150-200 years.  Presumably these expenditures would have been controversial at the time?

Which brings us back to the renewable energy question – why are its relatively small expenditures deemed so controversial?  History, Future. Now. thinks that the following might be in effect:

  1. Subsidies for renewables are relatively new.  When renewables were not even close to being economically viable, the subsidy levels were so tiny that they could be safely ignored, or supported as a “good thing” for sometime in the future.  Now that the future has arrived, they are being looked at more critically.  Because the subsidies are relatively new, they mask the fact that other activities in general are being subsidised (all government expenditure is effectively a subsidy on that activity) and that other conventional energy sources are specifically being subsidised by 17-37 times more (see article).
  2. They threaten to take budget away from other sectors.  Money going to renewables may be perceived as diverting funds from social security benefits, or schools and hospitals, etc.  There is a lack of awareness that in the UK the “subsidies” don’t even come from the government and don’t compete with other government expenditure – they come from increased electricity prices to consumers.  They are only linked to the government budget as the government has legislated that electricity companies have to pay renewable energy producers a premium price.  This means that it is guaranteeing that these laws will remain in place for the life of the project.  That guarantee forms part of the government’s national debt calculations, even though no interest is paid and no money is repaid by the government.
  3. Subsidy levels are not large enough.  If renewable energy subsidies were huge, on the scale of expenditure on social housing, defence or social protection, the sector would be a major political force.  It would employ hundreds of thousands of people directly and several million indirectly.  So many people would have a vested interest in protecting the expenditure level that it would have widespread public support and would make it very hard politically to remove.
  4. Renewable subsidies are perceived as temporary.  The historic view was that renewables would need support while they were more expensive than conventional power sources.  Once the costs dropped and they could compete “on a level playing field”, the subsidies would be removed (as is happening in Spain – see article).  So the question is always asked: when will renewables be weaned off their subsidies?  This is a particularly interesting question as coal mining, oil and gas exploration and extraction, nuclear power and farming all get massively more subsidies and tax credits than renewables and yet there is no expectation that those subsidies will ever go away.
  5. Renewable energy is seen as ineffective and expensive.  The sun does not always shine and the wind does not always blow. What then for solar and wind power? Few people are aware that solar and wind farms only generate subsidy revenues when they produce electricity.  Second, they are also not aware that the cost of the subsidy is relatively minor compared to the retail price of electricity.  For example, the total revenue on a kilowatt hour basis, including subsidies, for an onshore wind farm in the UK is about 9-10p/kWh, which is lower than most home owners will pay for their electricity, about 11-15p/kWh.
  6. Subsidy complaints are proxy for NIMBY-ism.  In crowded countries, like the UK, Not In My Back Yard-ism  about the location of wind farms in particular is a real issue – something that History, Future. Now. is sympathetic to. It you are opposed to a wind farm being built near you anything that helps support your argument as to why it should not be there seems legitimate, including complaining about the fact that it is getting subsidies.

The fact that renewable energy is good for the environment, good for jobs, good for national security, good for balance of payments etc is frequently overlooked, perhaps because its contributions to any one country are still relatively small.  What does this mean for the future of renewable energy subsidies and renewables in general?

At some point, in the not too distant future, wind and solar power will no longer require subsidies in most markets.  There will be a longer term requirement for other renewables and ancillary services like battery storage.  If conventional energy sources stopped getting their subsidies and had to pay for the costs of their environmental damage and military support (see article) then that point will happen even sooner.

In the meantime, it is important for people in the industry to continue to explain why the support is worthwhile now and they can feel smug in the knowledge that at some point no subsidies will be required at all.  When that happens, people in renewables can happily complain about the continued subsidies to the oil, gas, coal and nuclear power sectors without feeling like hypocrites.



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Note to readers: We really welcome your comments on this particular subject.  Are there other reasons that we should be aware of? Should something be expanded in more detail?  Let us know in the comments section below.

