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Section 1603 Grant Extension: Just Say No (Good money after bad–is the end near?)

There’s desperation on the Hill by the taxpayer  parasites. The wind industry is once again pressing Congress for a last minute extension of the Section 1603 subsidy.

And why not? ‘Tis the season for giving, and the approach of “Ask and ye shall receive” has worked pretty well for the industry so far, especially with a contingent of members happy to be led around by any entity cloaking itself in ‘green’. Who better to do the leading than the American Wind Energy Association (‘AWEA’), the trade group increasingly dominated by wind turbine manufacturers — most of whom are headquartered in Europe and Asia.

Any reasonable assessment of the 1603 grant program would be lost entirely on this crowd but there are facts that make any discussion of an extension foolhardy.

High Cost: The treasury reports it’s already distributed $9.6 billion in cash grants during the period from 2009 to October 31, 2011. Of this, 80% ($7.6 billion) was handed to wind developers representing 12,272 megawatts of installed capacity. Since the money does not transfer to project owners until a wind facility is in service, the public has NO idea of the total cost of 1603. And we won’t know until 2013 or after.

But based on projects now under construction, we estimate the outlay for wind alone to be closer to $20 billion. This is without an extension. If Congress agrees to extend 1603 by 1 year, this figure would be much larger. Remember, we are borrowing 40 cents on every dollar to pay for this program.

Poor project performance:The report estimates that generation from the 12,272 MW of installed wind will be around 32,487 gigawatt hours or 30% capacity factor. But Treasury never tested this assumption.

Five projects in New York, for example, received $300 million in grant money and operated at a dismal 22.6% capacity factor in 2010. We doubt these projects are unique. Unlike the production tax credit which is dependent on project performance, the cash grant imposes no operating criteria.

This has the effect of eliminating performance risks for the developer. If a project’s net capacity factor is marginal the public still grants the cash and projects that would normally not meet financial threshold requirements are apt to get built anyway. The Section 1603 program substitutes government payments for private investments after which the government just walks away.

Inflated Turbine Costs:Upfront cash grants give developers minimal incentive to negotiate lower prices with suppliers. In fact, the higher a project’s capital costs the more 1603 money that will flow. With turbine costs representing 55+% of the project’s cost, turbine manufacturers would do well to keep their prices high.

American taxpayers can expect much of the grant money to flow to foreign corporations. Based on AWEA’s quarterly reports for 2011, 63% of the 3355 megawatts installed in the first three quarters of the year represented turbines manufactured in Europe and Asia.

It’s no surprise to anyone the speed at which the industry has become reliant on 1603 grants. But Congress needs to understand that there are far cheaper, much more effective opportunities for achieving clean energy goals.

Instead, it’s succeeded in adopting a policy that drives up construction and energy costs while at the same time eliminating any incentive to build projects that can meet the highest performance standards. In fact, the more expensive a project is to construct the better for vendors, contractors and developers.

It doesn’t stop there. For intermittent resources, higher construction and operational costs also push up energy prices since there are fewer hours of operation to spread the inflated costs over.

Despite these facts, Congress will cave to the wind industry if you do not let you concerns known.

Call to Action

Minnesota’s Congressman John Kline has invited Members of the House to co-sign a letter he plans to send to Chairman Dave Camp (R-MI) of the Ways and Means Committee, asking that Section 1603 be allowed to expire on December 31, 2011 as scheduled. (See letter below).

The threat of an extension is real.

Please contact you representative. Ask him/her to sign Rep. Kline’s letter.

Message sent by John Kline to Members of Congress:

From: The Honorable John Kline  Sent By: yelena.vaynberg@mail.house.gov Date: 12/1/2011

Save taxpayers’ hard earned money: Let Section 1603 for renewable energy grants expire at the end of 2011.

Dear Colleague:

I invite you to join me in sending a letter to Chairman of the Ways and Means Committee Dave Camp to express support for the expiration of Section 1603 grants in lieu of tax credits for renewable energy, including wind projects. These grants are set to expire at the end of this year.

