Utilities and integrating renewables: A place for government?

Industry forum members say yes ... and no

Kate Rowland | Jan 19, 2012

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At the end of December, I wrote about the recently released U.S. Department of Energy/Alstom grid global study in Strategies for success: Integrating renewables in utility control centers.

In the article, I said: "Of keen interest to me, and to electric utility operations personnel, is the clear identification and description within the report of nine current best-practice tools and decision support systems that grid operators in the U.S. and in Europe are using to integrate and manage wind energy (and, in some cases, solar energy, as well.)"

While I was more interested in pointing to the best-practice tools available within the report, an anonymous commenter took up the anti-green-subsidy flag, instead, and wrote: "(T)he whole green energy push is not economically competitive-in fact, it is a scam because every nameplate MW of 'green' energy generation has to be backed up by a MW of some other type of generation, typically fossil-fueled and much of it simple-cycle gas turbines which are a considerable way from being the most efficient users of fuel."

Before joining Energy Central, I wrote about wind energy for many years, and so my dander was raised by what I felt was a gross, and dated, generalization.

So, I reached out to the LinkedIn Smart Grid Executive Forum for input on the subject.

As usual, the forum members did not disappoint. (As this particular group is a members-only forum, I will not be identifying by name any of those who stepped up to comment to my question within the forum's pages.) A wide-ranging discussion and argument ensued, with 69 comments in quick succession. I'd like to share some of those comments here, on both sides of the subsidy equation.

It seems my original commenter is not alone in his sentiment about subsidies. A few forum members were quick out of the traces to take up both sides of the argument.

"Without subsidies, the wind farms would not have been built," one wrote. "On the other hand, without subsidies, there would be no national railroad network, no national defense highway (interstate system), no sewage treatment plants, few hospitals of any size, no drinking water systems, [and] no large hydro-electric dams to speak of. In short, the country has invested (and that is the key here) in almost every large infrastructure project in history ... this is one of the reasons we have governments and taxes, to move the ball forward where large infrastructure investments need to be made."

Another argued that : "Fossil fuel industries enjoy enduring tax breaks that are written into the tax code, while renewable energy financing policies live and die in piecemeal legislative erraticism ... Let's revise the tax code to eliminate the permanent subsidies, royalty forgiveness, and other tax breaks for conventional-fueled systems. If subsidies are bad for young solar and wind power developers, then they are insanely stupid for established oil companies that earn record-breaking profits."

Yet another commenter took issues with government subsidies at all: "Government control of, and funding for, new technology is a relatively recent phenomena in this country, though you wouldn't know it from widespread media coverage of today. Probably the greatest marvel of our age - electricity - was the result of private experimentation and development over a long period of time."

He went on to write, "I think it is a legitimate question to ask whether heavy government support for any technology, including renewables, is a proper function of government in a free-enterprise system, absent wartime requirements."

Free enterprise played a large part in in the wide-ranging direction the discussion ultimately took, but it was tempered, in the end, by the following statement:  "I think we ought to consider whether we want 'free enterprise' (usually a nice word for short term profit making at any cost) to exclusively decide the 'winners and losers'. Anyone who has tried to get new ideas, funding for new technology, and real breakthroughs through the management of large companies might disagree that that is the best way to promote new ideas. Most really new commercial ideas are developed in research and development groups and universities that are often supported by public funding as they should be."

I'll leave the final comment to yet another forum member. His sentiment was echoed by about half the commenters.

He said: "Unfortunately too many people get suckered into debates like this without questioning the underlying premise in the argument: that new forms of energy should compete in the free market - subsidies represent government interference. On its face, it sounds great, but if you really think about it, it's absurd and out of touch with reality. The allegedly 'unsubsidized' energy market they talk about is at least as subsidized and in many cases more subsidized than any of these current 'green' incentives ... The proper response to Kate's detractor is that you might agree if ALL subsidies were pulled. Only then can you talk about level playing fields."

My thanks to the LinkedIn Smart Grid Executive Forum for taking up the challenge, and for an excellent, lively forum debate. May we do it again soon!

