Ending Windpower Subsidies for Deficit Reduction (failed promises have consequences)
“The interventionist in advocating additional public expenditure is not aware of the fact that the funds available are limited. He does not realize that increasing expenditure in one department enjoins restricting it in other departments. In his opinion there is plenty of money available. The income and wealth of the rich can be freely tapped…. It never occurs to him [think Obama] that grave arguments could be advanced in favor of restricting public spending and lowering the burden of taxation. The champions of cuts in the budget are in his eyes merely the defenders of the manifestly unfair class interests of the rich.”
- Ludwig von Mises, Human Action: A Treatise on Economics (1949), 1966, pp. 856–57.
“This is where we stand in our current debt ceiling debate. Government is too big, too bloated. Washington faces a spending problem, not a revenue problem. But too many within the economy depend on the government transfers to live and to work. Yet the economy is not growing at a rate that can afford the illusion. Where are we to go from here?”
- Peter Boettke, “Why The Great Stagnation Thesis is the Most Subversive Libertarian Argument of Our Age,” July 15, 2011.
Energy subsidies are now on the table in the debt-ceiling debate now raging before Congress. But a macro approach needs to be taken to encompass subsidies in the electric generation market (wind and solar in particular), not only in the transportation fuels (oil and ethanol).
Congressional lawmakers interested in budget reduction have set their sights on eliminating ethanol subsidies and oil and gas tax breaks. But renewable energy subsidies–the holly grail of Big Environmentalism and the Obama Administration–are also under pressure.
Earlier this year, the Department of Energy’s Section 1705 loan guarantee was cut. The popular Section 1603 cash grant program created under ARRA is expected to expire later this year. And some industry insiders indicate the federal production tax credit, in effect since passage of the Energy Act of 1992, will be allowed to sunset at the end of 2012.
Indeed, the moment has come to consider eliminating all of the energy subsidies–simultaneously–to let the natural economics of a freer market prevail.
Consumer-driven energy decisions will create winners and losers, for sure. That is the creative destruction of the marketplace. The public is far better served when industries compete for market share and profits rather than fight for political favoritism and handouts.
Windpower: A Trail of Broken Promises
The U.S. wind market, which has relied on public funding since its inception in the 1970s, has a long trail of false expectations and broken promises.
The history of governmental handouts to the wind industry dates to the Carter Administration. Billions in public dollars have poured into this industry since, and more is obligated per year for the next decade.
Wind proponents have again and again touted their technology’s coming viability. For example, Chris Flavin of the Worldwatch Institute said back in the 1984: “”Tax credits have been essential to the economic viability of wind farms so far, but will not be needed within a few years.” (2) More such promises have been made over the decades.
Yet for all the promises made, we have little to show for the money spent. Consider these points:
Promise #1: Meeting U.S. Electricity Needs.
A 1976 study by the Department of Energy estimated that wind power could supply nearly 20% of all U.S. electricity by 1995. By the end of 1995, wind represented only one-tenth of 1% of the U.S. market. Today, wind delivers about 2% of the U.S. electricity market, and only because of mandates (such as in Texas) and very generous subsidies.
DOE now claims we will reach 20% wind power by 2030. Moving the goalpost does not address the logistical and cost barriers to reaching the 20% goal. These barriers are significant and it’s time DOE considers the realities of what a 20% wind world would look like. It’s very unlikely that anything near this scenario will ever be realized.
Promise #2: Reducing Cost.
In the mid-1980′s wind power sold at around 25 cents per kilowatt hour. By 1995 prices dropped dramatically but were still double the cost of gas-fired generation, even after allowing for the production tax credit (1.5 cents per kwh in 1995). Today, wind pricing is even higher, despite continued federal support (figure 22, 2010 Annual Wind Market Report). Promises of technology improvements that could drive down costs have not translated into energy price improvements.
Wind’s intermittency still means that high upfront capital costs are spread over fewer hours of operation which places upward pressure on the price of the energy sold. Cost pressures are also tied to policies on renewables.
Aggressive renewable policies have placed developers in strong negotiating positions relative to energy buyers. They know full well that state regulators will approve their pricing demands and pass through the higher costs to ratepayers (footnote 50, 2010 Annual Wind Market Report). And with power purchase agreements now a requirement in order to attract investor financing, above-market energy prices are locked in for extended terms ranging between 10-20 years.
Promise #3: Improved Performance.
In 1994, ninety percent of the U.S. wind energy capacity was located in the State of California and operated at a 24% annual average capacity factor. In 2010, the capacity-weighted average capacity factor for Californian projects in 2010 was only 27.2%. In most regions of the US, wind operated at under 30% capacity factor. New York State wind performed at 22.7% last year. While newer technology has resulted in modest production improvements, U.S. wind has failed to meet the promised 35% capacity factor
Promise #4: Jobs creation.
Over 80 percent of the nearly $6 billion in Section 1603 grants paid out in 2009 and 2010 went to wind energy projects. Yet by the end of 2010, the American Wind Energy Association reported jobs declined from 85,000 to 75,000. When installations dropped in 2010, it was no surprise that jobs dropped as well. And since growing the manufacturing base is predicated on installing more wind turbines it’s hard to see where job growth is sustainable.
The Perpetual ‘Infant Industry’
In his 1997 touchstone piece, Renewable Energy: Not Cheap, Not ‘Green’,” Robert Bradley wrote: “Wind power has proven itself to be a perpetual ‘infant industry’ with its competitive viability always somewhere on the horizon.”
What caught Bradley’s eye was quotations such as this one from the American Wind Energy Association et al. from 1983:
“The private sector can be expected to develop improved solar and wind technologies which will begin to become competitive and self-supporting on a national level by the end of the decade if assisted by tax credits and augmented by federally sponsored R&D.” (1)
This week, GE’s ecomagination vice president Mark Vachon stated the troubling truth about windpower:
“Without clean-energy mandates or tax subsidies, wind struggles to compete with cheap natural gas. And there’s uncertainty about those subsidies, particularly in the U.S. where Congress is looking to manage budget deficits.”
The American Wind Energy Association insists wind is now a mainstream energy resource but blames the 50 percent drop in U.S. installations between 2009 and 2010 on a lack of long-term, predictable federal policies.
After 30 years of paying the way for this infant industry, apparently the public has still not done enough to create a market for its product! It is time to cease enabling and send the wind industry into rehab.
Call to Action
Energy realists, taxpayers, and true environmentalists should be heard on the wind power (and solar power) issue. Remind your representatives that wind energy has yet to deliver on any of its promises. And history has shown we have no reason to believe things will change.
Eliminate all wind energy subsidies as part of the debt ceiling compromise. Let’s finally move on to energy solutions that can deliver on their promise.
(1) Quoted in Renewable Energy Industry, Joint Hearing before the Subcommittees of the Committee on Energy and Commerce et al., House of Representatives, 98th Cong., 1st sess. (Washington, D.C.: Government Printing Office, 1983), p. 52. (Booz, Allen & Hamilton study for the Solar Energy Industries Association, American Wind Energy Association, and Renewable Energy Institute.)
(2) Christopher Flavin, “Electricity’s Future: The Shift to Efficiency and Small-Scale Power,” Worldwatch Paper 61, Worldwatch Institute, November 1984, p. 35.