Section 1603 grants in lieu of tax credits were created as part of the failed stimulus bill and extended as recently as last year through December 31, 2011. According to the nonpartisan Congressional Research Service, “[m]arket response, since Section 1603 was established, has been mixed. The solar industry expects a record year of installations in 2010 (approximately 1 Gigawatt), while the wind industry forecasts a 50% decline compared to 2009 (approximately 5 Gigawatts installed in 2010 compared to 10 Gigawatts installed in 2009).”

While the goal of the program is to increase the use of renewable energy, including wind, I have escalating concerns about the unintended consequences of the program. For example, in Minnesota, a wind developer is working to establish a farm with more than 50 wind turbines despite strong concerns vocalized by hundreds of residents the program is slated to serve.

Furthermore, given current budget constraints, we simply cannot afford taxpayer-funded government subsidies that offer inconclusive results.

Join my call for fiscal responsibility by signing this letter to Chairman Camp. If you have any questions, or would like to sign this letter, please contact Yelena Vaynberg in my office at yelena.vaynberg@mail.house.gov or 5-2271.

Sincerely, JOHN KLINE  Member of Congress

———————————————————————————-

Draft letter for Congressmen to sign with John Kline:

December XX, 2011

The Honorable Dave Camp
Chairman, Committee on Ways and Means
1102 Longworth House Office Building

Washington, DC 20515

Dear Chairman Camp:

In light of our shared commitment for comprehensive tax reform that would lower the tax burden for hard working Americans, we urge you to allow Section 1603 grants in lieu of tax credits for renewable energy to expire at the end of this year, as scheduled.

As you know, Section 1603 grants in lieu of tax credits were created as part of the failed stimulus bill and extended as recently as last year through December 31, 2011. While the goal of the program is to increase the use of renewable energy, including wind, we have escalating concerns about the unintended consequences of the program.

For example, in Minnesota, a wind developer is working to establish a farm with more than 50 wind turbines despite strong concerns vocalized by hundreds of residents the program is slated to serve. Furthermore, given current budget constraints, we simply cannot afford government subsidies that offer inconclusive results.

Taxpayers are unjustifiably incentivizing the wind industry where it may not be popular with the constituency or a necessary part of a long term national energy strategy. Consequently, Section 1603 grants should be allowed to expire at the end of this year.

Thank you for your consideration of this matter. We look forward to continue working with you on meaningful reform of our tax code that protects taxpayers and encourages economic growth.

Sincerely,

JOHN KLINE  Member of Congress

24 comments

1 Section 1603 renewable subsidy must expire. | Allegheny Treasures { 12.05.11 at 1:27 pm }

[...] an article at Master Resource, Lisa Linowes urges readers to contact their congressional representatives to demand that the [...]

2 Wayne C. Spiggle { 12.06.11 at 5:09 pm }

Industrial Wind does not publicize its dependance on the public trough. We can no longer afford to “award” cash to them amounting to 30% of their installation costs, to say nothing of the additional 30% they take from the production tax credit. Write your Congressman! wcs

3 Silver Sunlight { 12.06.11 at 5:11 pm }

When will this vampire wind industry finally die? There has been bipartisan acknowledgement that 1603 and the loan guarantee programs are an offensive waste of our tax dollars. After getting billions of dollars and delivering almost nothing , these vampires have the nerve to keep coming back for more. Their pathetic tales of doom and gloom are proof that they deserve to die because the industry will never be sustainable. Europe has learned this, at great cost to their economies. All the federal government needs to do to achieve our energy goals is step aside and let the markets move toward clean, cheap, domestically abundant, completely reliable natural gas–no subsidies or tax credits needed! When it comes to energy subsidies and tax credits, “none of the above” is a far more intelligent choice than “all of the above.”

4 Jeryl Colby { 12.06.11 at 9:14 pm }

I am distressed by this “pretend” green industry. Please sign Rep.Kline’s letter. Thank you.