I'd like to issue a similar challenge to Intelligent Utility Daily readers. What do you feel is the most appropriate way forward regarding industry subsidies? I enjoy - and learn from - a good intellectual argument.

Kate Rowland
Editor-in-chief, Intelligent Utility magazine
krowland@energycentral.com

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Comments

Utilities and integrating renewables: A place for government?

By all means, remove all subsidies.  Let's get to free market solutions for R&E, climate change concerns and the "need" for subsidies.  Please, as others have asked; what are the specific subsidies going to the electric utility industry for fossil fuels?  Do you mean business expenses/deductions?  Or is it the R&E credit, bonus depreciation, or other legislation that is not industry specific?  All of these "subsidies" are available to all corporations that meet the requirements as stated in the IRC and regulations, irregardless of industry.  It is disingenuous to state that certain industries are subsidized when the tax rules apply to a wide swath of the business community.  No doubt, there are direct subsidies out there and green energy is one of them but so is ethanol which has proven to negatively impact our economy and food supply.  Politicians too often work to their own interests and those of their strongest lobbyists to retain power and not for the good of their constituents or the country.  Free market is not about greed for most who believe in it but it's the opportunity to take risk and receive the resulting reward or failure.  Let's level the playing field - stop the subsidies and let individuals take risks with their ideas and resources.  And get rid of the crazy tax code that is chock full of preferences for specific groups.  The article referenced by Kate is hardly unbiased posted on EcoWatch, uniting the voice of the grassroots environmental movement.  Again, what are the subsidies being used?  Lots of generalities but no specifics for actual analysis.

Utilities and integrating renewables

I received the following e-mail regarding my column above, and wanted to post it here.
Kate

Re your piece on subsidies for RE, I thought that before people go off the handle, they should know the numbers -- see the analysis at
 

What next for industry subsidies

The debate has come to the point where - I need a subsidy to be competitive with your subsidized alternative.  This is the clear signal that the first subsidy has become a distortion and is no longer leading to social benefits. Also, we may be surprised to see what other innovations arise when customers begin looking for efficiencies in the face of -true- price.

What next for industry subsidies

The debate has come to the point where "I need a subsidy to be competitive with your subsidized alternative."  This is the clear signal that the first subsidy has become a distortion and is no longer leading to social benefits. Also, we may be surprised to see what other innovations arise when customers begin looking for efficiencies in the face of "true" price.

Subsidies

With the benefit of hindsight on renewables that's turning into foresight on storage, I think the public interest would have been better served by putting less money into subsidies for building renewables and using some of the savings to fund research aimed at reducing costs and improving performance. 

That aside, promoting alternatives to fossil fuels is good public policy, even without getting into a fruitless debate over carbon.  Coal-fired generation should be subject to much stricter regulations on emissions since coal is about the dirtiest, nastiest substance on earth when burned.  Extracting natural gas poses greater health risks than the producers would have us believe, and the reserve estimates are subject to considerable uncertainty right now.  The political and environmental risks associated with extracting oil speak for themselves.  Proponents in each industry want you to believe they have the best solution and the only solution, but I think we help ourselves and your children (since I don't have any) by diversifying our sources of primary energy now rather than waiting until there is a crisis.

One more point about oil in particular that frequently gets buried in the debate.  US taxpayers fund a large share of the cost of keeping international shipping lanes open to international commerce.  At the same time, US oil purchases on the world market help prop up some of the most corrupt, unfriendly regimes on earth.  There's no common sense in borrowing money to support a military effort that ensures infettered worldwide commerce in oil while sending money to the same folks who create the threat.  The most effective weapon we can wield against these unfriendly governments is to reduce our dependence on imported oil and thereby reduce the amount of money they can use to cause trouble or buy political influence at home.  That's only going to happen by forcefully transitioning away from oil for transportation use (we've already used up most of our own oil).

