The argument that subsidy rates for renewable energies are economically draining is severely flawed. Articles, such as “The Energy Subsidy Tally”, published by the Wall Street Journal, fail to evaluate the performance of renewable energies relative to the oil, gas and coal industries in their nascence. The economic reality of renewables is therefore distorted, often in favor of a political agenda.
Early Energy Subsidies Were Higher Than They Are Now
Adjusting for inflation, the earliest subsidies for the oil, gas and coal industries were significantly higher than the subsidies supporting renewable energies today. In fact, research by Nancy Pfund and Ben Healey at Yale University found that the government spent an inflation-adjusted $1.8 billion annually on oil and gas subsidies in early years, while current subsidies for renewable energies amount to approximately $400 million, annually[i]. Accounting for 5 percent of the Federal budget, subsidy dollars for “traditional” energy sources poured significant capital into early research and development, leading to innovation and eventually to reduced costs in these industries.
What’s more, renewable energy subsidies have generated greater economic growth than earlier subsidies for oil and gas did. To this point, Pfund and Healey found that the per-dollar increase in energy generation is ten times higher for current renewable energy subsidies than it was for early oil subsidies. [ii]
Renewables Drive Real Growth
The fact that renewable energy is driving more growth for the U.S. economy than oil and gas did in earlier years should be applauded. However, commonly used metrics do not take into account the significant investment required to integrate such a new, sophisticated industry into the U.S. market. Failure to effectively communicate progress in renewable energies therefore leads to misconceptions about the industry’s economic sustainability.
Policy makers should evaluate the renewable energies sector relative to traditional energies at similar periods in their development. Decisions should be made based on the industry’s proven potential given the benchmarks it has surpassed, despite serious headwinds and lackluster support. If we’re already generating more power, per subsidy dollar, than our competitors did during their formative years, think of how far innovation in the renewable energy sector could take America.
i,ii Pfund, Nancy and Ben Healey. “Should the Government Subsidize Alternative Energy?” Yale School of Management. http://qn.som.yale.edu/content/should-government-subsidize-alternative-energy
No applications were received for Palo Alto’s CLEAN program, which offers $0.14 per kWh for energy produced by medium and large commercial rooftop photovoltaic systems. The program’s lack of success “was the result of offering a price too low to incentivize solar developers and system owners to participate” (Al Rosen, Absolutely Solar). The program’s lack of success is another indication that metrics used to determine appropriate feed-in-tariff rates are all-too-often severely flawed. Spain’s unsustainable feed-in-tariff program (priced too high), as well as the new ReMAT program (priced too low) scheduled to be implemented in California within the new few months, are additional testaments to this fact.
The best source of Goldilocks pricing for solar feed in tariffs is an examination of the actual costs of developing, building and financing the systems.
A fortuitous confluence of lower material and construction costs for solar projects and a program that requires Southern California Edison (SCE) to buy the power produced at a reasonable price makes the development of roof top solar feasible. Owners of large rooftops have a short window to participate in this program. Owners with the appropriate roofs, tax appetite and capital can invest in and own their own systems and make very high returns.
Absolutely Solar is currently working with owners of roofs that exceed 100,000 square feet, to install revenue-generating solar photovoltaic systems under SCE’s CREST feed-in-tariff program. Unlike most solar programs, CREST’s feed-in-tariff is not related to on-site electricity use. Instead, the solar photovoltaic systems are connected directly to the electrical grid, and all energy produced by the systems is sold to SCE on a fixed-price 20-year contract.
This opportunity, however, will end soon, when Power Purchase Agreements (PPA) for the remaining available capacity are signed or when the program ends by the end of this year or early in 2013.
Clearly, the opportunities available to property owners and solar developers alike will be seriously limited when the CREST program ends. However, rooftop owners who collaborate with Absolutely Solar now, to take advantage of Southern California Edison’s current program, will benefit from steady, secure cash flows under a 20-year contract.
The amount of these cash flows is determined by the property owner’s level of ownership of the photovoltaic system. For example, should the rooftop owner choose to own the system in part, he or she could participate in the system’s income stream and or/use the available tax benefits (30% immediate tax credit, plus accelerated depreciation). Alternatively, the property owner could choose to own the system in full or to simply lease the rooftop space.
Solar Power has the potential to relieve our nation’s over-dependence on unsustainable energy sources, to make a positive impact on our environment, and to create countless jobs in America. Property owners must recognize the opportunity that their open rooftop presents to not only generate significant cash flows over the next two decades, but to also make a statement in support of our country’s investment in renewable energy.