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  • New article: Why do renewables get criticised for receiving subsidies that are far smaller than those on other sectors? http://t.co/qnDFUzGV

  • A great piece on the reality of #renewables subsidies http://t.co/mjwMwZBe

  • interesting facts and figures about UK subsidy regime http://t.co/josIi8D5

  • An absolute must-read on renewable energy: http://t.co/C3RK7eVH. Hopefully this will enlighten deniers and motivate supporters.

  • The truth about renewable energy: http://t.co/m2aqOa6B

  • http://t.co/T91ZqtWn Renewable energy: victim of subsidy discrimination?

  • Steven Andrews

    Subsidize is always critisized by one party ( the one that doesn´t get the money) while not by the other ( the one that get´s the money). The problem of theses “temporary” subsidies is that they start as “temporary” and then stay as long as they can. Everybody likes a push in the right direction. The problem is that fosil subsidies must have started that way too, maybe it would be nice to find out.(maybe you have some information archived?)
    The beginning of these “help” programs is always to give a jump start to the programs, because, you know, they wouldn´t start without the jump start!
    The REAL QUESTION IS WHEN AND IF the subsidies on fossils will stop, then we can start to see if there is a level competition, but, I suspect this will take many millions of really mad people protesting against subsidizing anything.
    Free market always comes around to fix things up, remember communism? … Now, capitalism? What comes next?

    • tristanfischer

      Good question as to when subsidies for fossil fuels started and then asking why they continue and when will they stop.

      Fossil fuels were always seen as strategic. Britain maintained coaling stations all over the world during the era of steam ships. The Japanese went to war with the US in an attempt to secure oil supplies. The US went to war against Iraq to preserve oil suppliers of Kuwait etc.

      Maintaining a domestic supply of oil and gas probably prompts governments to subsidise domestic production, also for strategic reasons.

      It is for those same reasons that a large chunk of the military budget should be deemed as a subsidy for fossil fuels as well. If the fossil fuel was not needed then the subsidy would not be needed either.

      Likewise, if renewable energy was perceived as strategic, in that it was a domestic supply of electricity generation, logic would dictate that it should also get subsidies like oil and gas.

  • Renewable energy: victim of subsidy discrimination? – History, Future. Now. http://t.co/bQNzK4Rx

  • Sometimes things need to be done to make a change for the better.

    It is often ignorance which stops people from understanding the reasons why these changes need to happen and how the mechanisem (subsidy) makes the change come about.

    If you look at what the subsidy (FIT) has done for the industry you will see the mechanisem in beautiful effect.

    It was designed to create a scale of economy to increase manufacturing and bring down the purchase cost. They thought it would take 8-10 years to do what has happend in 2 years

    2years ago it cost over £5 per watt for a domestic solar PV system, now around £1.50
    Until something makes financial sense the public will not engage and an industry can’t gain traction. Most think saving the planet is a good idea, but don’t want to lose out financially to do it.

    The subsidy makes it financially viable and the public and investors engaged, a small insignificant piece of government intervention has made difference greater than its contribution. Budgeted originally at £63m a year (now look at the figures discussed above)

    In the next few years, ,maybe less, we won’t need the FIT to make Solar PV a good investment.

    The renewables revolution is predicted to create over a million jobs in all sectors in the UK in the next 5 years during the worst recession in many decades. Lower our CO2 footprint and take vital steps into saving the planet while making the average householder and business owner enjoy lower running costs and even make a profit.

    Don’t even get me started on the benefits of decentralising power generation and the fact the UK imports over 70% of its energy and if we carry on the way we are, will climb to over 90% by 2050, (source RICs)
    Which means currently 70% of the income generated and profit goes out of the UK. Energy security, financial stability for the UK economy I could go on.

    All in all anyone in the know realises why the FIT was and still is a very good idea, and we need to keep getting the message across. People fear change then learn to enjoy it once it’s appreciated and understood.