5 Dennis Probasco { 12.07.11 at 11:22 am }

Regardless of one’s opinion on global warming or various green energy sources, subsidizing a failed policy in hopes of finding an answer is to no one’s benefit. Admittedly, searching for viable renewable energy sources is an understandable goal. However, American and European experience proves wind has had it’s fair chance to compete, yet it still fails to prove it can ever be competitive or even provide minimal climate benefits. I’d rather the US place it’s bets, of borrowed money, on something with better odds of success. What should we expect from our heavily subsidized green energy source, competitive energy, substantial reduction in greenhouse gasses, and reliability? When wind’s benefits are honestly measured and balanced against investment, commercial wind development is a dismal and expensive failure.

6 Joan M. Lagerman { 12.07.11 at 4:25 pm }

1603 was part of Obama’s failed stimulus. Get it Gone.

7 Joan Null { 12.10.11 at 2:22 pm }

it’s time for the government to stop trying to pick winners in the energy game (their track record isn’t all that good) – stop wasting taxpayers money on schemes that are not technologically sound nor economically viable

8 Global Warming: Has China Had A Change Of Heart Or Just A Change Of Strategy? | EPA Abuse { 12.12.11 at 12:20 pm }

[...] tax-payer subsidies for renewable energy (section 1603) are due to expire at the end of this month—subsidies that ultimately help China’s economy and [...]

9 RAH { 12.12.11 at 11:25 pm }

Wow.
Do you people have any idea the billions of dollars the US Government has given to the nuclear industry since its inception?
Loan guarantees are just the tip of the iceberg. With the elevated and variable costs a nuclear cleanup could tally, the Price Anderson Act puts the full cost of a disaster cleanup on the taxpayers.
http://en.wikipedia.org/wiki/Price%E2%80%93Anderson_Nuclear_Industries_Indemnity_Act

As for the turbine manufacturers being in Europe and Asia, the US has no-one to blame but themselves.
As with PV modules, most of them are made in Europe or Asia. While those two areas have been global leaders, the US has been slow to enter the market. With 104 nuclear generating facilities in the US alone, who needs renewables.
Now that renewables are desirable, and there is a 6 reactor nuclear generating facility in Japan that is experiencing the ‘China Syndrome’ with at least 3 of its reactors, US industry is starting to wake up.
Germany is the global leader in PV and wind, in both production and usage. They are shutting down their nukes. As are many other European countries.
China is trying to corner the renewable energy market. They are flooding the market with cheap panels and destroying the surrounding environment adjacent to the manufacturing facilities.
http://www.washingtonpost.com/wp-dyn/content/article/2008/03/08/AR2008030802595.html
1603 is the only way for small scale wind and solar to be realized. Don’t kill it. Embrace it.
If a turbine falls over or a PV module falls off its mount you don’t need to evacuate a 30 KM radius or wait 300 years to repair it.
No-one will use Fukushima or Chernobyl ever again.

10 Adam Smith { 12.13.11 at 6:25 am }

Do I see the same fervor to end fossil fuel subsidies?

11 Thomas Jackson { 12.13.11 at 11:49 am }

Subsidies for fossil fuels and nuclear should be ended immediately, and the funds made available instead to proven renewables like wind and solar and efficiency incentives.
Fossil fuel companies make record profits and still get subsidies!!
Time to level the playing field and give renewables their turn at the trough!
Your electricity gets to you one way or another, so why not make it sustainable, and clean, if not for your sake, for your children and grandchildren… their depending on you.

12 Lisa Linowes { 12.13.11 at 1:51 pm }

Thomas, Have you looked at the EIA report on public $$s paid to renewables vs. fossil fuel lately? Yes– let’s level the playing field by eliminating all subsidies. Not by picking favorites.

13 Adam Smith { 12.14.11 at 9:09 am }

Lisa, Have you looked at the cost of the military to protect the oil market? Are these “subsidies” included in your model?

