The high price of “cheap” green energy

Author: Jonathan Lesser via RealClearEnergy,

Just like Danger! game show, green energy subsidies were Congress’s answer to all questions about energy policy. OPEC’s first oil embargo in 1973-74 ushered in decades of energy policy, including the creation of the Department of Energy. Subsidies for wind, solar, and hydropower began in earnest with the Public Utilities Regulatory Policy Act of 1978. Similarly, subsidies for corn-based ethanol were enacted as part of the National Energy Conservation Policy Act of 1978. Both projects aimed to reduce the country’s dependence on Middle Eastern oil.

PURPA subsidies sent independent developers racing to build small power plants whose utilities were required to purchase electricity at administratively set prices. In some cases, the subsidies were independent of the amount of electricity actually produced by the power plants, giving rise to the name “PURPA machines”, since their real purpose was to obtain subsidies; electricity production was secondary.

The Energy Policy Act of 1992 modified these subsidies, creating a “temporary” production tax credit for wind and some types of biomass generation. Congress also passed an investment tax credit, initially for solar but later expanded to all renewable energy sources, which could choose between the ITC and the PTC. Although the PTC was set to expire in 1999, it was extended and expanded multiple times, most recently in the Inflation Reduction Act. The PTC now covers all zero-emission generation, including new nuclear power plants. The IRA increased the ITC, and qualifying green energy investments can claim a credit for up to 60% of the construction cost.

Moreover, the IRA extends the PTC and ITC until greenhouse gas emissions from electricity generation fall to just 25% of 2005 levels.after which they will be gradually reduced. According to the US Energy Information Administration, the projected date for achieving this goal is 2048.

The IRA also provides grants for “green” hydrogen, which is hydrogen produced from emission-free electricity, battery-storage plants, and plants that capture carbon dioxide and bury it underground.

Ethanol subsidies have also been expanded and increased—the government now subsidizes various types of biofuels, and many states have enacted clean fuel standards that, like renewable energy standards, require an increasing percentage of transportation fuels to be biofuels.

Congress was not the only institution subsidizing green energy. Many states have introduced their own subsidies, especially in the Mid-Atlantic states, that force taxpayers to purchase electricity from offshore wind farms at prices many times higher than market prices. States have also passed renewable energy standards that force utilities to increase the percentage of their electricity from renewable sources that otherwise would never be produced.

This smorgasbord of subsidies is intended to reduce greenhouse gas emissions by promoting new clean energy technologies. It is also intended to boost economic growth by creating new “green” industries and high-paying jobs.

There is little evidence that the former is the case. U.S. energy-related greenhouse gas emissions have fallen by almost 20% from 2005 levels, largely because natural gas has replaced coal as the primary fuel for generating electricity. From 2005 to 2023, electricity production from natural gas was six times greater than wind and solar combined. In 2023 alone, electricity production from natural gas was three times greater than wind and solar combined.

In addition, the growth of subsidized wind and solar generation has distorted wholesale electricity markets.which gives rise to the need for subsidies to ensure the continued operation of existing nuclear power plants, so that their owners do not close them and deprive them of thousands of well-paid jobs. The establishment of subsidies necessary to offset distortions caused by other subsidies is undoubtedly one of the definitions of economic insanity.

When it comes to stimulating new industries and economic growth, currently The U.S. solar panel industry is in crisis – nearly 90% of solar panels installed in the country are now manufactured in China. All but one of the offshore wind projects under construction or planned are owned by European companies that control their governments.

The economic costs of these subsidies are borne by taxpayers who must cover additional deficit spending; electricity bill recipients who have seen their electricity bills increase despite claims that renewable energy is cheaper than traditional energy sources; and motorists who pay more for gasoline and diesel because refineries have been closed or converted to produce subsidized biofuels.

Higher electricity and transportation fuel costs raise the costs of producing and distributing almost everything else, which ripples through the entire economy, slowing growth and destroying jobs.

When it comes to green energy subsidies that are supposed to spur the development of new, cheaper and clean technologies, there is nothing new about wind and solar power, which receive the lion’s share of subsidies. After nearly a half-century, none of them are competitively priced, especially when you factor in the additional costs of addressing their inherent intermittency—costs that others must bear. And new technologies, such as direct air carbon capture, will be commercially viable only if the U.S. imposes carbon taxes of several hundred dollars a ton, something few politicians are willing to do.

The vast majority of green energy subsidies reward politically influential constituencies and businesses. whose primary goal is not to build better, high-energy mouse traps but only build those that qualify for the largest subsidies.

The government could instead allocate subsidies only to actual research and development of new, clean energy technologies, such as advanced and small modular nuclear reactors.

In a country mired in debt, wasting hundreds of billions of dollars on green energy subsidies, as the Inflation Reduction Act provides, is an idea whose time has long passed. Green Energy Danger! can be a lucrative game for the lucky winners, but ultimately everyone loses.

By Zerohedge.com

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