    Regards and thanks for the article,

    Adrian Taffinder
    http://www.photonutilities.com

  • It is amazing, even disturbing, that we continue to see these articles suggesting that wind and solar make sense OR have any significant part of our energy future. This is public relations at its worst. OF COURSE those getting enormous government subsidies want them to continue, but that misses the point. Math is required here. Have wind and solar made a measurable difference in our energy mix and have they helped to reduce C02 emissions?

    No. Not at all. It has been a huge disappointment and waste of public funds. We are just beginning to learn that developers make money when the deal is done, not based on performance. This sounds a lot like sub-prime mortgages.

    I think we all need to start telling the truth – especially journalists.

    Solar and wind schemes have not reduced CO2 emissions and they have only raised electricity rates. “Energy farming” (wind and solar) will NEVER replace coal (or oil) and they are simply an over-priced supplements, not “alternatives.” Incentives gave people false hopes about solving the problem and we are now beginning to learn the truth. Polls demonstrate that nearly 60% of Americans “believe solar will replace our dependence on oil,” yet it is impossible.

    Despite significant subsidies in the last 5 years ($1 trillion worldwide) wind and solar are less than 2% of our total electricity generation (solar is .1%). Plus, because they are unreliable any attempt to accept their unpredictable electricity generation requires us to ramp down our base load electricity generation, creating additional costs and more CO2. This 2% addition of renewables hasn’t changed CO2 emissions at all – even new demand has been 3X wind and solar. These schemes have made NO difference at all.

    Cheerleading for wind and solar might extend the incentives, but it won’t solve the energy problem. We need clean, affordable electricity.

    My work is here: http://www.solutioneur.com

    I’m disappointed that Forbes seems to have joined and/or endorsed the solar incentives bandwagon – especially considering it makes no sense at all. Can solar and wind make a difference in the future? I hope so, but we’re deploying technologies that aren’t ready (or able) to make a difference. The billions wasted by DOE on the development schemes (in the name of job creation AND clean energy) would have been better spent in R+D – looking for an actual solution.

    I hope America understands that. Soon.

    • tristanfischer

      Dear Solutioner,

      Many thanks for your comments. Your main criticism falls under category 5 – Renewable energy is seen as ineffective and expensive. You state:

      Have wind and solar made a measurable difference in our energy mix and have they helped to reduce C02 emissions?

      No. Not at all.

      And go on to say:

      Despite significant subsidies in the last 5 years ($1 trillion worldwide) wind and solar are less than 2% of our total electricity generation (solar is .1%). Plus, because they are unreliable any attempt to accept their unpredictable electricity generation requires us to ramp down our base load electricity generation, creating additional costs and more CO2.

      This may be the case in the US, but is not in Germany, where solar power recently produced 22 gigawatts of electricity per hour – equal to 20 nuclear power stations and met nearly 50% of the nation’s midday electricity needs. See Reuters report here.

      In the province of Murcia, Spain within the next 18 months 100% of the 545,000 homes will be powered by solar PV, with the remaining production exported to nearby provinces. See report here.

      In Denmark wind energy regularly produces nearly 30% of the country’s electricity needs. Click here for article.

      Your concerns are well placed, but times have moved on and renewable energy is making a significant contribution to the electricity needs of major European nations.

      • You can hype solar all you want, without subsidies it is a failure. It has NOT reduced CO2 at all. New “demand” has increased 3X, despite the waste of $1 trillion. It’s a cute technology, but will never meet our energy needs until it is affordable.

        The wind-solar charade is ending.

        If it was so good in Germany why have the ended it?

        I understand you’re a cheerleader, but we have to have affordable and clean energy. Solar is not.

        • tristanfischer

          Dear Andrew,

          With respect you may not have read what I mentioned earlier.

          The new solar projects that are currently being built in Spain DO NOT GET ANY subsidy support. The power that they produce is mainly being purchased by companies and industrial installations. The electricity produced is equivalent to the needs of all of the households in one particular province. I would say this is “amazing” rather than “cute”.

