Saturday, May 4, 2013

Renewable Subsidies for the Rich: Guest Post by John McClaughry

Renewable Subsidies for the Rich by John McClaughry

Renewable electricity costs from two to five times (depending on the technology) as much as electricity from the New England grid, generated by natural gas, hydro, coal, and nuclear. Therefore no utility would rationally buy it but for an astounding assortment of subsidies and mandates.

Consider just these: The federal investment tax credit subsidizes 30% of the capital costs of small scale solar photovoltaic and wind projects. Some investors may also claim a 50% first year depreciation bonus, plus five years of ordinary depreciation of the remainder, regardless of the actual lifetime of the equipment. Wind generated electricity on any scale earns a 2.3 cents/kWh federal Production Tax Credit.

The Vermont legislature has added to this cornucopia a 7.2% investment tax credit for small wind and solar PV electricity produced from commercial properties. The Clean Energy Development Fund, until it ran out of money, also added 45 cents per residential installed watt for solar panels (40 cents per watt for commercial and industrial projects).

The legislature has also required Vermont utilities to buy solar PV (up to 2.2 MW) and small wind electricity (up to 100kw) at prices up to five times the wholesale price available on the New England power grid.  In an effort to lure enough new investors to stay on target toward the 127.5 MW program goal, the PSB has now pushed the feed in tariff rate for new solar PV projects up to 25.7 c/kWh for the next 25 years; and to 26.2 c/kWh averaged over 20 years for small wind.

To summarize: governments shower lucrative capital and operating subsidies on wind and solar entrepreneurs, then force the utilities buy their electricity at up to five times the New England wholesale price for 20 to 25 years, charging the extra cost to their ratepayers. What a sweet deal!

Willem Post of Woodstock is a retired electric engineer whose career took him all over the United States and Europe. One of his hobbies is running calculations on the economics of energy, especially renewable energy.

Post describes a $10.5 million 2.2 MW solar PV facility in White River Jct., created by high-income Boston investors. About 15 acres of topsoil and trees were cleared, leveled, and shielded by an eight foot high fence. The facility almost certainly features Chinese-made solar panels and German-made inverters. It will generate electricity only when the sun is adequately shining, which is about 35% of the hours of the year. The expected annual generation is 2,755 MWh.

Under the legislature’s feed-in tariff law, the Public Service Board mandated that Green Mountain
Power write a check to the investors each year for 25 years in the amount of $661,415.  Since the cost to GMP is about four times the cost of electricity from the New England grid, the utility will charge its customers $509,840 a year more than they would otherwise have had to pay for grid power.

The generous tax benefits appeal to people in the highest income tax brackets. In 2011 the Shumlin administration made it even more attractive to the rich by allowing them to take half of the lifetime projected tax benefits from the Clean Energy Development Fund as an upfront grant, an option eagerly taken by 64 of the first 68 investors in the program.

The state’s Comprehensive Energy Plan of 2011 recommended adoption of a Vermont Renewable Portfolio Standard, by which utilities would be required to increasingly higher percentages of their electricity from renewables (including HydroQuebec). Achieving this goal would mean that ratepayers would be hammered all the harder, while the investors pocket even greater profits. Nice.

Last spring the House was about to enact a Renewable Portfolio Standard. At the last minute Shumlin, an erstwhile advocate, instructed the House not to do it. We don’t know why he suddenly got cold feet, but 14 of the 29 states with RPS laws are currently watering them down.

That suggests that a lot of voters forced to pay for the renewable mandates have discovered that they are a very bad deal – unless they have allowed people like Peter Shumlin and Bill McKibben to terrify them about the Menace of Global Warming, which has disappeared since 1999.
John McClaughry is vice president of the Ethan Allen Institute ( I am a director of the Energy Education Project of the Ethan Allen Institute.

This article first appeared at Vermont Digger


Kit P said...

All new power projects cost more than power produced by existing plants. Since producing power is a public service, there is a certain element of accommodating the public wishes.

As an engineer in the power industry I think granting some of those wishes will take a magic wand but if you provide us enough money we will try.

Joffan said...

Well, that was a shame. A good piece until the last phrase, which could just as well be omitted.

Travelogue for the Universe said...

Thanks for this well written article. Hard to keep up with all the subsidies. Impossible to understand how some get a lot, some have to pay.