Hour of Reckoning Returns for Renewable Subsidies

To date, the success of renewable energy production in the U.S. has been intrinsically tied to the availability of subsidies that help to make the younger and cleaner forms of power more financially competitive. As we near the end of 2011 the industry players are becoming antsy as the future of subsidized aid for renewables comes into question once again. An increasing public focus of trimming an ever-growing federal deficit, a stagnant job market and the financial woes of European economies on the other side of the Atlantic make for a challenging backdrop for the next phase of clean power. Will renewable energy fall into another trough of its historical boom-and-bust cycle or has its recent, successful years helped to cement itself into necessity in the greater American economy?

Federal support for renewable energy comes in a variety of flavors with each providing funding for different parts of the construction and production process. When it comes to corporate level incentives, the comfortable years of expansion are already beginning to unravel. At the beginning of the process are the now-somewhat-contentious federal loan guarantees courtesy of the U.S. Department of Energy—or should I say “were”. While research oriented technology grants are still available, loan program “1705” for commercial scale renewable energy production or transmission products has already expired. The 550MW Topaz Solar Farm to be built by First Solar proved to be the first casualty of the a dried up funding spigot when it failed to break ground in California before the key September 30^th, 2011 deadline required by the DOE, throwing its future into question.

Next come Investment Tax Credits (ITC) that provide federal tax credits for 30% of the expenses for new renewable energy installations with no dollar ceiling for solar, wind and fuel cells. This money source has an in-service deadline of December 31^st 2012 for new wind installations. The last piece is Production Tax Credits (PTC). Similar to a feed-in tariff, PTC gives per kilowatt hour rates for green power produced by renewable sources (though not solar) taken as a tax credit. To qualify, new projects must also be in-service by the end of December 2012. These are especially coveted given that not only do they last for 10 years of power production so the  deadline is only the starting the clock on a decade-long commitment from the government.

How much are we talking about?  Shepard’s Flat will be the world’s largest land-based wind farm currently under construction in Oregon. Using it as an example, this farm utilizes 2.5 MW GE turbines. With a capacity factor of 25%, that is about 5,475,000 kwh a year per turbine. With 338 of these beasts at 2.2¢ per kwh, that yields a check for $40.7 million a year for 10 years.

Solar power facilities do enjoy ITC support through 2016, but the solar industry has different problems of its own, mainly the undercutting of solar wafer pricing from Chinese producers that reportedly stems from drastic underwriting by the Chinese government. The demise of Evergreen Solar or the greatly publicized Solyndra fiasco are just the tip of the iceberg for the U.S. solar industry’s fight to stay competitive. Barring an extension of subsidies or new technological advances in efficiency, all of this could point to future renewable energy installations being more expensive, resulting in higher electricity rates for Americans.

Our Appetite for Cost

Like gasoline and food, how much Americans should expect to pay for electricity is a debate onto itself. I recently suggested that every American should only be allowed to purchase a given amount of inexpensive, dirty power, above which we should be required to purchase cleaner electricity at the appropriate rate. Nevertheless, in the absence of understanding why power should be more expensive there is a limit to what the general public will tolerate in terms of price increased of a monthly expense. We saw it here in gasoline surmounting $4 a gallon. England is seeing something similar now when it comes to electricity.

Britain’s support for renewable energy has been more holistic than our own but it has certainly come at a cost. In addition to subsidies for new renewable energy installations, England supports feed-in tariffs that require power to be purchased at a set premium rate. However, last week the Guardian reported that the government released plans for successively cutting subsidies in response to climbing energy rates. While the larger markets of wind and solar seemed less immediately affected, there is also talk circling about new cuts made to feed-in-tariffs that could stunt the 18 month growth spurt of solar installations.

Time Left for U.S. Renewables

Renewable energy has had a string of banner years, helping to lift its total energy production past the contributions of nuclear energy in the U.S. Though the current economic climate has not turned out to be as forgiving as we may have hoped it would back in 2008, renewable energy production could have gained enough traction to justify resilience in the eyes of lawmakers.

First of all, whether or not the tax incentives are allowed to expire, renewable energy has gained commitments on the state level in the form of Renewable Portfolio Standards (RPS). A renewable portfolio standard is a state policy that requires electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date. The DOE’s website listing RPS targets by date actually appears to be a bit dated. According to the Federal Energy Regulatory Commission (FERC) there are 29 states and the District of Columbia with and active RPS with another 9 states and 3 power authorities that have non-binding goals. In order to meet these targets, more renewable energy systems will need to come online.

Secondly, the question may not be how many jobs are these industries adding every month, but more how many have they amassed in total. Politicians certainly want to be spending money where more new jobs will be created, but they also do not want to axe an industry to result in further substantial job loss. A new study by the solar industry pegs their U.S. employment at 100,000 jobs. Last year, the Bureau of Labor Statistics estimated the wind industry at another 85,000. No politician wants to be responsible for calling nearly 200,000 American jobs into question.

Lastly, despite the fact that the conservative contingent is taking aim at everything they can in attempts of trimming the fat out of the federal government (an exercise I am not fundamentally opposed to in concept in moderation) wind energy has proven to be better situated than most of what sits under the environmental umbrella—especially in the sights of Republican presidential candidates. Between Texas and Iowa, wind energy becomes an unlikely target up through 2012. Rick Perry’s lonestar state boasts more wind energy than any other state in the country despite the governor’s anti-position on climate change (and conveniently all other forms of renewable energy). Iowa holds the second highest amount of wind power generation that reportedly accounts for almost 20% of the states power. Avoiding the fallacy of displeasing the Iowa Caucus has so far culminated to all of the GOP hopefuls putting their John Hancock on a giant wind turbine blade in the image of support.

The industries may not be able to avoid the growing level of trepidation for the next year that brings professionals to the edge of their seats, but barring a grimmer economic picture than what we have now we may see at least one more round of fiscal support for renewable energy from the feds before they take the training wheels off. The financial crisis offered us a time for pause and reassessment of our business as usual. We should seize the opportunity to emerge from this recession as a more sustainable society and renewable energy is an important component of that.

Image Credit: solarpanels.bz , nationalwind.com