          Adrian Taffinder’s comments about the UK highlight how well the system has been working in countries not as sunny as Spain.

          • From Reuters: “Governments across Europe are pulling back from renewable subsidies for new projects as green energy becomes more competitive after sharp falls in equipment prices.

            Britain and Germany have as much as halved support for solar power in the past six months, while Spain scrapped support altogether in January.

            Madrid faces a different budget problem. In most countries utilities pay the solar power premium and pass on the cost to electricity consumers. In Spain, however, the treasury shoulders the liability, which is swelled by artificially low retail power prices that are meant to stimulate growth and competitiveness and control inflation.

            The full liability is the difference between those regulated retail power prices, or tariffs, and the cost of power generation, transmission and the renewable energy premium.

            The government now bears a “tariff deficit” of about 25 billion euros, which it ultimately owes to utilities. Spain has sought to reduce this deficit by raising power prices, eliminating support for new renewable energy projects, retroactively trimming the amount of subsidy on existing projects and now by raising energy taxes.

            It is fine to scrap a programme if you cannot afford it, but cutting returns to existing projects because you miscalculated a subsidy appears fickle and over-reaching.

            For Spain, however, the circumstances are exceptional and the test will be how fairly it applies the new taxes and whether it can avoid bankrupting developers and undermining a bigger goal to save the economy.”

            Solar energy is a cute form of energy farming, but it will not replace our current forms of generation.

            Link: http://in.reuters.com/article/2012/08/02/column-wynn-renewable-taxes-idINL6E8IRLHN20120802

        • Some US data for you:

          “The US wind energy industry is now providing enough capacity to power 13 million homes, equivalent to all of Nevada, Colorado, Wisconsin, Virginia, Alabama, and Connecticut combined.
          The American Wind Energy Association (AWEA) used the annual National Clean Energy Summit in Las Vegas last week to confirm that the sector had passed the 50GW installed capacity milestone after yet another quarter of rapid growth….

          …the 50GW of capacity was equivalent to the generating power of 44 coal-fired power stations or 11 nuclear power plants, resulting in emission reductions that would equate to taking 14 million cars off the road.”

          Yes, this got subsidies to get there, but the amount generated is material.

          http://www.businessgreen.com/bg/news/2198190/us-wind-energy-industry-breezes-past-50gw-milestone

          • Capacity is not production Tristan. Wind production is only 20% of capacity, if they’re lucky. It’s not dispatchable without storage and when baseload power generation has to be turned down because some wind power is produced it produces more CO2 and higher prices.

            Wind is a cute form of energy farming, but without subsidies it isn’t competitive or reliable.

          • tristanfischer

            Dear Andrew,

            I give up! Renewable energy subsidies are given when the activity produces electricity. If there is no wind, no electricity. If it is dark, no electricity. No electricity, no revenues. So either renewables are a giant waste of money – which means that they are producing a lot of electricity, or they are ineffective, which means that they are not costing any money as they are not producing electricity. This is also completely ignoring the fact that solar projects are being built with ZERO subsidies. If they were ineffective then investors would not invest.

    • Edmond Dantes

      Dearest Solutioneur,

      sounds like you know a thing or two about wasting money…

      https://sites.google.com/site/andywestpublicrecord/

  • Great topic for discussion Tristan. “Where you stand depends on where you sit” (Anon) The article to which you link this discussion sets out a quick summary of the conceptual issue to which I’ll add one more item. The modern democratic system encourages politicians to advance subsidies in areas where the most votes will be favorably influenced, concomitantly expanding the public service with those subsidies and therefore, jobs to be preserved. Social services, health and education are ready vote winners – or have been. The public is increasingly aware of a looming inability to keep spending at the entrenched ‘entitlement’ rate as recent US elections increasingly indicate. There is an ideological battle emerging which, if not sensibly resolved, will lead to fall in Western living standards that make the GFC look like a very minor bump in the road.

