The Subsidy Shell Game
In recent months I find myself somewhat confused on how renewable energy projects continue to gain momentum. No place is more aware of the renewable expansion than here in NW Missouri where we have recently added yet another 150 wind turbines to our local landscape with rumors for additional sites to be constructed in upcoming years. Although we certainly enjoy the economic activity such projects produce for our local economies, I am puzzled at how the cost of energy from renewables continues to decline.
Curiosity got the better of me and in doing a little research I believe the answer to my question has become very apparent. The reason the price of energy from renewables continues to decrease is because of tax payer subsidies. Although almost every type of energy receives some federal energy subsidies, wind and solar have been by far the biggest winners with subsidies increasing in recent years by a whopping 54% from $8.6B to $13.2B.
This is where the shell game begins because during this same timeframe total federal energy subsidies decreased from $38B to $29B with most of the decrease coming from expired tax incentives for biofuels, a 15% decrease in fossil fuel subsidies, a 12% decrease in nuclear subsidies, energy assistance funds were all but eliminated and the American Recovery and Reinvestment Act stimulus funds have been depleted. So, energy subsidies as a whole are sharply down, but for the lucky few (wind and solar), subsidies are increasingly available.
So, we have established that renewable energy is highly subsidized, but what does that do to the cost of the electricity being generated by them? They actually increase the cost, but since the cost is transferred from the ratepayer to the tax payer the actual cost is relatively unknown by the average American. These subsidies have wreaked havoc on wholesale electricity markets causing negative pricing in some areas and threaten the closure of many base load fossil fuel and nuclear plants.
But we need to add in the the social benefit as renewable energy reduces our carbon footprint, right? No not at all because what we see happening is that nuclear plants which have no CO2 emissions, and unbelievably receive almost no subsidies are effectively being priced out of the market and replaced with renewables. The net decrease in CO2 is effectively zero. Dare I even mention that Nuclear provides reliable, predictable base load generation where all renewables have severe intermittency limitations.
So, back to my original question. Why do renewable projects continue to grow? It’s very easy, they can sell their output (kwh’s) very cheap because most of the cost of production is being supplied by the American taxpayer. Utilities are quick to grab this cheap energy being sold into the market at a price much cheaper than even they can generate it. The average ratepayer never knows the difference because they pay for it on their tax bill not on their electric bill all while the renewable community can tout their low cost and zero carbon footprint as the reason America needs to build more. Unfortunately, this is what happens all too often when free markets get manipulated with good government intentions.