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Category — Subsidy (Section 1603)

Joint Letter Opposing Extending the Production Tax Credits and 1603 Treasury Grant Program (time for free-market, fuel-neutral energy policy)

This letter to Congress was sent by American Energy Alliance, Americans for Prosperity, Club for Growth, Council for Citizens Against Government Waste, Freedom Action, The National Center for Public Policy Research, and Sixty Plus Association. It is reproduced here for its educational value in the general debate over special government favor to politically correct energies.

Dear Senator:

We strongly oppose extending the production tax credit and reviving the 1603 Treasury grant program. The U.S. is risking the energy equivalent of the housing meltdown through a continuation of these policies. Electricity prices are already increasing and these programs will only fuel the increase. Other nations’ economies are already reeling from the much higher electricity prices such sources mean for industry and families.

It is increasingly clear that the intervention of politicians and bureaucrats in the energy sector has had devastating economic consequences and led to embarrassing scandals. Yet the Senate is considering amendments to extend disastrous subsidies for windmills and other form of politically-preferred energy sources….

The PTC was created by the Energy Policy Act of 1992. The wind industry insisted at the time that it needed short-term help from taxpayers and would soon be able to compete on its economic merits. Twenty years later, wind is still uncompetitive, unreliable, and expensive, as reported by the Energy Information Administration (EIA). Yet Congress increased subsidies for wind dramatically in recent years, to a record $5 billion in 2010, according to the EIA. [Read more →]

March 13, 2012   3 Comments

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. [Read more →]

December 5, 2011   24 Comments

The Case Against Section 1603 Grants ($5 billion easy pieces)

Congress is rightfully concerned about closing the huge, systemic budget deficit. In this climate, eliminating Section 1603 grants for politically correct renewable energy should be considered an easy target.

By way of background, this particular subsidy came about due to persistent pressure from lobbying groups like American Wind Energy Association (AWEA). Their main argument is that these grants will promote jobs and economic benefits. Of course, as lobbyists this is what they are paid to say. But in these times of more focused financial prudence, we need to critically look at such expenditures in a more objective light — especially since we are talking about some five billion dollars.

The 1603 Grants should be cancelled entirely. In my view the best way to see how ineffective these expenditures are is to consider what the alternatives are for this same money. In other words, if the U.S. Congress wants to subsidize the energy business (a matter that is beyond the realm of these brief comments), then the real question is: Are 1603 Grants the most effective way to do this? If not, then they should be defunded.

Claim One: Jobs

1) If the Five Billion was spent on other, more reliable forms of energy (e.g. gas, nuclear or geothermal) it is very likely that MORE jobs would be created.

2) Numerous independent reports have concluded that the cost per job that these and similar grants generate is VERY high.

3) Some independent studies have concluded that when we look at the big picture, that there is actually a net job LOSS from subsidizing renewables. One of the key reasons for this is that the electricity produced by renewables is higher than our conventional sources, which leads to business and consumer cut backs. There is no such job loss for building economic forms of power generation; quite the opposite. [Read more →]

February 28, 2011   23 Comments

Section 1603 Extension: The Renewable Energy Bailout of 2011

In the waning hours of the tax bill debate last December, the Obama Administration and GOP leaders released the terms for continuing the Bush-era tax cuts. The framework negotiated between the parties initially omitted any reference to extending the renewable energy programs introduced in 2009 under the American Recovery and Reinvestment Act of 2009 (ARRA), which were scheduled to sunset at the end of 2010.

The renewable industry responded ferociously. A media blitz hit overnight, and wind and solar lobbyists huddled with lawmakers on Capitol Hill. Repeated warnings about job loss and the immediate harm to green energy businesses worked. Lawmakers relented and sanctioned a 1-year extension. The windfall? A check from the U.S. Treasury for 30 percent of a project’s qualifying cost.

With the fuss now behind us, we decided to examine one of the more popular renewable subsidy programs to be extended, the Section 1603 cash grants. Our analysis revealed a pattern of rewarding inflated project costs and decreased energy production, while shifting a substantial portion of the development risks to American taxpayers.

Supersubsidy upon Subsidy

Following the collapse of Lehman Brothers in September 2008, tax-based policy incentives lost much of their effectiveness as the number of tax equity investors declined. Provisions under ARRA were designed to fill the void by reducing, and essentially eliminating, the need for tax advantaged investors. The Section 1603 cash grant program enabled developers to secure direct monetary outlays from the Federal government to cover 30 percent of a project’s qualifying cost. (Greenwire October 14). The criteria for receiving the grant were not onerous, and the Treasury Department was prohibited by law from ranking the projects before distributing the funds.

Spanish energy giant Iberdrola Renewables, Inc., which received nearly a billion in cash grants alone, argued the money was crucial to promote jobs and economic opportunity (as if the money spent elsewhere would not have done the same….).

But a preliminary evaluation of the grant outlays published last year found that 61% of the grant money distributed through to March 2010 “likely would have deployed under the PTC [production tax credit] if the grant did not exist.” In many cases, money went to projects that were already under construction, and in some cases already producing electricity. [Read more →]

January 31, 2011   16 Comments