    Within that context, each time the ‘energy and environment’ issues come to a head, the political decision (which is a judgment of voter sentiment) is to take softer options (like a fully subsidized carbon tax here in Australia) and even then, with attendant risk of political capital. Renewable energy subsidies, because there value is not yet ‘here and now’ I suspect, live on the hard to sell side of political decision making. Even if the subsidies could be linked more directly to say, in Australia, replacing jobs lost from manufacturing with solar and wind powered industry jobs, the reality is that that boat sailed to China several years ago. I suspect that in the absence of peak oil or some similar crisis, the argument is hard to win.

    The generic argument however, that something which is subsidized is bad, belies the reality of all economic history and is a fallacious argument. Lots of innovation, infrastructure, industrialization, services of all kinds have been the beneficiaries of subsidy, although Mitt and Paul (US Republican election team) may be at the vanguard of pegging back that highway.

    nd education are
    Posted by Peter Boyce

    • Good comments Peter. I think your final paragraph is particularly noteworthy:

      “The generic argument however, that something which is subsidized is bad, belies the reality of all economic history and is a fallacious argument. Lots of innovation, infrastructure, industrialization, services of all kinds have been the beneficiaries of subsidy…”

      Very large parts of our infrastructure have been provided by government funding, when the private sector would not put up the cash to do so as it was “uneconomic”.

      Another area of government support is the provision of cheap government land for private benefit. In the US government lands are “rented” out to lumber, mining and oil companies etc. If those companies make bumper profits due to higher commodity prices then that is in effect a government subsidy to the activities of those private companies.

  • New article: 6 reasons why renewable energy subsidies are controversial and why fossilfuel subsidies/tax breaks are not http://t.co/qnDFUzGV

  • George Osborne would like to see our country filled with gas plants and nuclear stations as opposed to renewables. The drive towards clean energy is really shaking up the government and their corporate interests, hence the Treasury being opposed to more investment.

  • Why does renewable energy get criticised for receiving subsidies that are far smaller than subsidies and… http://t.co/b3Fp8MKc

  • Renewable energy: victim of subsidy discrimination? – History, Future. Now. http://t.co/tuJaT4m7

  • This is essential reading for Telegraph/Daily Mail readers worried by costs of #renewable subsidies: http://t.co/5LWetkvX

  • We need more subsidy discrimination, not less. If the technology is economically viable, why does it need to be heavily subsidized?

    • Agree. Why do the oil, gas, coal and nuclear sectors continue to get heavily subsidised? Renewable energy is economically viable compared to other power sources in only a few locations (some US wind, solar in Spain, for example) but the subsidy level compared with the retail cost of electricity is relatively low and gets lower every year. This is not the case for conventional energy, which has no trajectory for being eliminated.

      • Tristan, you should understand this: energy gets subsidies because we need it. Playing make-believe with wind and solar doesn’t guarantee we’ll have energy. You also said “renewable energy is economically viable compared to other power sources in only a few location.” I disagree. It isn’t economically viable anywhere. If you simple compare the cost of energy for wind and solar to our conventional methods, it isn’t even close.

        If you have objective case studies that confirm your belief, please post them.

  • 6 reasons why renewable energy subsidies are controversial and why fossil fuel subsidies/tax breaks are not http://t.co/qnDFUzGV

  • From Mark Woldridge:

    “I recently ran some figures for the last decade using US EIA generation data. I plotted the decrease in CO2 emissions as a percentage versus the increases in natural gas fueled generation and the increases in what EIA listed as “Other Renewables” which are dominated by wind and solar. Hydro was listed separately and EIA seems to consider it a renewable–however, I think the innudated trees, brushlands, grasslands, and animal habitat disqualify hydro as green energy. Regardless, hydro and nuclear did not have significant change to them. I also plotted the decrease in coal-fired generation as a percentage. Please note that because I plotted decreases for CO2/MWh and coal fired power, the slopes will be positive rather than negative. I did this to see directly how the curves compared.

