17.11.2011
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Charges of oversubsidization

Renewables under fire in US

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The bankruptcy of Solyndra was only the beginning. Now, critics of subsidies for renewables in the US seem to be out in full force, as a report in the New York Times last week shows. But while proponents of renewables are trying to relativize the issues raised, not everything the New York Times says is wrong. The big problem is what the Times doesn't say.

 - For the past four decades, Germany has heavily subsidized fossil energy and nuclear, whereas subsidies for renewables are relatively modest. Source: Green Budget Germany
For the past four decades, Germany has heavily subsidized fossil energy and nuclear, whereas subsidies for renewables are relatively modest. Source: Green Budget Germany

"A gold rush of subsidies" reads the title of the New York Times article, which then provides a quite impressive list indeed of subsidies – everything from loan guarantees to tax exemptions and charges passed on to ratepayers. One of the firms chosen as a case study, NRG, has reacted, charging that a number of the figures are exaggerated, but that does not change the overall fact that the firm benefited from policies in stages all along the project.

Is it different in any other industry? Time magazine responded by pointing out that the International Energy Agency (which is not a renewables organization) itself reported that "fossil fuels received $409 billion in subsidies globally in 2010, compared to $66 billion for renewable power," though the author fails to mention that most of those subsidies for fossil fuels come from developing countries, not developed countries like the US and Germany.

Yet, the situation described in the New York Times – as shocking as it may be to lay readers – is basically just business as usual in most industries and most Western countries as well. Two years ago, I wrote about this double standard (PDF) – we complain about how subsidies for renewables raise the cost of power for energy-intensive companies without pointing out that the latter have also long been recipients of generous subsidies. So yes, we subsidize renewables and – as I argued recently – we should continue to do so "just as we continue to subsidize coal and oil sectors, which have been profitable for 150 years now."

But one other aspect of the New York Times report deserves further attention. The author writes that the beneficiaries of these subsidies range from Goldman Sachs to Morgan Stanley, General Electric, NRG and Google. And it ends with the following statement from a Credit Suisse analyst: "the industry could have done a lot more solar for a lot less price." Unfortunately, the New York Times does not explain what could've been done. Renewables International has repeatedly pointed out that solar is considerably cheaper in Germany than it is in the US despite better solar conditions in the US. The reason is quite simple, though the New York Times does not mention it: Germany has feed-in tariffs for all renewables, including solar.

 - One common charge is that the subsidies for renewables are much greater per kilowatt-hour, but that only recently became the case in Germany. Source: Green Budget Germany
One common charge is that the subsidies for renewables are much greater per kilowatt-hour, but that only recently became the case in Germany. Source: Green Budget Germany

It is all the more frustrating to read that Vote Solar's Adam Browning is also upset about the recent news reports. Perhaps no one has done more to block the implementation of feed-in tariffs for solar in the US than Browning. If no one else from the US is going to stand up and say it, I will – all business sectors are subsidized to an extent that would make most people's stomachs turn, and renewables deserve their fair share. But the way the US doles out subsidies is by picking winners (such as Solyndra) in a command-and-control policy approach that has nothing to do with free markets. If you want a free market on which companies compete, you want feed-in tariffs. Germany thrives on small and midsize companies that – thanks to feed-in tariffs – can compete eye to eye with the big energy firms, who for some reason refrain from investing in renewables to this day; roughly 3/4 of renewable generating capacity is owned by individuals and small businesses in Germany, with the Big Four utilities making up only 6.5 percent of investments.

Discussions about subsidy levels are beside the point. The New York Times complains of profits that seem guaranteed thanks to subsidies, but a safe investment environment is exactly what makes German feed-in tariffs so successful, as the IPCC itself recently reiterated. Germany simply gets more renewable energy for the buck than the US does. The difference between how the US and Germany are ramping up renewables is that the US hands out lump cash sums to established corporations, whereas German feed-in tariffs allow you, dear reader, to compete on a level playing field with the big guys. If you're looking for a scandal, look no further. (Craig Morris)

(For those of you who read German, the study in German from which the charts used here are taken is available as a PDF here.)

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