14 rbradley { 12.14.11 at 9:33 am }

Adam:

What does oil have to do with electric generation? The answer is ‘not much.’ Or is this an argument by you for ethanol?

Think in terms of natural gas, and even coal, for electric generation, and I think you and Lisa can take it from there.

15 Adam Smith { 12.14.11 at 8:49 pm }

rbradley-it’s a total energy issue and the cleaner the better. If one makes the argument that subsidies are unfair, then stop supporting oil. The anti-renewable folks want to have it both ways.

16 rbradley { 12.15.11 at 11:09 am }

Adam: The energy security argument you brought up concerns oil, not coal (we export on net) or natural gas (all Canada). So it is not ‘a total energy issue’.

I’m all for ending domestic and international oil subsidies at the same time we get rid of all the nuclear and renewable subsidies. The big winner will be the dense fuels–oil, gas, and coal.

“Cleaner the better”–I would argue that points toward the dense energies, not the dilute ones, from an environmental viewpoint. This is the argument that prevailed at THE ECONOMIST: http://www.economist.com/debate/debates/overview/217

17 YFJ { 12.16.11 at 12:44 pm }

Folks,
Please understand that federal support for renewable energy will still exist whether the cash grant program is extended or not. There is still a 30% Investment Tax CREDIT program in place. What this means is that developers will shift their focus to investors with “tax capacity” i.e. already profitable. So whether a profitable company pays less tax or a new start-up company gets a cash grant the fiscal impact is the same. So the question really is who should be supported? Cash Grant helps new companies build a business (and create jobs), ITC merely reduces taxes paid by already profitable companies. These renewable energy project will get built either way. So if you’re anti-wind or anti-solar or anti-Obama this effort will have no impact.

18 Uprisin { 12.17.11 at 11:19 pm }

1603 is by far more transparent than renewable energy tax credit (thru 2016). Do you want to know where the investment in renewables is going, or do you want it hidden? While I agree we should not invest in lousy renewable projects, and am all for reducing subsidies, keep in mind the oil/ fossil fuel industry has had a ~100 year head start (right after whale oil). Should we give naturally abundant renewable resources like the wind and the sun an opportunity to power our civilization? Sure. Do they need a boost to get started? Yes. By actively trying to kill the 1603 cash grant you are attempting to eliminate the most effective transparent renewable incentive on the planet, good job. Perhaps we could bring back a plan to run our civilization on whale oil.

19 Richard { 02.12.12 at 1:41 pm }

The government has subsidized hydroelectric, nuclear and renewable energy industries. It also subsidizes the oil industry by providing military protection. This has been going on for over 30 years. We spend at minimum 100 billion per year. That means excluding wars, the U.S. has spent over 3 trillion just to make sure oil gets here. If that money was used to develop a clean energy infrastructure, I believe the US and Canada could be energy independent.

20 Lisa Linowes { 02.12.12 at 5:44 pm }

The flaws in the 1603 grant program are substantial beginning with the fact that there is no performance standard. As long as a project goes into service it gets the grant. Our analysis of 1603 payouts found that substantially more money was paid to projects in low wind regimes or those with high capital costs than would have been received under the ptc. 1603 is bad policy for everyone but turbine manufacturers and developers.

21 President Obama’s Fake Fossil Fuel Infatuation | Western Journalism.com { 02.21.12 at 11:43 am }

[...] and the turbines can eventually be abandoned. Additionally, much of the money is given to foreign companies—not “small renewable [...]

22 President Obama’s Fake Fossil Fuel Infatuation | Expose Obama { 02.21.12 at 2:44 pm }

[...] [...]

23 Royce { 12.07.12 at 6:51 pm }

There is a fairly simple answer to the problem. Keep the program but modify it for made in USA only.

24 President Obama’s Fake Fossil Fuel Infatuation | The Strident Conservative { 06.20.13 at 7:38 pm }

[...] and the turbines can eventually be abandoned. Additionally, much of the money is given to foreign companies—not “small renewable [...]

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