    The increase in natural gas fueled generation (% of MWh not MW) very closely matched the curve for decrease in CO2/MWh. The decrease in coal fired generation did not quite match up with the decrease in CO2/MWh. The curve for increase in “other renewables” came nowhere close to matching the CO2/MWh curve.

    The conclusion I reached is that the primary driver for the decrease in CO2/MWh emissions is primarily and very dominantly a function of increases in the proportion of power generation utilizing natural gas whereas the impacts of wind and solar are minimal at best.

    We need to quit throwing away taxpayer and ratepayer money on PTCs, cash grants, and RPSs and concentrate on building new GTCC facilities and new ultra-supercritical coal facilities to replace older, conventional coal facilities and gas fired boiler facilities (one should never burn natural gas in a boiler–it is a waste of a prime fuel to do so). By concentrating on more efficient power generation, we can immediately and effectively knock a huge chunk off CO2/MWh emissions while providing reliable, dispatchable power–something neither wind nor solar can do. Neither wind nor solar contribute to the amount of employment natural gas, coal, nuclear, or hydro do. This lack of wider employment and procurement activity adversely impacts income tax revenues, sales tax revenues, and property tax revenues for all levels of government.”

  • Renewable energy: victim of subsidy discrimination? http://t.co/8U1JC9LY

  • Renewable energy: victim of subsidy discrimination? – History, Future. Now. http://t.co/bDYMN9HN

  • I think that it is a function of technology, politics & competition.

    Technology, because today information on government policies, trends and cost travels at the speed of light to a much wider and educated audience than say..when the railroad barons of the 19th century colluded to set prices. This affords critics and detractors-from any facet of human endeavor- access to the public and the advantage of controlling the message initially.

    Politics, simply because any governmental policy will be a function of access to elected officials. These officials, not being technology savvy on the average, rely on the feedback from lobbyist for established energy sectors. The budget is not a bottomless pit (Even if at times it feels like that) so any sector affected by the shrinking pie slice, will of course use their influence to either minimize or retain their piece. The solution here is to develop the relationships that facilitate the renewable energy message. The hurdle is however, that with the current economic woes, the public’s support for what are perceived as a bunch of rich companies may not be as generous as when the gravy boat cruises.

    Competition….Well, Fossil fuel and Nuclear companies own the energy market, and are highly profitable, mature and “are” the “Status Quo”. Any business that faces new competition and threatens their standing will be resisted. This is the Darwinian reality of corporations.
    Posted by Carlos L Irizarry

  • See Solyndra hurtng these projects etc via Obama Admin.
    Posted by Stephen Russell

  • The major components are imported…..no jobs there
    Posted by Ray Stelchek

    • In many cases that is right. But the installation / grid connection cost of both solar and wind is about 50% of the budget. Those jobs will be done in country.

  • @productspower @mmhandley @usnews 2.2c for wind is tiny.Soon none needed. When will oil/gas/coal/ethanol subsidies stop?http://t.co/snt6pFdW

  • Interesting blog “Renewable Energy: Victim Of Subsidy Discrimination?” http://t.co/vRQfary9

  • The biggest dog always get the biggest bone – why does it surprise you that the oil companies get subsidies, kickbacks and pork from congress?
    Posted by Joyce Abbot

  • Interesting and good article.

    You are missing the 7th point (which I think is the most important) which is that subsidies are needed to get over the inherant sunk cost of existing carbon energy sources. Much of the oil and coal infrastructure has effectvely been written down to zero on the world balance sheet. Therefore to compete close to an even playing field, in the first instance, reniewables need the subsidies.

    In the current planning an regulatory enqvironment what would be the true cost of producing electricity from a coal fired station like Drax if it was to be built from scratch on a green field site – that is assuming it got planning permission after a 10 year delay!! I am prepared to bet the electricity costs would be significantly higher than many renewables.