Jack Ellis, Tahoe City, CA

Big difference between infrastructure subsidies

One of the comments in the article above discussed how there would be no sewage treatment plants, drinking water systems, interstate highway system etc without government subsidies.  There is a huge difference between these systems and subsidizing wind and solar power in a competitive marketplace where other companies are being put out of business or not being able to forecast their return on investment to build new power plants.  I am not aware of any competitive market to treat sewage but it must be done for the general health.  Same with drinking water systems.  Same with highway systems.  And, while these systems were built with taxpayer monies, these systems belong to various governmental entities--there is no private entity that owns and makes money off the taxpayer investment except possibly in the case of railroads--I do not know enough about the subsidies for the railroad network at this time to really comment.

In the case of wind and solar, the subsidies are making it possible for non-competitive--read more expensive--power generation technologies to undercut competing power generators who are operating entirely on their own dime.  So the subsidies are skewing a free marketplace to make it no longer a free market place--kind of like China manipulating their currency and dumping products to corner the market so they can raise prices later when competition is non-existant.  The subsidies are also causing price increases for commodities such as concrete, steel, copper, rare-earth elements, and--in the case of ethanol subisidies--foodstuffs that impact people and businesses that are not even involved in the power market except as customers--the same people the tax monies that pay the subsidies are coming from.

Please point out the active subsidies for oil and gas that are not deductions for expenses for calculating taxable income.  One of the reasons one finds oil and gas companies getting into renewables is the tax credits.  There is a big difference in my mind between a tax credit and a deduction.  A deduction represents money spent on an expense of doing business while a tax credit is a deduction one gets on the actual calculated tax owed and could actually lead to getting a payment of taxpayer money to the firm getting the tax credit.  Everyone seems to be jumping on the oil and gas industry pretty hard because they make big profits--however, from what I understand the profit margins for the oil and gas industry run about 7 to 8%.  Now, their total unadjusted income is huge.  A small percentage of a huge number is still a pretty big number.  Why don't we focus awhile on GE who also made big profits but did not pay any tax.  Anyone equating deductions from income for tax calculations to tax credits is being disingenuous.

I read a paper done by someone in the Netherlands that indicated the heavy investment in wind might actually have increased carbon dioxide emissions by about 3%.  If I can locate it again I will forward it to Ms. Rowland.  Then there is the study done by an economist at the King Juan Carlos University that concluded the heavy investment Spain had done into renewables had actually cost 2.2 jobs for every single green job created.

There seemed to be an implication of duplicity in the mention of the anonymous commenter taking up the "anti-green-subsidy flag" early in the article.  That commenter is me.  Maybe my stance is a bit harsh kind of like a former alcoholic who has become a tee-totaler.  Originally, I believed in the green energy push only to find it is a runaround.  I would agree with forgiving green facilities only from property taxes, sales taxes, and even income taxes--but not giving companies who already have other profitable businesses payments of taxpayer money or breaks from taxes for their profitable business activities or cash grants.

This is my personal viewpoint of the issues.  As for its connection to integrating renewables--the connection to the original article is that we would not be jumping through hoops spending time and money which will come from taxpayers or ratepayers if there were no subsidies for wind and solar.

Mark Byron Wooldridge, PE

green energy subsidies

Nice article Katie, very thoughtful and informative. I might add to the discussion that citizens have spoken: they want green energy and sustainably produced electricity. How do I know this? Over 30 states have passed renewable portfolio standards mandating that utilities ramp up their mix of energy generation to include sustainable sources like wind and solar. And over 1000 mayors have signed the US Mayors Climate Protection Agreement representing millions of US Citizens which commits cities to doing more for efficiency and purchasing sustainable sources of energy. These state and local efforts are happening because the US is unable to pass a national energy policy.  Government must respond to citizen demands, and that means figuring out how to affordably produce wind and solar energy through R&D. R&D requires government subsidies to have a fighting chance since as your article outlines, the mature fossil fuel industry receives the vast amount of subsidies. No new industry can compete with not only a very profitable mature industry, but indeed, a heavily subsidized mature industry.