    Until the renewables insudstry makes more of a case about sunk costs of capital for the carbonn economy people will struggle to understand why they need to subsidise.

  • This is an important subject but the Author and some of the comments are being dishonest about “the amount of subsidies.” Dive the amount of subsidies (for an industry) by the total output. Fossil fuels receive a subsidy of around 5% of their energy output. Wind and solar receive 50% or more of their potential output.

    A lot of people have made millions promoting the false idea that wind and solar are the answer. That charade is now coming to an end. That’s good news.

    • tristanfischer

      You make a very valid point that on a kW/h basis Renewable subsidies are higher than coal, oil and gas subsidies. Saudi crude, for example comes out of the ground at a few dollars a gallon.

      However, the following is also valid.

      Why are conventional fuels given any subsidies at all? They are very mature industries with very large public externalities that they do not pay for.

      Nuclear subsidies are significantly higher than for renewables. The initial development costs were done on a defence budget and decommissioning costs significantly more than the initial build cost. This excludes the damage it does to an entire province when it leaks (Fukushima).

      Wind in the US gets a Production Tax Credit (which is not a hand out but a tax deduction – see other comment) of 2.2 cents per kWh. Average US electricity prices to consumers was, according to US government data, 11.9 cents. Commercial and Industrial customers pay 10.3 and 6.8 cents per kWh respectively. That makes the subsidy equivalent to about 16% of the residential cost and 24% of an industrials cost. Of course the residential / industrial impact is actually zero because the tax credit is given to large tax paying corporates- typically investment banks like Goldman Sachs. Either way, this is a not 50% of the cost as you mentioned earlier.

      —–
      The government data can be found here: http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_03

      • That’s because PTC is only part of the picture.

        From the Heritage Foundation:

        In sharp contrast to wind turbines, the wind lobby is spinning at 100 percent capacity—in order to keep the industry in the taxpayers’ pockets. Their dizzying logic makes you wonder if they have been riding the blades instead of examining the facts.First, they make two contradictory assertions: (1) Wind is the cheapest source of electricity (tied with natural gas); and (2) without substantial subsidies, the industry will suffer a severe recession. If it were the cheapest, it would not need subsidies to compete in the marketplace.Second (perhaps in an attempt to square this inconsistency), they claim that their subsidies are equivalent to the subsidies received by the fossil fuel industry.Perhaps because their recent profits have been so high, oil companies are frequently the example suggested by green energy subsidy seekers. So then, how do the subsidies compare?The wind lobby is seeking an extension on the production tax credit that they and several other select renewable energy sources receive.

        Adjusted for inflation, the subsidy for wind energy is 2.2 cents per kilowatt-hour. That may not seem like much, but for all of 2011 the wholesale price of electricity was about 5 cents per kilowatt-hour. So the subsidy amounts to 40 percent or more of the wholesale price. (It should be noted that wholesale prices so far this year are tracking below those of last year.)

        Link: http://blog.heritage.org/2012/02/28/wind-subsidies-vs-oil-subsidies/

        Finally, wind and solar subsidies are disappearing an people are beginning to see the factual reality: wind and solar schemes are not affordable/competitive AND they were never going to solve our energy and environmental challenges. A lot of well-connected people made a lot of money, but these two technologies failed.Maybe now we’ll seek a real solution.

  • Should have read: *Divide the amount of subsidies (by an industry) by the total output.

  • Philip Colfox

    Because it is a new industry that is not so embedded in the policy matrix as Agriculture or other longer standing industries that have well crafted exemptions from some normal principles of competition and state aid law.
    Posted by Philip Colfox

  • conroyt

    Good topic. Interestingly, in the USA it is fairly safe to say that wind power is the “lowest cost new generation” source** (allowing for many different local circumstances across the country). **The only caveat I would put onto that statement is the current US$2.00/MCF frack-gas, which will be a lower-cost generation source than wind. However, the frack-gas is reportedly $2-$3/MCF below cost-to-extract, and will surely go up when the US LNG export terminals start coming online in 2015.
    The press, utilities, and politicians in the US love to recite that wind “is expensive”. The problem is that they are comparing wind’s COE to that of 30-50year-old coal and nuclear plants. Well, those coal and nuclear plants would not be anywhere near that cost either if rebuilt today.
    So, the real fact is that wind does not need further subsidies in the USA. Of course, US$22.00/MWhr is a LOT of money, so the industry has great difficulty getting off the teat. The industry expects the PTC to be re-enacted in some form, so the reason for the zero-MW of installations in 2013 is simply because they will “wait” for the PTC renewal.
    I predict that if Romney is elected the PTC will be re-instated, but phased-out over the next 3 to 5 years. It is an entirely reasonable solution.

    • Tristanfischer

      My understanding is that there are a number of wind projects in the US that do not need the PTCs because they are in high wind locations, but are happy to accept them. Is this true?

      • conroyt

        Why yes, of course. The PTC represents 10’s of millions of $$ of “icing” for many projects, which get’s divvied up between the banks, developers, and power buyers. Of course, the converse is also true: there are projects which get done today which are non-economic without the PTC. Those projects arguably represent an inefficient allocation of capital, and would not get completed in a non-PTC environment.

        • Anyone impressed by the efficient way in which Britain has organised the Olympic Games might consider the stark contrast provided by the shambles of our national energy policy — wholly focused as it is on the belief that we can somehow keep our lights on by building tens of thousands more wind turbines within eight years. At one point last week, Britain’s 3,500 turbines were contributing 12 megawatts (MW) to the 38,000MW of electricity we were using. (The Neta website, which carries official electricity statistics, registered this as “0.0 per cent”).

      • List them. It isn’t true. In the US subsidies run from 50%-70% for wind and solar projects. I believe the country that subsidizes weak technology the most is easily the stupidest. Americans.

  • Article. Why are renewable energy subsidies so controversial while farm, mining, coal, gas subsidies are not? Read on http://t.co/qnDFUzGV

  • Rich Marks

    I believe the issue in US has to do with very cheap energy costs. Alternative energy products can’t compete on price standpoint. Subsidies can’t last forever. What needs to happen is to price status quo higher than atl energy. Yes, tax gasoline higher and tax dirty coal generated electricity higher. Then alt energy can start to compete. Use these taxes to pay for the subsidies, why not?
    Posted by Rich Marks

  • Great article about subsidies:

    http://theenergycollective.com/node/105661?utm_source=tec_newsletter&utm_medium=email&utm_campaign=newsletter

    “An editorial in last weekend’s Wall St. Journal led me to a recent analysis by the US Energy Information Agency (EIA) summarizing the costs of the federal government’s various “subsidies” for energy from different sources. This is both useful and timely, since discussions of specific subsidies such as the expiring wind production tax credit inevitably lead to questions about how incentives for renewable energy compare to those for oil, gas, nuclear, and other more traditional sources. As the Journal noted, the EIA stopped short of comparing these incentives on the basis of the relative productivity of different energy sources, but even without that it’s still apparent that the category of new renewable electricity–excluding hydropower–received 21% of the federal energy benefits for 2010, while accounting for less than 3% of domestic energy production that year, when oil and gas, which provided 49% of US energy production, received less than 8% of these benefits. Whether on an absolute or relative basis, renewables receive much more generous federal support than oil and gas.”

  • Friday Read: A big chunk of the economy is paid for by tax revenues. Why is renewable energy singled out? 6 reasons. http://t.co/qnDFUzGV

  • @GregBarkerMP Good to have you following. Read: http://t.co/PNLbdcK7 http://t.co/5V7TehfX and http://t.co/p8kTW4Ts

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  • Renewable energy: victim of subsidy discrimination? – Why does renewable energy get criticised for receiving… http://t.co/Vmyhd3kEKS #HFN

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